<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
------------------
OR
[ ] 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 0-07428
-------
ADAPTIVE BROADBAND CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-1668412
(State or other jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or organization)
1143 Borregas Avenue
Sunnyvale, California 94089
(Address of principal executive offices)
(Zip Code)
(408) 732-4000
(Registrant's telephone number, including area code)
(Former name, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Classes Outstanding October 27, 2000
------- ----------------------------
<S> <C>
Common Stock $.10 Par Value (and related share purchase rights) 37,695,000
</TABLE>
-1-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ADAPTIVE BROADBAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
Revenue $ 24,209 $ 1,102
Costs of revenue 16,854 1,370
---------------- ----------------
Gross margin 7,355 (268)
Expenses
Research and development 4,951 2,090
Sales, marketing and administration 7,627 4,710
Amortization of intangible assets 106 75
---------------- ----------------
Total expenses 12,684 6,875
---------------- ----------------
Operating loss (5,329) (7,143)
Interest income (expense), net 1,612 (291)
Gain on disposal of investments 7,853 -
---------------- ----------------
Income (loss) from continuing operations before income
taxes 4,136 (7,434)
Income tax provision (benefit) 1,489 (2,676)
---------------- ----------------
Income (loss) from continuing operations 2,647 (4,758)
Discontinued operations
Income from discontinued operations,
net of income taxes - 895
Loss on disposal, net of income taxes (960) -
---------------- ----------------
(960) 895
---------------- ----------------
Net Income (Loss) $ 1,687 $ (3,863)
================ ================
Basic earnings (loss) per share
Income (loss) from continuing operations $ 0.07 $ (0.16)
Income (loss) from discontinued operations (0.03) 0.03
---------------- ----------------
Net Income (Loss) $ 0.04 $ (0.13)
================ ================
Weighted average common shares used in computing
basic earnings (loss) per share 37,597 29,439
Diluted earnings (loss) per share
Income (loss) from continuing operations $ 0.07 $ (0.16)
Income (loss) from discontinued operations (0.03) 0.03
---------------- ----------------
Net Income (Loss) $ 0.04 $ (0.13)
================ ================
Weighted average common shares used in computing
diluted earnings (loss) per share 39,080 29,439
</TABLE>
-2-
<PAGE>
ADAPTIVE BROADBAND CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, 2000 June 30, 2000
------------------ -------------
<S> <C> <C>
Assets
------
Current assets
Cash and cash equivalents $ 120,345 $ 16,486
Accounts receivable, net 27,102 16,312
Inventories 4,613 14,870
Deferred income taxes - current 6,693 6,839
Prepaid expenses and other current assets 1,672 2,124
Net current assets of discontinued operations - 64,259
------------------ -------------
Total current assets 160,425 120,890
------------------ -------------
Property, plant and equipment, net 10,180 9,994
Deferred tax assets - non current 14,235 14,235
Intangible assets, net 2,837 2,943
Other assets 2,502 3,765
Net long-term assets of discontinued operations - 47,021
------------------ -------------
$ 190,179 $ 198,848
================== =============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities
Accounts payable $ 7,167 $ 9,664
Accrued liabilities 27,844 38,122
------------------ -------------
Total current liabilities 35,011 47,786
------------------ -------------
Long-term liabilities - -
Shareholders' equity
Common stock 3,764 3,749
Capital in excess of par value 155,611 153,060
Accumulative other comprehensive loss (147) -
Retained deficit (4,060) (5,747)
------------------ -------------
Total shareholders' equity 155,168 151,062
------------------ -------------
$ 190,179 $ 198,848
================== =============
</TABLE>
-3-
<PAGE>
ADAPTIVE BROADBAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Month Ended
September 30,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Operating activities:
Income (loss) from continuing operations $ 2,647 $ (4,758)
Adjustments to reconcile to net cash
used in operating activities:
Gain on disposal of investments (7,853) -
Depreciation and amortization 1,189 198
Deferred income taxes 1,489 (2,676)
Net effect of change in:
Accounts receivable (10,790) -
Inventories 10,257 116
Prepaid expenses and other assets (788) (123)
Accounts payable (2,497) (853)
Other accrued liabilities (12,089) (1,172)
-------------- --------------
Net cash used in continuing operations (18,435) (9,268)
-------------- --------------
Investing activities:
Capital expenditures (1,269) (486)
Proceeds from sale of discontinued operations, net 109,966 -
Proceeds from sale of investments 10,356 -
-------------- --------------
Net cash provided by (used in) continuing operations investing activities 119,053 (486)
Net cash provided by (used in) discontinued operations activities 1,314 (9,021)
-------------- --------------
Net cash provided by (used in) investing activities 120,367 (9,507)
-------------- --------------
Financing activities:
Proceeds from issuance of common stock 2,074 4,882
Purchase of treasury stock - (3,321)
-------------- --------------
Net cash provided by financing activities 2,074 1,561
-------------- --------------
Net increase (decrease) in cash and cash equivalents 104,006 (17,214)
Effect of exchange rate changes on cash (147) -
Cash and cash equivalents at beginning of period 16,486 48,887
-------------- --------------
Cash and cash equivalents at end of period $ 120,345 $ 31,673
============== ==============
Supplemental cash flow information:
Cash paid during the period for:
Interest $ 137 $ 418
Income taxes 9 864
</TABLE>
-4-
<PAGE>
ADAPTIVE BROADBAND CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1. Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts
of Adaptive Broadband Corporation and its subsidiaries (the Company). All
significant intercompany balances and transactions have been eliminated.
Certain prior year amounts have been reclassified to conform to the current year
presentation. These unaudited condensed consolidated financial statements
include all adjustments (consisting only of normal recurring adjustments) which,
in the opinion of management, are necessary to fairly state the financial
position, results of operations and cash flows for the periods presented.
Interim results are not necessarily indicative of results for a full year. The
condensed consolidated interim financial statements should be read in
conjunction with the audited consolidated financial statements for the year
ended June 30, 2000, included in the Adaptive Broadband 2000 Annual Report to
Shareholders.
Note 2. Earnings Per Share
A reconciliation of the shares used in the computation of the Company's basic
and diluted earnings per common share is as follows:
<TABLE>
<CAPTION>
Three months ended September 30,
---------------------------------------------
<S> <C> <C>
(Shares in thousands) 2000 1999
--------------------- --------------------- --------------------
Weighted average common shares outstanding 37,597 29,439
Diluted effect of employee stock options 1,483 0*
--------------------- --------------------
Weighted average common shares outstanding,
assuming dilution 39,080 29,439
===================== ====================
</TABLE>
* Excluded as the effect was anti-diluted.
Note 3. Comprehensive Income (Loss)
Comprehensive income (loss) for the three months ended September 30, 2000 and
1999 is summarized below:
<TABLE>
<CAPTION>
Three months ended September 30,
----------------------------------------------
<S> <C> <C>
(Dollars in thousands) 2000 1999
---------------------- ------------------- -----------------------
Net income (loss) $1,687 $(3,863)
Foreign currency translation adjustments (147) -
------------------ -----------------------
Comprehensive income (loss) $1,540 $(3,863)
================== =======================
</TABLE>
Note 4. Segment Reporting
The Company operates in one operating segment: the design, development,
manufacturing, marketing and selling of broadband wireless communication
systems.
Note 5. Discontinued Operations
In order to focus on the high-growth wireless broadband access market, in July
2000, the Company sold its EFData Satellite Products Division (EFData),
Microwave Data Systems Division (MDS) and Microwave Radio Communications
Division (MRC). The operating results and financial position of these three
divisions have been classified as discontinued operations for all periods
presented in the financial statements.
The Company recorded an estimated loss of $8.3 million (net of income taxes) on
disposal of the three divisions in the quarter ended June 30, 2000. In the
quarter ended September 30, 2000, the Company accrued an additional $1 million
loss (net of income taxes) for final transaction related expenses. Final
accounting for the MRC division is subject to completion of the post-closing
procedures provided for in the MRC purchase agreement. The Company has been
monitoring and has accrued for transaction costs related to the sales that may
occur in the post-closing procedures and believes that the completion of these
procedures will not have a material impact on its financial position, results of
operations, or cash flows.
In April 1999, the Company completed the sale of its Government Division to
Northrop Grumman Corporation (Northrop Grumman) for $93 million in cash, for a
net gain of approximately $36 million (net of income taxes). The Government
Division provided specialized products and services principally in the areas of
communications, reconnaissance, and surveillance systems used in low-altitude
airplanes. The Government Division sale price includes up to an additional $5
million cash payment, contingent upon the future performance of the divested
business. Northrop Grumman has notified the Company that Northrop Grumman
believes there is no basis for any contingent future payment. The Company has
not recognized any benefit for this contingent future payment. Final accounting
for the Government Division is subject to completion of the post-closing
procedures provided for in the Northrop Grumman agreement. The Company has
accrued for future price adjustments that may occur in the post-closing
procedures for the Government Division divestiture. At September 30, 2000, the
discontinued operations
-5-
<PAGE>
reserve for the Government Division divestiture was $3.2 million. The Company
believes that the completion of these procedures will not have a material impact
on the Company's financial position, results of operations, or cash flows.
In July 1999, Northrop Grumman filed a lawsuit against Adaptive Broadband
alleging that the Company failed to disclose certain events and information as
required by the terms of the agreement pursuant to which Northrop Grumman
acquired the Government Division of the Company in April 1999. No damages have
been specified. In September 1999, Adaptive Broadband filed a cross-complaint
against Northrop Grumman seeking to recover in excess of $3.7 million, which
represents the amount that the Company contends Northrop Grumman appropriated
from its bank accounts following the acquisition. The company believes that it
has strong defenses and counterclaims and plans to vigorously defend the lawsuit
filed by Northrop Grumman and to pursue its counterclaims. No provisions have
been made for expenses that may be incurred to resolve the lawsuit, and Adaptive
Broadband believes final resolution of the Northrop Grumman allegations will not
have a material impact on its financial position, results of operations, or cash
flows.
Note 6. Inventories
Inventories are stated at the lower of cost (which approximates first-in, first-
out) or market and consist primarily of finished goods.
Note 7. Intangible Assets of Business Acquired
For acquisitions accounted for under the purchase method, the excess purchase
price over the fair value of net tangible assets acquired is allocated to
intangible assets based on fair value. The carrying value of the intangible
assets is reviewed if the facts and circumstances suggest that the asset may be
impaired. If this review indicates that the intangible assets are not
recoverable, the carrying value is reduced appropriately. The following table
summarizes net intangible assets of the acquired business:
<TABLE>
<CAPTION>
Amortization
(Dollars in thousands) Period September 30, 2000 June 30, 2000
---------------------- ------------ ----------------------------------------------
<S> <C> <C> <C>
Goodwill 10 years $3,138 $3,138
Assembled workforce 4 years 440 440
Accumulated amortization (741) (635)
----------------------------------------------
$2,837 $2,943
==============================================
</TABLE>
Note 8. Borrowing Arrangements
In March 2000, the Company entered into a secured revolving credit facility with
available credit of $25 million that expires in March 2003. The annual
commitment fee on the unused portion of the facility and the interest rate for
borrowings vary based upon the Company's ratio of funded debt to earnings before
interest, amortization and taxes, with the maximum commitment fee set at 0.25%
and the maximum borrowing rate set at the bank's prime rate plus 0.5%. The
maximum borrowing rate was 10% at September 30, 2000. The net borrowing
capacity under the Company's credit facility was $25 million as of September 30,
2000.
Note 9. Shareholders' Equity
On October 6, 1998, the Company announced that its Board of Directors had
increased the number of shares of common stock authorized for repurchase to
twelve million. During the three months ended September 30, 1999, the Company
acquired 252,500 shares of common stock for $3.3 million. Total shares
repurchased to date was approximately 5.6 million under the authorized common
stock repurchase plan. The Company is not currently repurchasing shares on an
active basis.
On March 13, 2000, the Company's shareholders approved an increase in the
authorized number of common shares from 29.2 million to 249.2 million shares.
These additional shares may be used in the future, for example, to: declare
stock-splits, raise additional capital, provide equity incentives to employees,
officers or directors, establish strategic relationships with other companies
and expand the company's business or product lines through the acquisition of
other businesses or products. Approximate 18.7 million of these shares were used
in connection with the stock dividend in March 2000. The March 2000 stock
dividend has been reflected in these financial statements on a retroactive basis
for all periods presented.
The following table summarizes the shareholders' equity for the three months
ended September 30, 2000:
<TABLE>
<CAPTION>
Accumulative
Capital in other Total Share-
Shares excess of comprehensive Retained holders'
(Dollars in thousands) issued Amount par value loss earnings equity
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 2000 37,489,615 $3,749 $153,060 $ - $(5,747) $151,062
Common stock issued for
stock option and stock
purchase plans 150,531 15 2,551 2,566
Currency translation adjustment (147) (147)
Net income 1,687 1,687
--------------------------------------------------------------------------------------------
Balance at September 30, 2000 37,640,146 $3,764 $155,611 $(147) $(4,060) $155,168
============================================================================================
</TABLE>
Note 10. Shareholder Rights
-6-
<PAGE>
In July 1999, upon the expiration of the Company's current stockholder rights
plan, the Board of Directors approved the adoption of a new three-year
Stockholder Rights Plan under which all stockholders of record as of July 26,
1999, will receive rights to purchase shares of common stock. The rights will
be distributed as a non-taxable dividend and will expire on June 30, 2002. The
rights also will be exercisable only if a person or a group acquires 20% or
more of the Company's common stock or announces a tender offer for 50% or more
of the common stock. In October 1999, the stockholders of the Company approved
an amendment to the Company's certificate of incorporation adding a
stockholder-friendly "chewable" feature for the Stockholder Rights Plan. This
chewable feature requires the Company to redeem or otherwise make the
Stockholder Rights Plan inapplicable if the Company receives certain types of
acquisition proposals and the stockholders vote to require it to do so. Also,
the stockholders of the Company approved the use of preferred stock in
connection with the Stockholder Rights Plan instead of common stock.
Note 11. Income Taxes
At September 30, 2000, the Company had net deferred tax assets of $20.9 million,
after a valuation allowance of $65.1 million and deferred tax liabilities of
$0.2 million. Realization of the majority of the net deferred tax assets is
dependent on the Company's ability to generate approximately $52.3 million of
future United States taxable income. Of the valuation allowance, $59.4 million
represents future stock deductions that will be credited to additional paid-in
capital when realized. Management evaluates the realizability of the deferred
tax assets quarterly and assesses the need for additional valuation allowance.
Note 12. Contingent Liabilities
The Company is subject to legal proceedings and claims that arise in the normal
course of its business. The Company believes these proceedings will not have a
material adverse effect on the financial position, results of operations or cash
flows of the Company.
Note 13. New Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS
133), "Accounting for Derivative Instruments and Hedging Activities." The
adoption of SFAS 133 has no material impact on our financial position, results
of operations and cash flows.
The Company adopted FASB Interpretation No. 44 (FIN 44), "Accounting for Certain
Transactions Involving Stock Compensation--an Interpretation of APB Opinion No.
25." The adoption of FIN 44 has no material impact on our financial position,
results of operations and cash flows.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB
101 summarizes certain of the SEC Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. SAB 101 is
required to be adopted by December 31, 2000. We are currently evaluating the
impact of SAB 101. Based on presently available guidance, we do not anticipate
the adoption of SAB 101 to have any material impact on our financial position,
results of operations and cash flows.
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Statements made below and in the Adaptive Broadband Corporations 2000 Annual
Report to Shareholders contain forward-looking statements that involve risks and
uncertainties, including statements regarding our markets, the ability to be a
leader in our markets and to achieve our growth objectives, the future of
network computing, data communications and broadcasting and other matters, as
well as statements about the results of litigation or disputes, the results of
post-closing procedures in connection with discontinued operations sale
agreements, product mix and international operations, the effect of new
accounting pronouncements, the realization of certain tax assets, adequacy of
funds for the foreseeable future and expectations for fiscal year 2001 and
beyond. Words such as "believes," "anticipates," "expects," "intends," and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying such statements. You should not place
undue reliance on these forward-looking statements. These statements reflect
management's analysis only as of the date thereof, and we assume no obligation
to update these statements. Actual events or results may differ materially from
the events or results discussed in the forward-looking statements. Factors that
could cause our actual results to differ materially from these forward-looking
statements include, but are not limited to, the level of demand for products,
competition, new product introductions by competitors, the pace of market
acceptance of our new products, our ability to participate and respond to rapid
technological change, challenges in implementing the plan to divest our legacy
businesses, availability of qualified personnel, risks related to international
sales, delays in the receipt of orders or in the shipment of products, changes
in demand for products, cost overruns, foreign currency exchange rate
fluctuations, timely availability of supply of components, dependence on major
orders from a small number of customers, limitations on our ability to reduce
inventory and expenses if forecasts and expected demand are not realized,
general economic conditions, and whether our claims and defenses in litigation
and disputes are viewed as meritorious. For a more detailed discussion of these
and other factors, see " Information Regarding Forward Looking Statements " in
our Annual Report on Form 10-K for the fiscal year ended June 30, 2000, and in
our Consolidated Financial Statements and Notes to Consolidated Financial
Statements. The Consolidated Financial Statements should be read in conjunction
with this Management's Discussion and Analysis of Financial Conditions and
Results of Operations.
In order to focus on the high-growth wireless broadband access market, in July
2000, we sold the EFData Satellite Products Division (EFData), the
Microwave Data Systems Division (MDS) and the Microwave Radio Communications
Division (MRC). The operating results and financial position of these three
divisions have been classified as discontinued operations for all periods
presented in the financial statements. See Note 5 - Discontinued Operations, of
Notes to Condensed Consolidated Financial Statements for further discussion.
Share amounts and related information have been restated to reflect our stock-
split in the form of a two for one common stock dividend paid on March 30, 2000.
RESULTS OF OPERATIONS
Overview
We are a supplier of data communications transmission equipment that is
developing leading-edge technology for the deployment of broadband wireless
communications over the Internet. Our AB-AccessTM fixed wireless broadband
system (AB-Access) provides a high-speed means to bridge the "last mile" for
business and residential subscribers by replacing or supplementing the
traditional telephone company local loop. It offers two-way data transmission
at rates up to 25 Mbps, which provides the capability for real-time video
conferencing, voice, transmission of full streaming video, web surfing, and
transmission of data files - all simultaneously and over one connection.
Following the successful field trials of AB-Access technology, we began to ship
AB-Access products to customers in the first quarter of fiscal year 2000. As of
September 30, 2000, we have generated over $1.5 billion of contracted five-year
demand for the AB-Access product. These contracts generally required twelve-
month rolling forecasts of product purchases, including penalty provisions in
the event of a purchase order cancellation. Solectron Corporation (Solectron)
has been contracted to manufacture the AB-Access product line with the goal of
lowering per unit product costs as a result of manufacturing economies of scale.
Since our acquisition of Adaptive Broadband Limited (ABL) in August 1998, our
operating activities have related primarily to developing a research and
development organization, testing prototype designs and commencing the staffing
of our sales, marketing, field services, and technical support organizations.
We have incurred operating losses due to our investments in research and
development, as well as sales and marketing of the AB-Access technology and
product offerings. The substantial increase in our operating expenses over the
same period a year ago was primarily due to our organizational expansion to
provide support for the growth of our business.
For the quarter ended September 30, 2000, excluding a $7.9 million pre-tax gain
on investments, we reported a net loss from continuing operations, which reflect
solely the results of the AB-Access wireless broadband business, of $2.4
million, or $.06 per share, compared to a loss of $4.8 million, or $0.16 per
share, for the same quarter a year ago.
Revenue
-8-
<PAGE>
Revenue was $24.2 million for the quarter ended September 30, 2000, representing
a $23.1 million increase from $1.1 million for the same period a year ago, which
was the first quarter for shipments of AB-Access products. Revenue also
increased from the quarter ended June 30, 2000 of $17.1 million, representing a
42% sequential growth. The increase is mainly due to increased market demand
and manufacturing volume. We added 22 new customers to our active customer list
during the quarter ending September 30, 2000, bringing number of total customers
to 63.
The majority of our bookings and revenue were domestic; however, as we expand
our product offerings to other frequency ranges useable in foreign countries,
international revenue could increase significantly in the future. For the
quarter ended September 30, 2000, international revenue accounted for
approximately 18% of our total revenue. Currently, all of our international
revenue is denominated in U.S. dollars. For the quarter ended September 30,
2000, three customers each accounted for 10% or more of our revenue and all
three combined accounted for 76% of revenue.
We generally record bookings for new orders received if the product will be
shipped to the customer within twelve months. New orders booked were $30.0
million for the quarter ended September 30, 2000, compared to bookings of $12.5
million for the same quarter a year ago. Backlog at September 30, 2000 was
$72.4 million.
Gross Margin
As a percentage of revenue, our gross margin was 30% for the quarter ended
September 30, 2000, compared with (24%) for the same quarter a year ago, and 15%
for the quarter ended June 30, 2000. The significant improvement in our gross
margin is largely attributable to increased efficiency on higher volume
production, better manufacturing capacity utilization, as well as transition to
manufacturing lower-cost ASIC (Application Specific Integrated Circuit) chips
for the AB-Access product platform. The ASIC chip replaces four other high-
cost chips, thus reducing the cost of the AB-Access product.
Operating Expenses
Research and development expenses for continuing operations were $5.0 million
and $2.1 million for the quarter ended September 30, 2000 and 1999. The
increase in research and development expenses was mainly attributable to an
increase in research and development personnel and outside consultants, as well
as prototype charges for developing technology for products in multiple
frequency bands for both the domestic and international markets. We believe
that the continual and rapid introduction of new products and technologies is
critical to sustaining growth within our current and future target markets, and
we expect to continue to commit substantial resources to product development and
engineering in future periods. In addition, we may consider acquiring
additional technologies complementary to our business through strategic
acquisitions.
Sales, marketing and administrative expenses for continuing operations were $7.6
million and $4.7 million for the quarter ended September 30, 2000 and 1999. The
increase was primarily due to the expansion in our sales and marketing staffing
to support the growing level of bid and proposal activities for the new AB-
Access products, increased sales commissions associated with generating AB-
Access revenue, and increased promotional and product marketing expenses. We
believe that continued investment in sales and marketing is critical to our
success and expect these expenses to increase in the future.
The amortization of intangible assets, which consist of assembled workforce and
goodwill associated with the acquisition of ABL, was $0.1 million for the
quarters ended September 30, 2000 and 1999.
Interest Income (Expense) and Other
Net interest income (expense) was $1.6 million and ($0.3) million for the
quarter ended September 30, 2000 and 1999. The higher interest income in the
quarter ended September 30, 2000 was primarily due to interest earned on higher
average cash balances resulting from the sales proceeds of our discontinued
operations and of our investments. In addition, interest expense was lowered due
to the conversion of our $57.5 million 5.25% subordinated notes into common
stock, and the payoff of our credit facility in the quarter ended December 30,
1999.
During the quarter ended September 30, 2000, we collected approximately $10.4
million of cash proceeds from the sale of our interests in Astro Terra
Corporation, a laser communications technology company and recorded a gain of
$7.9 million on the sale, net of loss on disposition of other investments.
Provision for Income Taxes
The income tax provision (benefit) from continuing operations was $1.5 million
and ($2.7) million for the three months ended September 30, 2000 and 1999. The
effective income tax rate for the three months ended September 30, 2000 and 1999
was consistent at 36%.
Discontinued Operations
In July 2000, we sold the EFData Satellite Products Division (EFData), the
Microwave Data Systems Division (MDS) and the Microwave Radio Communications
Division (MRC). We recorded an estimated loss of $8.3 million (net of income
taxes) on disposal of the three divisions in the quarter ended June 30, 2000. In
the quarter ended September 30, 2000, we accrued an additional $1 million loss
(net of taxes) for final transaction related expenses. Final accounting for the
MRC division is subject to completion of the post-closing procedures
-9-
<PAGE>
provided for in the MRC purchase agreement. We have been monitoring and have
accrued for transaction costs related to the sales that may occur in the post-
closing procedures. We believe that the completion of these procedures will not
have a material impact on our financial position, results of operations, or cash
flows.
In April 1999, we completed the sale of our Government Division to Northrop
Grumman Corporation (Northrop Grumman) for $93 million in cash, for a net gain
of approximately $36 million (net of income taxes). The Government Division
provided specialized products and services principally in the areas of
communications, reconnaissance, and surveillance systems used in low-altitude
airplanes. The Government Division sale price includes up to an additional $5
million cash payment, contingent upon the future performance of the divested
business. Northrop Grumman has notified us that Northrop Grumman believes there
is no basis for any contingent future payment. We have not recognized any
benefit for this contingent future payment. Final accounting for the Government
Division is subject to completion of the post-closing procedures provided for in
the Northrop Grumman agreement. We have accrued for future price adjustments
that may occur in the post-closing procedures for the Government Division
divestiture. At September 30, 2000, the discontinued operations reserve for the
Government Division divestiture was $3.2 million. We believe that the
completion of these procedures will not have a material impact on our financial
position, results of operations, or cash flows.
In July 1999, Northrop Grumman filed a lawsuit against us alleging that we
failed to disclose certain events and information as required by the terms of
the agreement pursuant to which Northrop Grumman acquired the Government
Division of the Company in April 1999. No damages have been specified. In
September 1999, we filed a cross-complaint against Northrop Grumman seeking to
recover in excess of $3.7 million, which represents the amount that we contend
Northrop Grumman appropriated from our bank accounts following the acquisition.
We believe that we have strong defenses and counterclaims and plan to vigorously
defend the lawsuit filed by Northrop Grumman and to pursue our counterclaims. No
provisions have been made for expenses that may be incurred to resolve the
lawsuit, and we believe final resolution of the Northrop Grumman allegations
will not have a material impact on our financial position, results of
operations, or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, our net working capital was $125.4 million, which
included $120.3 million of cash and cash equivalents, as compared to net working
capital of $73.1 million, which included cash and cash equivalents of $16.5
million, at June 30, 2000. The increase in cash and cash equivalents was
primarily due to proceeds from the sale of discontinued operations and
investments, offset by cash used for continuing operations.
For the three months ended September 30, 2000, we used $18.4 million of cash for
continuing operating activities, primarily due to a loss from operations, an
increase in accounts receivable of $10.8 million and a decrease in accounts
payable and other accrued liability of $14.5 million, offset by a decrease in
inventory of $10.3 million. For the same period in the prior year, we used $9.3
million of cash for continuing operating activities, primarily due to a loss
from operations and a decrease in accounts payable and other accrued liability
of $2.0 million.
For the three months ended September 30, 2000, we collected $120.4 million of
cash from investing activities, including proceeds from the sale of discontinued
operations for $110.0 million, proceeds from the sale of technology investment
for $10.4 million, offset by $1.3 million used for capital expenditures. For
the same period in the prior year, we used $0.5 million for capital expenditures
and $9.0 million for discontinued operations.
For the three months ended September 30, 2000 and 1999, we received $2.1 million
and $4.9 million cash from the sale of common stock under our stock option and
stock purchase plans. During the quarter ended September 30, 1999, we acquired
252,500 shares of our common stock for $3.3 million, bringing the total shares
repurchased to approximately 5.6 million shares under the board of directors
authorized twelve million share common stock repurchase plan. The Company is not
currently repurchasing shares on an active basis.
In March 2000, we entered into a secured revolving credit facility with
available credit of $25 million that expires in March 2003. The annual
commitment fee on the unused portion of the facility and the interest rate for
borrowings vary based upon our ratio of funded debt to earnings before interest,
amortization and taxes, with the maximum commitment fee set at 0.25% and the
maximum borrowing rate set at the bank's prime rate plus 0.5%. The maximum
borrowing rate was 10.0% at September 30, 2000. The net borrowing capacity
under our credit facility was $25 million as of September 30, 2000.
We believe that our current cash position, funds generated from operations and
available credit facility, will be adequate to meet our requirements for working
capital, capital expenditures for the foreseeable future.
Item 3. Quantitative and Qualitative Disclosure about Market Risks
Market risk disclosures set forth in our 2000 Annual Report to Shareholders have
not changed significantly.
-10-
<PAGE>
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
In July 1999, Northrop Grumman filed a lawsuit against Adaptive Broadband
alleging that the Company failed to disclose certain events and information as
required by the terms of the agreement pursuant to which Northrop Grumman
acquired the Government Division of the Company in April 1999. No damages have
been specified. In September 1999, Adaptive Broadband filed a cross-complaint
against Northrop Grumman seeking to recover in excess of $3.7 million, which
represents the amount that the Company contends Northrop Grumman appropriated
from its bank accounts following the acquisition. The company believes that it
has strong defenses and counterclaims and plans to vigorously defend the lawsuit
filed by Northrop Grumman and to pursue its counterclaims. No provisions have
been made for expenses that may be incurred to resolve the lawsuit, and Adaptive
Broadband believes final resolution of the Northrop Grumman allegations will not
have a material impact on its financial position, results of operations, or cash
flows.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the registrant held on October 25, 2000
the shareholders
1. Elected 5 directors to hold office until the next Annual Meeting of
Shareholders.
For Against
--- -------
Frederick D. Lawrence 33,687,864 587,747
Leslie G. Denend 33,708,359 567,252
James C. Granger 33,705,909 569,702
William L. Martin III 33,706,470 569,141
James T. Richardson 33,703,910 571,701
2. Approved amendments to the Company's 1992 Stock Option Plan.
For Against Abstain Non-Vote
--- ------- ------- --------
19,974,859 1,902,820 101,949 12,295,983
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on July 25, 2000, relating to
Sale of Assets to Comtech Tele-communications Corp.
The Company filed a Current Report on Form 8-K on August 10, 2000, relating to
Sale of Assets to Vislink PLC.
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ADAPTIVE BROADBAND CORPORATION
(Registrant)
November 3, 2000 BY /s/ Donna S. Birks
--------------------- ------------------------------
Date Donna S. Birks
Executive Vice President
Chief Financial Officer
-12-
