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Previous: ANDREW CORP, 10-K405, 1999-12-21 |
Next: ANDREW CORP, 10-K405, 1999-12-21 |
EXHIBIT 13
Results of Operations
Fiscal year 1999 financial results were disappointing due to pricing pressure, volatile economies and customer spending patterns. Sales in 1999 were $791.8 million, 7.2% below 1998 results. Net income per share, excluding restructuring costs, declined 39.8% to $0.71, falling faster than sales due mainly to pricing and product mix. As 1999 progressed, customer spending rebounded and troubled economic regions such as Southeast Asia and Brazil began to stabilize. However, price erosion continued. In response, the company initiated a restructuring plan and accelerated research and development and acquisition activity designed to fuel future revenue and earnings growth.
In March 1999, the company initiated a plan to restructure the manufacturing operations of its towers and wireless accessories business, phase out of its AVS small aperture earth station product line and divest itself of its SciComm government electronics business. In connection with these restructuring activities, the company recognized pre-tax charges of $36.7 million in the second quarter. On an after-tax basis, restructuring charges were $28.1 million, or $0.34 per share. While these steps negatively impacted 1999 results, they allow the company to increase its focus on the growing wireless markets and further enhance long-term growth opportunities.
Sales declined $61.1 million or 7.2% in 1999 to $791.8 million from $852.9 million in 1998. International sales decreased 2.7% to $409.2 million in 1999 compared with $420.4 million in 1998 and $414.7 million in 1997. International sales represented 51.7% of revenue in 1999, 49.3% in 1998 and 47.7% in 1997.
The company's sales trends are most influenced by the wireless infrastructure market, which accounts for 67% of total sales. In 1999, wireless infrastructure sales decreased 8.5%. Sales were up in Europe and up strongly in China, but were more than offset by slower customer spending for new cell sites in the United States and continued price erosion. Fixed telecommunication network sales decreased 1.6%. A significant increase in equipment building sales to U.S. fiber optic network providers was not enough to offset lower pricing and lower spending on traditional microwave networks in international markets. Sales to the broadcast and government markets decreased 3.2% due mainly to a weak government market. Wireless accessories unit volume grew strongly driven by wireless subscriber growth and market share gains. However, unit volume growth was more than offset by significant price declines and the company's exit from the European market, bringing overall wireless accessories sales down 11.6%.
From a product standpoint in 1999, coaxial cable sales decreased 14.0%, terrestrial microwave systems increased 1.5%, other products and services increased 7.5% and wireless accessories decreased 11.6%. In 1998, coaxial cable sales increased 4.1%, while terrestrial microwave systems, other products and services and wireless accessories declined 3.4%, 14.0% and 7.2%, respectively.
Cost of products sold was 68.2% of revenue in 1999 compared to 61.2% in 1998 and 59.1% in 1997. The increase in 1999 was due mainly to pricing concessions required by competitive wireless market conditions. The decrease in gross margin was also caused by unfavorable product mix. Sales of higher margin cable products decreased, and sales of certain lower margin products such as equipment buildings increased significantly. This was partially offset by the benefits of higher unit volumes and productivity improvements. Also contributing to the increase in product cost in 1999 was the classification of $6.9 million of the $36.7 million pre-tax restructuring charges as cost of products sold. In 1998, increased price pressures, particularly for coaxial cable, and lower volumes in the towers business contributed to the growth in cost of products sold as a percentage of revenue. This was partially offset by positive contributions from product mix and efficiency improvements over 1997.
Research and development expenditures increased $3.8 million or 14.8% to $29.6 million in 1999. As a percentage of sales revenue, research and development expenses were 3.7%, 3.0% and 4.7% in 1999, 1998 and 1997, respectively. The increase in 1999 was the result of accelerated efforts to develop additional products and move into new markets. The decline in 1998 was primarily due to the phase-out of the company's fiber optic sensors and global messaging development activities.
Sales and administrative expenses in 1999 were $144.3 million, basically unchanged from 1998. As a percentage of sales revenue, selling and administrative expenses increased to 18.2%, compared with 17.0% in 1998 and 16.8% in 1997. Decreases in payroll and related costs were offset by increases in expense related to the company's management information systems.
Other income and expense in 1999 resulted in income of $1.3 million, compared to an expense of $2.5 million in 1998 and income of $2.0 million in 1997. Other income and expense is primarily comprised of net interest income or expense and foreign exchange gains or losses. Net interest income was $4.9 million in 1999 and $1.5 million in 1998, compared to net interest expense of $0.9 million in 1997. The increase of $3.4 million in 1999 was due to interest earned on advances to the company's joint ventures in Russia. Net other income was $3.6 million in 1999, compared to $4.0 million in 1998 and net other income of $2.9 million in 1997. The year over year fluctuations in net other income and expense were primarily driven by changes in foreign exchange gains and losses.
Income from continuing operations declined 70.7% to $30.4 million in 1999, compared, with $103.8 million in 1998 and $107.8 million in 1997. The largest portion of this decrease can be attributed to the after-tax impact of restructuring charges of $28.1 million. During 1999, the company's effective income tax rate for continuing operations increased to 38.1% from 34.0% in 1998 and 35.0% in 1997. The increase in the effective tax rate for 1999 was due to the inclusion of non-deductible goodwill in the restructuring charges recognized during the year. Excluding the impact of the non-deductible goodwill restructuring charges, the effective tax rate for 1999 was 32.0%. The decrease in the effective tax rate over the last three years is due to the company generating a larger percentage of its income outside of the U.S.
Liquidity
Cash and cash equivalents were $38.3 million in 1999, $78.4 million in 1998 and $93.8 million in 1997. Working capital was $303.9 million in 1999, $320.1 million in 1998 and $332.7 million in 1997. Management believes the current level of working capital will be adequate to meet the company's liquidity needs related to normal operations. The decrease in working capital in 1999 was due mainly to the company's continued common stock repurchase activities and a decrease in cash generated from operations. The decrease in working capital in 1998 was due mainly to the company's common stock repurchases through the company's stock buyback program.
During 1999, the company generated $72.8 million in cash from operations, principally from net income of $30.4 million, which included non-cash charges of $33.6 million for restructuring charges and $39.1 million for depreciation and amortization. This was offset by an increase in accounts receivable. Days sales in billed receivables increased from 70 days in 1998 to 81 days in 1999. The increase in the time required to collect receivables was partially due to the increase in international sales in countries with less favorable payment terms, such as China. In 1998, the company generated $149.9 million in cash from operations, principally from net income of $103.8 million, which included non-cash charges of $37.5 million from depreciation and amortization. Changes in accounts receivable and receivables from affiliates accounted for the remainder of the growth in cash from operations. Days sales in billed receivables increased from 67 days in 1997 to 70 days in 1998. During 1997, the company generated $151.7 million in cash from operations.
Net cash used in investing activities was $70.1 million in 1999, $64.1 million in 1998 and $61.4 million in 1997. In 1999, the company spent $51.4 million on property, plant and equipment, which included a $7.0 million increase in capital expenditures related to the company's information management systems. During 1998, the company spent $58.5 million on property, plant and equipment, which included expenditures of $8.3 million related to the construction of a cable manufacturing facility in Suzhou, China and $10.7 million related to the construction of new facilities in Texas. Capital expenditures totaled $49.1 million in 1997.
During 1999, the company spent $15.1 million on acquisitions. The company purchased the remaining 20% interest in the South African Satcom Group of companies for $1.2 million; Passive Power Products, Inc. for $4.3; manufacturing assets from Miller Building Systems, Inc. for $1.0 million and Chesapeake Microwave Technologies, Inc. for $8.6 million. In 1998, the company purchased an additional 19% interest in its Brazilian operations for $3.0 million, which brought the company's ownership percentage to 70%. No acquisitions were made in 1997.
Net cash used in financing activities was $44.7 million in 1999, $100.4 million in 1998 and $25.5 million in 1997. In November 1998, the company's Board of Directors authorized the company to repurchase an additional 5.0 million shares of its common stock. This brought the total number of shares that the company is authorized to repurchase to 15.0 million. The company repurchased 3.0 million shares for $50.5 million in 1999, 5.5 million shares for $105.4 million in 1998 and 1.5 million shares for $41.6 million in 1997, totalling 10.0 million shares for $197.5 million. Shares repurchased under this program will be held for potential future acquisitions and to meet employee compensation needs. Although the company has never paid cash dividends, the Board of Directors periodically reviews this practice and, to date, has elected to retain earnings in the business to finance future investments and operations.
The company currently maintains two revolving line of credit agreements. The first is a $50 million revolving line of credit agreement with Bank of America. During 1999, the company's Japanese operations borrowed $2.3 million on this line that remained outstanding as of September 30, 1999. The $3.8 million borrowed under this line by the company's French operations in 1998 was paid off in 1999. In 1997, the company arranged an $11.4 million line of credit agreement with ABN-AMRO for its Brazilian operations. In 1997, the company's Brazilian operations borrowed $10.7 million under this agreement to facilitate its facility expansion. During 1998 and 1999, the company refinanced and paid down this line of credit. No outstanding balance existed under this line of credit at September 30, 1999.
The company currently has $27.3 million in senior notes payable outstanding, of which $4.5 million is due within one year. In addition, the company also has a $3.8 million industrial development revenue bond outstanding, which was used to facilitate the construction of a manufacturing facility in Newnan, Georgia in 1995. This debt is due to be repaid in 2005. During 1999, the company's Chinese operations borrowed $9.6 million in local currency, of which $1.9 million is due within one year. Also during 1999, the company's Brazilian operations restructured its debt to obtain lower interest rates. Total debt from the company's Brazilian operations decreased from $17.1 million at September 30, 1998 to $13.3 million at September 30, 1999. During 1998, the company's Brazilian operations initiated a $12.0 million line of credit agreement with Bank Austria Creditanstalt, which had $5.5 million outstanding as of September 30, 1998. In 1999, this line of credit was converted into $8.8 million in long-term variable rate debt due in December of 2000. During 1998, the company entered into a loan agreement with Banco Nacional De Desenvolvimento Economico E Social for $7.0 million, the proceeds of which were used to pay down a portion of the company's outstanding line of credit with ABN-AMRO. In 1999, a portion of this loan was paid down leaving $4.5 million outstanding at September 30, 1999. Portions of this loan will be paid off annually through 2003.
Year 2000
The company continues to address its readiness for Year 2000 issues. In 1994, the company instituted a program to routinely review its computer hardware and software to increase operational efficiency. As an output from this process, the company purchased a new business system in 1994 that would not only meet the company's future business needs but was also Year 2000 compliant. The company completed implementation of this system in all major locations in April 1999. Amounts expended or to be expended on information technology systems exclusively to ensure Year 2000 compliance are not expected to be material to the company's consolidated results of operations or financial position.
Management initiated a comprehensive program to prepare the company's manufacturing and facility systems for the year 2000. The company has tested and fixed major applications such as security, environmental, desktop computers and production equipment. The company currently does not expect that any additional remediation costs will be material nor does it expect any significant interruption to its operations because of Year 2000 problems. Most of the company's products do not have Year 2000 readiness issues because they do not contain date-sensitive functions.
The company has contacted substantially all third parties with which it has significant relationships to determine the extent to which the company could be vulnerable to failure by any of them to obtain Year 2000 compliance. Some of the company's major suppliers, customers and financial institutions have confirmed that they anticipate being Year 2000 compliant on or before December 31, 1999, although many have only indicated that they have Year 2000 readiness programs. To date, the company is not aware of any significant third parties with a Year 2000 issue that could materially impact the company's operations, liquidity or capital resources. However, the company has no means of ensuring that third parties will be Year 2000 ready and the potential effect of third-party non-compliance is currently not determinable.
The company has devoted and will continue to devote the resources necessary to ensure that all Year 2000 issues are properly addressed. However, there can be no assurance that all Year 2000 problems are detected. Further, there can be no assurance that the company's assessment of its third-party vendors and suppliers will be accurate. Some of the potential worst-case scenarios that could occur include: (1) corruption of data in the company's internal systems; (2) failure of infrastructure services provided by government agencies; and (3) health, environmental and safety issues relating to the company's facilities. If any of these situations were to occur, the company's operations in certain areas could be temporarily interrupted.
These interruptions could be more severe in countries outside the U.S. where the company does a considerable amount of its business. The company has developed Year 2000 contingency plans for continuing operations in the event such problems arise. The company has operations around the world and is prepared to shift operations to different facilities if there are interruptions to operations in particular countries or regions.
RISK FACTORS
Safe Harbor for Forward-Looking Statements. We have made forward-looking statements in this annual report under "Management's Discussion and Analysis of Financial Condition and Results of Operations". In addition, other written or oral statements that constitute forward-looking statements may be made by or on behalf of the company. Although we have based these statements on the beliefs and assumptions of our management and on information currently available to them, they are subject to risks and uncertainties. We wish to ensure that such statements are accompanied by meaningful cautionary statements, so as to obtain the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. Accordingly, such statements are qualified by reference to the discussion below of certain important factors that could cause actual results to differ materially from those projected in such forward-looking statements.
We caution the reader that the list of factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict such risk factors, nor can we assess the impact, if any, of such risk factors on our business or the extent to which any factors may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, undue reliance should not be put on any forward-looking statements. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. While Andrew Corporation's management is optimistic about the company's long-term prospects, the following risks and uncertainties, among others, should be considered in evaluating its growth outlook.
Share Price Volatility. The market price of our common stock is very volatile. We believe the price fluctuates in response to changes in the company's sales, net income and cash flow; volatility in the U.S. stock market in general and in wireless equipment stocks in particular; changes in analysts' estimates; and changes in general economic conditions. We expect that the price of our common stock will fluctuate in the future, perhaps substantially.
Fluctuations in Operating Results. Historically, our quarterly and annual revenues and operating results have fluctuated. We expect similar fluctuations in the future. In addition to general economic and political conditions, the following factors affect our revenues: timing of significant customer orders; inability to forecast future revenue due to our just-in-time supply approach; changes in competitive pricing; and wide variations in profitability by product line. Since our quarterly and annual revenues and operating results vary, we believe that period-to-period comparisons are not necessarily meaningful and such comparisons should not be relied on as indicators of our future performance.
Impact of restructuring. We believe that our current restructuring efforts will generate significant cost savings. The cost savings are dependent upon the company's ability to divest the SciComm government electronic business, to outsource tower production, and to relocate the wireless accessory production to a lower cost manufacturing facility.
Intense Competition and Pricing Pressure. We consider our principal competitive factors to include product quality and performance, service and support, pricing and proprietary technology. We believe we must respond effectively to increased competitive pressure. Over the past three years, in response to aggressive pricing practices by our competitors, we have significantly lowered prices for most of our products. If we are unable to compete successfully, we may lose market share. We expect that a significant loss in market share would have a material negative effect on our business, financial condition and operating results.
Rapid Technological Change and Pressure to Develop New Products. We believe that our future success depends on our ability to effectively anticipate and respond to changes in technology, customer needs and industry standards. Failure to anticipate changes, to adapt current products, to develop and introduce new products on a timely basis, or to gain market acceptance for new products would impair our competitiveness and could have a material negative impact on our business and operating results.
International Risk. Over half of our sales are outside the United States, and in recent years we have significantly increased our international manufacturing capabilities. We anticipate that international sales will continue to represent a substantial portion of our revenues and that continued growth and profitability will require further international expansion. International business risks include currency fluctuations, tariffs and other trade barriers, longer customer payment cycles, adverse taxes, restrictions on the repatriation of earnings, compliance with local laws and regulations, political and economic instability, and difficulties in managing and staffing operations. We believe that international risk factors could materially impact our future sales, financial condition and operating results.
Ability to Attract and Retain Qualified People. We believe that our future success significantly depends on our ability to attract and retain highly qualified personnel. We cannot be sure that we will be able to attract and retain key personnel in the future. We believe our inability to do so could negatively impact our business, financial condition and operating results.
Year 2000 Compliance. We believe that our business, manufacturing and facilities systems are Year 2000 compliant. We have contacted third parties with whom we have significant relationships to determine our vulnerability to their failure to achieve Year 2000 compliance. Our failure to detect and address our own third-party Year 2000 problems could have a significant negative impact on our business, financial condition and results of operations.
Dependence on Intellectual Property Rights. Others could obtain or use our intellectual property without our permission, develop equivalent or superior technology, or claim that we have infringed on their intellectual property rights. We rely on a combination of patent, copyright, trademark and trade secret laws, and non-disclosure and non-competition agreements to protect our rights. We are dependent on our intellectual property rights as a whole; however, we do not believe that the loss of exclusivity with respect to any one right would have a significant negative impact on our business, financial condition or operating results.
Impact of Governmental Regulation. We are not directly regulated in the U.S., but most of our customers and the telecommunications industry generally are subject to Federal Communications Commission regulation. We believe that regulatory changes could have a significant negative effect on our business and operating results by restricting our customers' development efforts, making current products obsolete or increasing competition. Internationally, where many of our customers are at least partially government owned and operated entities, we also are at risk of changes in economic policy and communications regulation. In addition, our joint ventures in Russia and Mexico require telecommunications licenses, which may limit or otherwise affect the operations of the ventures.
Consolidated Statements of Income
| |
Year Ended September 30 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Amounts in thousands, except for per share amounts |
||||||||||
| 1999 |
1998 |
1997 |
||||||||
| Sales | $ | 791,760 | $ | 852,915 | $ | 869,475 | ||||
| Cost of products sold | 540,075 | 521,996 | 513,809 | |||||||
| Gross Profit | 251,685 | 330,919 | 355,666 | |||||||
| Operating Expenses |
|
|
|
|
|
|
|
|
|
|
| Research and development | 29,622 | 25,810 | 41,076 | |||||||
| Sales and administrative | 144,335 | 145,313 | 145,647 | |||||||
| Restructuring | 29,817 | 0 | 5,150 | |||||||
| 203,774 | 171,123 | 191,873 | ||||||||
| Operating Income | 47,911 | 159,796 | 163,793 | |||||||
| Other |
|
|
|
|
|
|
|
|
|
|
| Interest expense | 5,329 | 6,060 | 5,003 | |||||||
| Interest income | (10,198 | ) | (7,615 | ) | (4,124 | ) | ||||
| Other (income) expense | 3,602 | 4,007 | (2,868 | ) | ||||||
| (1,267 | ) | 2,452 | (1,989 | ) | ||||||
| Income from Continuing Operations | ||||||||||
| Before Income Taxes | 49,178 | 157,344 | 165,782 | |||||||
| Income taxes |
|
|
18,751 |
|
|
53,497 |
|
|
58,024 |
|
| Income from Continuing Operations | 30,427 | 103,847 | 107,758 | |||||||
| Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
| Loss from operations of Network Products Business, net of applicable tax benefit | 0 | 0 | 3,330 | |||||||
| Loss on disposal of Network Products Business, including provision of $1,040 for operating losses during phase-out period, net of applicable tax benefits | 0 | 0 | 16,086 | |||||||
| 0 | 0 | 19,416 | ||||||||
| Net Income | $ | 30,427 | $ | 103,847 | $ | 88,342 | ||||
| Basic and Diluted Income from Continuing Operations per Average Share of Common Stock Outstanding | $ | 0.37 | $ | 1.18 | $ | 1.18 | ||||
| Basic and Diluted Net Income per Average Share of Common Stock Outstanding |
|
$ |
0.37 |
|
$ |
1.18 |
|
$ |
0.97 |
|
| Average Basic Shares Outstanding | 82,675 | 87,941 | 90,947 | |||||||
| Average Diluted Shares outstanding | 82,813 | 88,306 | 91,539 | |||||||
See Notes to Consolidated Financial Statements
Consolidated Balance Sheets
| |
September 30 |
||||||
|---|---|---|---|---|---|---|---|
| Dollars in thousands |
|||||||
| 1999 |
1998 |
||||||
| ASSETS | |||||||
| Current Assets | |||||||
| Cash and cash equivalents | $ | 38,287 | $ | 78,395 | |||
| Accounts receivable, less allowances (1999—$3,403; 1998—$3,026) | 200,068 | 181,389 | |||||
| Inventories | |||||||
| Finished products | 58,225 | 56,736 | |||||
| Materials and work in process | 106,261 | 111,057 | |||||
| 164,486 | 167,793 | ||||||
| Miscellaneous current assets | 10,662 | 9,229 | |||||
| Total Current Assets | 413,503 | 436,806 | |||||
| Other Assets | |||||||
| Costs in excess of net assets of businesses acquired, less accumulated amortization (1999—$4,654; 1998—$10,291) | 21,498 | 23,177 | |||||
| Investments in and advances to affiliates | 63,992 | 59,691 | |||||
| Other assets | 6,297 | 9,267 | |||||
| Property, Plant and Equipment | |||||||
| Land and land improvements | 17,016 | 15,507 | |||||
| Buildings | 83,850 | 83,789 | |||||
| Equipment | 335,125 | 301,757 | |||||
| Allowances for depreciation and amortization | (275,191 | ) | (247,091 | ) | |||
| 160,800 | 153,962 | ||||||
| Total Assets | $ | 666,090 | $ | 682,903 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current Liabilities | |||||||
| Notes Payable | $ | 3,053 | $ | 13,897 | |||
| Accounts payable | 43,105 | 32,867 | |||||
| Restructuring Reserve | 12,128 | 242 | |||||
| Accrued expenses and other liabilities | 21,212 | 16,856 | |||||
| Compensation and related expenses | 21,947 | 32,424 | |||||
| Income taxes | — | 15,835 | |||||
| Current portion of long-term debt | 8,205 | 4,568 | |||||
| Total Current Liabilities | 109,650 | 116,689 | |||||
| Deferred Liabilities | 18,602 | 14,044 | |||||
| Long-Term Debt, less current portion | 48,760 | 38,031 | |||||
| Minority Interest | 5,068 | 5,361 | |||||
| Stockholders' Equity | |||||||
| Common stock (par value, $.01 a share: 400,000,000 shares authorized; 102,718,210 shares issued, including treasury) | 1,027 | 1,027 | |||||
| Additional paid-in capital | 55,802 | 53,309 | |||||
| Accumulated other comprehensive income | (21,755 | ) | (7,617 | ) | |||
| Retained earnings | 681,530 | 651,103 | |||||
| Treasury stock, at cost (20,527,072 shares in 1999; 18,210,250 shares in 1998) | (232,594 | ) | (189,044 | ) | |||
| 484,010 | 508,778 | ||||||
| Total Liabilities and Equity | $ | 666,090 | $ | 682,903 | |||
See Notes to Consolidated Financial Statements.
Consolidated Statements of Cash Flows
| |
Year Ended September 30 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Dollars in thousands |
||||||||||
| 1999 |
1998 |
1997 |
||||||||
| Cash Flows from Operations | ||||||||||
| Net Income | $ | 30,427 | $ | 103,847 | $ | 88,342 | ||||
| Adjustments to Net Income |
|
|
|
|
|
|
|
|
|
|
| Restructuring costs | 33,580 | (864 | ) | 4,439 | ||||||
| Discontinued operations | — | — | 22,771 | |||||||
| Depreciation and amortization | 39,155 | 37,494 | 39,274 | |||||||
| (Increase) decrease in accounts receivables | (25,107 | ) | 3,637 | 4,074 | ||||||
| Increase in inventories | (4,238 | ) | (107 | ) | (577 | ) | ||||
| (Increase) decrease in miscellaneous current and other assets | (3,756 | ) | 1,117 | (3,331 | ) | |||||
| Decrease (increase) in receivables from affiliates | 4,201 | 3,150 | (161 | ) | ||||||
| (Decrease) increase in accounts payable and other liabilities | (1,303 | ) | 1,754 | (2,471 | ) | |||||
| Other | (124 | ) | (176 | ) | (680 | ) | ||||
| Net Cash From Operations | 72,835 | 149,852 | 151,680 | |||||||
| Investing Activities |
|
|
|
|
|
|
|
|
|
|
| Capital expenditures | (51,418 | ) | (58,529 | ) | (49,144 | ) | ||||
| Acquisition of businesses, net of cash acquired | (15,107 | ) | (3,000 | ) | — | |||||
| Investments in and advances to affiliates | (4,308 | ) | (3,195 | ) | (13,097 | ) | ||||
| Proceeds from sale of property, plant and equipment | 759 | 607 | 814 | |||||||
| Net Cash Used for Investing Activities | (70,074 | ) | (64,117 | ) | (61,427 | ) | ||||
| Financing Activities |
|
|
|
|
|
|
|
|
|
|
| Long-term borrowings (payments)—net | 6,385 | 2,223 | (4,524 | ) | ||||||
| Short-term (payments) borrowings—net | (3,587 | ) | (38 | ) | 14,356 | |||||
| Stock purchase and option plans | 3,059 | 2,859 | 6,297 | |||||||
| Purchase of treasury stock | (50,512 | ) | (105,405 | ) | (41,628 | ) | ||||
| Net Cash Used for Financing Activities | (44,655 | ) | (100,361 | ) | (25,499 | ) | ||||
| Effect of exchange rate changes on cash | 1,786 | (802 | ) | (2,226 | ) | |||||
| (Decrease) Increase for the Year | (40,108 | ) | (15,428 | ) | 62,528 | |||||
| Cash and equivalents at beginning of year | 78,395 | 93,823 | 31,295 | |||||||
| Cash and Equivalents at End of Year | $ | 38,287 | $ | 78,395 | $ | 93,823 | ||||
See Notes to Consolidated Financial Statements.
Consolidated Statements of Stockholders' Equity
| Dollars in thousands |
Common Stock |
Additional Paid-In Capital |
Accumulated Other Comprehensive Income |
Retained Earnings |
Treasury Stock |
Total |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at September 30, 1996 | $ | 685 | $ | 43,257 | $ | 349 | $ | 458,914 | $ | (46,991 | ) | $ | 456,214 | ||||||
| Three-for-two stock split | 342 | (342 | ) | 0 | |||||||||||||||
| Repurchase of shares | (41,628 | ) | (41,628 | ) | |||||||||||||||
| Stock purchase and option plans | 8,895 | 2,181 | 11,076 | ||||||||||||||||
| Foreign Currency Translation Adjustment |
|
|
|
|
|
|
|
|
(4,881 |
) |
|
|
|
|
|
|
|
(4,881 |
) |
| Net Income | 88,342 | 88,342 | |||||||||||||||||
| Comprehensive Income | 83,461 | ||||||||||||||||||
| Balance at September 30, 1997 | $ | 1,027 | $ | 51,810 | $ | (4,532 | ) | $ | 547,256 | $ | (86,438 | ) | $ | 509,123 | |||||
| Repurchase of shares | (105,405 | ) | (105,405 | ) | |||||||||||||||
| Stock purchase and option plans | 1,499 | 2,799 | 4,298 | ||||||||||||||||
| Foreign Currency Translation Adjustment |
|
|
|
|
|
|
|
|
(3,085 |
) |
|
|
|
|
|
|
|
(3,085 |
) |
| Net Income | 103,847 | 103,847 | |||||||||||||||||
| Comprehensive Income | 100,762 | ||||||||||||||||||
| Balance at September 30, 1998 | $ | 1,027 | $ | 53,309 | $ | (7,617 | ) | $ | 651,103 | $ | (189,044 | ) | $ | 508,778 | |||||
| Repurchase of shares | (50,512 | ) | (50,512 | ) | |||||||||||||||
| Stock purchase and option plans | 2,493 | 6,962 | 9,455 | ||||||||||||||||
| Foreign Currency Translation Adjustment |
|
|
|
|
|
|
|
|
(14,138 |
) |
|
|
|
|
|
|
|
(14,138 |
) |
| Net Income | 30,427 | 30,427 | |||||||||||||||||
| Comprehensive Income | 16,289 | ||||||||||||||||||
| Balance at September 30, 1999 | $ | 1,027 | $ | 55,802 | $ | (21,755 | ) | $ | 681,530 | $ | (232,594 | ) | $ | 484,010 | |||||
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of the company and its majority-owned subsidiaries in which the company exercises control. All significant intercompany accounts and transactions have been eliminated.
Cash equivalents
The company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. The carrying amount of cash equivalents approximates fair value due to the relative short-term maturity of these investments.
Inventories
Inventories are stated at the lower of cost or market. Inventories stated under the last-in, first-out (LIFO) method represent 57% of total inventories in 1999 and 50% of total inventories in 1998. The remaining inventories are valued on the first-in, first-out (FIFO) method.
If the FIFO method, which approximates current replacement cost, had been used for all inventories, the total amount of inventories would have remained unchanged at September 30, 1999 and September 30, 1998.
Property, plant and equipment
Property, plant and equipment is recorded at cost. Depreciation is computed using accelerated methods based on estimated useful lives of the assets for both financial reporting and tax purposes. Buildings are depreciated over 10 to 30 years and equipment is depreciated over 3 to 7 years. Depreciation expense was $37.1 million, $35.4 million and $36.0 million for 1999, 1998 and 1997, respectively.
Cost in excess of net assets of businesses acquired
The company amortizes the excess of net assets of businesses acquired on the straight-line basis over periods ranging from 10 to 40 years. Amortization expense was $2.0 million, $2.1 million and $3.3 million for 1999, 1998 and 1997, respectively.
Investments in affiliates
Investments in affiliates are accounted for using the equity method, under which the company's share of earnings or losses of these affiliates is reflected in income as earned and dividends are credited against the investment in affiliates when received.
Revenue recognition
Revenue is recognized from sales, other than long-term contracts, when a product is shipped or a service is performed. Sales under long-term contracts generally are recognized under the percentage of completion method and include a portion of the earnings expected to be realized on the contract in the ratio that costs incurred bear to estimated total costs. Contracts in progress are reviewed monthly, and sales and earnings are adjusted in current accounting periods based on revisions in contract value and estimated costs at completion. Estimated losses on contracts are provided when identified.
Foreign currency translation
The functional currency for the company's foreign operations is predominantly the applicable local currency. Accounts of foreign operations are translated into U.S. dollars using year-end exchange rates for assets and liabilities and average monthly exchange rates for revenue and expense accounts. Adjustments resulting from translation are included in accumulated other comprehensive income, a separate component of stockholders' equity. Gains and losses resulting from foreign currency transactions are included in determining net income.
Income taxes
Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Recently issued accounting policies
In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on the accounting treatment of costs related to software obtained or developed for internal use. The company will adopt this statement in the first quarter of fiscal year 2000. Adoption of this statement is not expected to have a material effect on the company's financial statements.
In June 1998, the FASB issued statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." FASB No. 133 requires all derivatives to be recorded on the balance sheet at fair value. FASB statement No. 133 was amended by FASB statement No.137 in June 1999, which delayed the effective date for the company until the first quarter of fiscal year 2001. Adoption of this statement is not expected to have a material effect on the company's financial statements.
Business Acquisitions
In October 1997, the company purchased an additional 19% interest in Mapra Industria e Comerico, Ltda. and Gerbo Telecommunicacoes e Servicos, Ltda. for $3.0 million. This acquisition was accounted for as a purchase.
In February 1999, the company purchased the remaining 20% interest in Satcom Group of Companies, located in South Africa, for $1.2 million. In March of 1999, the company acquired the stock of Passive Power Products, Inc., a Maine-based supplier of RF products to the broadcast market for $4.3 million, net of cash acquired. In September of 1999, the company acquired the stock of Chesapeake Microwave Technologies Inc.(CMTI), a Glen Rock, Pennsylvania company that designs and develops RF and microwave amplifiers and assemblies. In addition to the $8.6 million, net of cash acquired paid at closing, the CMTI purchase agreement contains a provision for deferred payments of up to $4.0 million payable to certain CMTI shareholders, which will be accounted for as additional purchase consideration when paid.
The 1999 acquisitions were accounted for as purchases, resulting in $13.9 million of goodwill that will be amortized over 10 years. Pro forma results of operations, assuming these transactions occurred at the beginning of the fiscal year, are not materially different from the reported results of operations.
Discontinued Operations
On July 14, 1997, the company adopted a plan to discontinue the operations of its network products business. The business was acquired by Nlynx Systems Inc. during 1998. As such, there are no remaining assets or liabilities related to the business. The losses associated with the disposition did not materially differ from the estimated loss on disposal of the discontinued operations of $16.1 million (net of applicable taxes of $6.7 million), recorded during the third quarter 1997.
Earnings per Share
The following table sets forth the computation of basic and diluted earnings per share:
| |
Year Ended September 30 |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands, except per share amounts) |
|||||||||
| 1999 |
1998 |
1997 |
|||||||
| BASIC EARNINGS PER SHARE | |||||||||
| Numerator: | |||||||||
| Numerator for income from continuing operations per share | $ | 30,427 | $ | 103,847 | $ | 107,758 | |||
| Numerator for net income per share | $ | 30,427 | $ | 103,847 | $ | 88,342 | |||
| Denominator: |
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding | 82,675 | 87,941 | 90,947 | ||||||
| Income from continuing operations per share—basic | $ | 0.37 | $ | 1.18 | $ | 1.18 | |||
| Net income per share—basic | $ | 0.37 | $ | 1.18 | $ | 0.97 | |||
| DILUTED EARNINGS PER SHARE |
|
|
|
|
|
|
|
|
|
| Numerator: | |||||||||
| Numerator for income from continuing operations per share | $ | 30,427 | $ | 103,847 | $ | 107,758 | |||
| Numerator for net income per share | $ | 30,427 | $ | 103,847 | $ | 88,342 | |||
| Denominator: |
|
|
|
|
|
|
|
|
|
| Weighted average shares outstanding | 82,675 | 87,941 | 90,947 | ||||||
| Effect of dilutive securities: | |||||||||
| Stock options | 138 | 365 | 592 | ||||||
| 82,813 | 88,306 | 91,539 | |||||||
| Income from continuing operations per share—diluted | $ | 0.37 | $ | 1.18 | $ | 1.18 | |||
| Net income per share—diluted | $ | 0.37 | $ | 1.18 | $ | 0.97 | |||
Options to purchase 2,681,000, 1,285,000 and 643,000 shares of common stock in 1999, 1998 and 1997, respectively, were not included in the computation of diluted earnings per share, because the option's exercise price was greater than the average market price of the common shares.
Investments in and Advances to Affiliates
The company has various investments in ventures that are accounted for by the equity method. Nine of the ventures are engaged in communication and data transmission in Russia, Ukraine, and Mexico. The company has minority interest holdings in six of the ventures and a majority interest holding in three of the ventures. The company does not consolidate the majority owned ventures because of governmentally imposed uncertainties that significantly affect the company's ability to exercise control. The method of accounting is evaluated on a periodic basis for appropriateness based on the existing conditions and the company's ability to exercise control. The company has no investments in ventures that are accounted for by the cost method. The combined operating results of the ventures and the company's share thereof were not material to the company's 1999, 1998 and 1997 operating results. The company guarantees a $46.0 million line of credit with ABN-AMRO, which is used by its ventures. As of September 30, 1999, there was $35.9 million outstanding under the agreement.
Unbilled Receivables
At September 30, 1999, unbilled receivables of $4,551,000 are included in accounts receivable, compared to $4,205,000 at September 30, 1998. These amounts will be billed in accordance with contract terms and delivery schedules and are generally expected to be collected within one year.
Profit Sharing Plans
Most employees of Andrew Corporation and its subsidiaries participate in various retirement plans, principally defined contribution profit sharing plans. The amounts charged to earnings for these plans in 1999, 1998 and 1997 were $9,203,000, $14,967,000 and $12,933,000 respectively.
Borrowings
Lines of Credit
The company maintains a $50 million revolving line of credit agreement with Bank of America, NT & SA. The maximum outstanding during 1999 under the line of credit was $8.8 million with a weighted average interest rate of 4.192%. The outstanding balance at September 30, 1999 was $2.3 million.
The company also maintains an $11.4 million line of credit agreement with ABN-AMRO for its Brazilian operations. The maximum outstanding during 1999 under the line of credit was $3.5 million with a weighted average interest rate of 15.8%. The outstanding balance at September 30, 1999 was zero.
As a result of the acquisition of Chesapeake Microwave Technologies in September 1999, the company assumed a line of credit with First Capitol Bank. The maximum outstanding under the line of credit during 1999 was $795,000, with a weighted average interest of 8.75%. The balance at September 30, 1999 was $795,000. In October 1999, the company repaid outstandings under this line of credit and cancelled the credit facility.
Long-Term Debt
Long-term debt at September 30 consisted of the following:
| Dollars in thousands |
1999 |
1998 |
||||
|---|---|---|---|---|---|---|
| 9.52% senior notes payable to insurance companies in annual installments from 2000 to 2005 | $ | 27,272 | $ | 31,818 | ||
| Variable rate Industrial Development Revenue Bond with Coweta County, Georgia | 3,800 | 3,800 | ||||
| 6.66% RMB loan from the Agricultural Bank of China, supported by a Bank of America letter of credit | 9,678 | 0 | ||||
| Variable rate loan BBA Creditanstalt Bank Limited | 8,800 | 0 | ||||
| 12.00% loan agreement with Banco Nacional De Desenvolvimento Economico E Social | 4,477 | 6,960 | ||||
| Other | 2,938 | 21 | ||||
| Less: Current Portion | 8,205 | 4,568 | ||||
| Total Long-Term Debt | $ | 48,760 | $ | 38,031 | ||
Under the terms of the loan agreements, the company has agreed to maintain certain levels of working capital and net worth. At September 30, 1999, all these requirements have been met.
The principal amounts of long-term debt maturing after September 30, 1999 are:
| Dollars in thousands |
2000 |
2001 |
2002 |
2003 |
2004 |
Thereafter |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ | 8,205 | $ | 15,188 | $ | 14,131 | $ | 5,215 | $ | 4,853 | $ | 9,373 | |||||||
Cash payments for interest on all borrowings were $5,091,000, $7,146,000 and $4,246,000 in 1999, 1998 and 1997, respectively.
The carrying amount of long-term debt as of September 30, 1999 approximates fair value. The fair value was determined by discounting the future cash outflows based upon the current market rates for instruments with a similar risk and term to maturity.
Restructuring
In March 1999, the company initiated a plan to restructure the manufacturing operations of its towers and wireless accessories businesses, phase out of its AVS small aperture earth station product line and divest itself of its SciComm government electronics business.
In connection with these restructuring activities, the company plans to terminate approximately 600 employees and 280 temporary/contract workers. Estimated employee termination costs of $5.2 million were accrued in the second quarter of 1999. In addition to termination costs, these restructuring charges include a goodwill write-off of $14.1 million, long-term lease commitments of $3.5 million and inventory, equipment and other asset write-downs of $13.9 million. Of the total $36.7 million employee termination and exit costs recognized in the second quarter, $6.9 million was classified as Cost of Sales and $29.8 million as Restructuring in the Operating Expense section of the income statement. On an after-tax basis, restructuring charges were $28.1 million, or $0.34 per share.
Actual costs charged against the restructuring reserve in 1999 were $24.6 million, including termination costs of $2.8 million paid to 424 terminated employees, a $14.1 million goodwill write-off and inventory and other asset write-downs of $7.4 million. The company expects to complete the restructuring prior to September 30, 2000.
During June 1997, the company initiated a plan to restructure its European wireless products business and phase out its fiber optic sensors and global messaging development activities. Actual costs were not materially different than the total after-tax charges of $3.3 million or $.04 per diluted share recorded in June 1997.
INCOME TAXES
The composition of the provision for income taxes follows:
| |
Year Ended September 30 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Dollars in thousands |
||||||||||
| 1999 |
1998 |
1997 |
||||||||
| Currently Payable: | ||||||||||
| Federal | $ | 2,554 | $ | 24,539 | $ | 29,636 | ||||
| Non-United States | 15,553 | 17,043 | 19,852 | |||||||
| State | 933 | 4,708 | 5,281 | |||||||
| 19,040 | 46,290 | 54,769 | ||||||||
| Deferred (Credit): |
|
|
|
|
|
|
|
|
|
|
| Federal and State | 384 | 7,091 | 3,280 | |||||||
| Non-United States | (673 | ) | 116 | (25 | ) | |||||
| (289 | ) | 7,207 | 3,255 | |||||||
| $ | 18,751 | $ | 53,497 | $ | 58,024 | |||||
| Income Taxes Paid | $ | 29,411 | $ | 56,162 | $ | 44,641 | ||||
| Components of Income from Continuing Operations Before Income Taxes: | ||||||||||
| United States | $ | (8,078 | ) | $ | 97,909 | $ | 99,782 | |||
| Non-United States | 57,256 | 59,435 | 66,000 | |||||||
| $ | 49,178 | $ | 157,344 | $ | 165,782 | |||||
The company's effective income tax rate varied from the statutory United States federal income tax rate because of the following:
| |
Year ended September 30 |
||||||
|---|---|---|---|---|---|---|---|
| |
1999 |
1998 |
1997 |
||||
| Statutory United States federal tax rate | 35.0 | % | 35.0 | % | 35.0 | % | |
| Foreign Sales Corporation (FSC) | (4.2 | ) | (2.0 | ) | (2.8 | ) | |
| State income taxes, net of federal tax effect | 1.3 | 2.2 | 2.2 | ||||
| Net tax effect of restructuring | 6.1 | 0.0 | 0.0 | ||||
| Other items | (0.1 | ) | (1.2 | ) | 0.6 | ||
| Effective Tax Rate | 38.1 | % | 34.0 | % | 35.0 | % | |
The tax effects of temporary differences have given rise to gross deferred tax assets of $16,980,000 in 1999 and $11,300,000 in 1998, primarily accrued expenses and inventory. The tax effect of temporary differences have created gross deferred tax liabilities of $22,779,000 in 1999 and $17,386,000 in 1998, primarily due to depreciation. The company has not recorded valuation allowances for deferred tax assets in 1999 or 1998, because the existing net deductible temporary differences will reverse during periods in which the company expects to generate taxable income.
The increase in the effective tax rate for the year ended September 30, 1999 was attributable to the inclusion of non-deductible goodwill in the restructuring charges recognized during the year. Excluding the impact of the restructuring charges, the effective tax rate for the year ended September 30, 1999 was 32.0%, as compared to an effective tax rate of 34.0% for the prior fiscal year.
No provision has been made for income taxes of approximately $20,647,000 at September 30, 1999, which would be payable should all undistributed net income of subsidiaries located outside the United States be distributed as dividends. The company plans to continue its non-United States operations, and anticipates the ability to use tax planning opportunities to reduce the tax liability if any dividends are declared or paid from these operations.
Stockholders' Equity
Common Stock
The company has authorized 400,000,000 shares of common stock with a par value of $.01 per share. As of September 30, 1999, 82,191,138 shares of common stock were outstanding. Each outstanding common share has attached to it a one Share Purchase Right that, until exercisable, cannot be transferred apart from the company's Common Stock. The Rights will only become exercisable if a person or group acquires 15% or more of the company's Common Stock or announces an offer to acquire 15% or more of the company's Common Stock. In the event the Rights become exercisable, each Right may entitle the holder to purchase Common Stock of either the surviving or acquired company at one-half its market price.
During the third quarter of fiscal year 1997, the company implemented a stock buy-back program, which authorized the company to repurchase up to five million shares of its common stock. In June 1998, the company's Board of Directors authorized an additional five million common shares to be repurchased under the company's stock buyback plan. As of September 30, 1998, the company had repurchased 7,017,732 shares of common stock at a total cost of $147,033,000. In November 1998, the company's Board of Directors authorized an additional five million common shares to be repurchased under the company's stock buyback plan, bringing the total authorized for repurchase to 15 million shares. During fiscal year 1999, the company repurchased 2,967,700 shares, at a total cost of $50,512,000, bringing the total shares repurchased under the stock buyback program to 9,985,432 shares at a total cost of $197,545,000. The common shares repurchased under this program may be used to meet employee compensation needs or used in future acquisitions.
A three-for-two stock split was effected in March 1997.
Common Stock issued and outstanding and held in treasury is summarized in the tables below:
| |
Year Ended September 30 |
||||||
|---|---|---|---|---|---|---|---|
| |
1999 |
1998 |
1997 |
||||
| Shares of Common Stock—Issued | |||||||
| Balance at beginning of year | 102,718,210 | 102,718,210 | 68,479,398 | ||||
| Three-for-two stock split | — | — | 34,238,812 | ||||
| Balance at End of Year | 102,718,210 | 102,718,210 | 102,718,210 | ||||
| Shares of Common Stock—Held in Treasury | |||||||
| Balance at beginning of year | 18,210,250 | 13,060,876 | 8,047,229 | ||||
| Three-for-two stock split | — | — | 4,023,615 | ||||
| Stock repurchase | 2,967,700 | 5,472,732 | 1,545,000 | ||||
| Stock purchase, option and other plans | (650,878 | ) | (323,358 | ) | (554,968 | ) | |
| Balance at End of Year | 20,527,072 | 18,210,250 | 13,060,876 | ||||
As of September 30, 1999, 4,861,256 shares of Common Stock were reserved for the various stock plans described on the following pages.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation expense for stock-based employee compensation plans at fair value. The company has chosen to continue to account for stock-based compensation using the intrinsic value method described in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Under APB No. 25, compensation expense is measured as the excess of market price over the price the employee must pay to acquire the stock on the grant date. All options are granted by the company at market price and, as a result, no compensation expense is recorded.
The company currently maintains a long-term Management Incentive Program (MIP), which provides for the issuance of up to 9,112,500 common shares in the form of stock options and awards and the awarding of performance units payable in cash or stock to key officers and other employees. Options under this plan vest over a four-year period. Options granted prior to fiscal year 1996 expire five years after grant, while options granted during and after fiscal years 1996 expire ten years after grant date. In fiscal year 1999, there were 930,480 options granted under the plan.
The company also maintains a Stock Option Plan for Non-Employee Directors that provides for the issuance of up to 1,012,500 common shares. Options under this plan vest over a five-year period and expire ten years after grant. In fiscal year 1998, this plan was terminated due to an insufficient number of shares available for new grants. On February 10, 1998, the company's shareholders ratified a new Stock Option Plan for Non-Employee Directors (DSP) that provides for the issuance of up to 400,000 common shares. Options under this plan vest over a five-year period and expire ten years after grant. In fiscal year 1999, there were 84,000 options granted under this plan.
The company also has an Employee Stock Purchase Plan (ESPP) that was amended and restated on November 12, 1998 and expires on February 1, 2009. All employees with six months of service as of the annual offering date are eligible to participate in this Plan. The plan authorizes up to 1,096,970 shares of Common Stock to be sold to employees at 85% of market value. All shares issued under this plan are restricted and cannot be sold for one year following the date of purchase. In fiscal year 1999, there were 108,775 shares purchased by employees under the plan.
Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the company had accounted for its stock option plans under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions for 1999, 1998 and 1997, respectively: risk-free interest rate of 5.98%, 4.39% and 6.11%; dividend yield of 0%; a volatility factor of .490, .477 and .415, and a weighted average expected life of the options of six years.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period. The company's pro forma information follows:
| |
Year Ended September 30 |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| Dollars in thousands, except per share amounts |
|||||||||
| 1999 |
1998 |
1997 |
|||||||
| Pro forma income from continuing operations | $ | 26,161 | $ | 99,891 | $ | 104,485 | |||
| Pro forma net income | 26,161 | 99,891 | 85,069 | ||||||
| Pro forma income from continuing operations per share | |||||||||
| Basic | 0.32 | 1.14 | 1.15 | ||||||
| Diluted | 0.32 | 1.13 | 1.14 | ||||||
| Pro forma net income per share | |||||||||
| Basic | 0.32 | 1.14 | 0.94 | ||||||
| Diluted | $ | 0.32 | $ | 1.13 | $ | 0.93 | |||
The effects on pro forma disclosures of applying Statement No. 123 are not likely to be representative of the effects of such disclosures in future years. Because Statement No. 123 is applicable only to options granted subsequent to September 30, 1995, the pro forma effect is not fully reflected in fiscal years 1999, 1998 and 1997.
A summary of the company's stock option activity and related information follows:
| |
Year Ended September 30 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| |
1999 |
1998 |
1997 |
|||||||
| Outstanding at beginning of year | 2,911,831 | 2,648,033 | 2,618,631 | |||||||
| Granted | 1,014,480 | 659,150 | 662,250 | |||||||
| Expired or canceled | (229,748 | ) | (136,098 | ) | (143,925 | ) | ||||
| Exercised | (207,423 | ) | (259,254 | ) | (488,923 | ) | ||||
| Outstanding at End of Year | 3,489,140 | 2,911,831 | 2,648,033 | |||||||
| Exercisable at End of Year | 1,604,529 | 1,232,536 | 673,147 | |||||||
| Weighted Average Exercise Price | ||||||||||
| Outstanding at beginning of year | $ | 21.81 | $ | 20.26 | $ | 13.92 | ||||
| Granted | 17.13 | 23.69 | 37.60 | |||||||
| Expired or canceled | 24.89 | 27.01 | 20.91 | |||||||
| Exercised | 9.15 | 8.12 | 9.55 | |||||||
| Outstanding at End of Year | 20.99 | 21.81 | 20.26 | |||||||
| Exercisable at End of Year | $ | 20.14 | $ | 17.26 | $ | 11.64 | ||||
The weighted average fair value of options granted during fiscal years 1999, 1998 and 1997 was $8.63, $12.93 and $13.84 per share, respectively. The weighted average life of options outstanding as of September 30, 1999 was 6.17 years. The range of exercise prices for options outstanding at September 30, 1999, was $2.35 to $38.17.
| Range of Exercise Prices | $ | 2.35—$9.58 | $ | 12.50—$15.56 | $ | 16.00—$18.19 | $ | 19.33—$24.50 | $ | 27.19—$38.17 | Total | ||||||
| Outstanding Options | 299,057 | 384,718 | 995,808 | 1,143,657 | 665,900 | 3,489,140 | |||||||||||
| Exercisable Options | 299,057 | 260,093 | 129,700 | 566,917 | 348,762 | 1,604,529 | |||||||||||
| Weighted Average | |||||||||||||||||
| Exercise Price | $6.61 | $14.69 | $17.48 | $21.35 | $35.73 | $20.99 | |||||||||||
| Average Life | 3.75 | 3.46 | 8.52 | 5.14 | 7.15 | 6.17 |
Segment and Geographic Information
The Company manages its business as one operating segment. This segment serves commercial markets, including coaxial cable, terrestrial microwave systems, wireless accessories and other products and services. The Company sells to a wide range of customers in these markets; no single customer makes up 10% or more of the of the company's total revenue. Principal financial data by major product group and geographic selling location is as follows:
| |
Year Ended September 30 |
||||||||
|---|---|---|---|---|---|---|---|---|---|
| Dollars in thousands |
|||||||||
| 1999 |
1998 |
1997 |
|||||||
| Product Sales: | |||||||||
| Coaxial Cable | $ | 418,496 | $ | 486,788 | $ | 467,774 | |||
| Terrestrial Microwave Systems | 150,795 | 148,614 | 153,905 | ||||||
| Other Products and Services | 169,804 | 157,912 | 183,557 | ||||||
| Wireless Accessories | 52,665 | 59,601 | 64,239 | ||||||
| Total Product Sales | $ | 791,760 | $ | 852,915 | $ | 869,475 | |||
| Sales: | |||||||||
| United States—Domestic | $ | 382,557 | $ | 432,539 | $ | 454,726 | |||
| United States—Export | 61,843 | 97,738 | 105,147 | ||||||
| Europe, Africa, Middle East | 184,575 | 175,021 | 178,773 | ||||||
| Asia-Pacific | 77,643 | 59,782 | 51,419 | ||||||
| Other Americas | 85,142 | 87,835 | 79,410 | ||||||
| Total Sales | $ | 791,760 | $ | 852,915 | $ | 869,475 | |||
| Assets Identifiable to: | |||||||||
| United States | $ | 410,783 | $ | 411,545 | $ | 456,566 | |||
| Europe, Africa, Middle East | 129,519 | 144,137 | 112,726 | ||||||
| Asia-Pacific | 63,845 | 52,000 | 48,362 | ||||||
| Other Americas | 61,943 | 75,221 | 73,500 | ||||||
| Consolidated Assets | $ | 666,090 | $ | 682,903 | $ | 691,154 | |||
Selected Quarterly Financial Information (Unaudited)
Due to variability of shipments under large contracts, customers' seasonal installation considerations, variations in product mix and in profitability of individual orders, the company can experience wide quarterly fluctuations in net sales and income. Consequently, it is more meaningful to focus on annual rather than quarterly results.
| Dollars in thousands, except per share amounts |
December |
March |
June |
September |
Total |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1999: | ||||||||||||||||
| Sales | $ | 218,573 | $ | 172,006 | $ | 186,079 | $ | 215,102 | $ | 791,760 | ||||||
| Gross profit | 79,532 | 45,166 | * | 59,131 | 67,856 | 251,685 | * | |||||||||
| Income from continuing operations before income taxes | 35,122 | (25,725 | )* | 20,043 | 19,738 | 49,178 | * | |||||||||
| Net income | 23,181 | (20,849 | )* | 14,735 | 13,360 | 30,427 | * | |||||||||
| Basic and diluted income from continuing operations per share | 0.28 | (0.25 | )* | 0.18 | 0.16 | 0.37 | * | |||||||||
| Basic and diluted net income per share | 0.28 | (0.25 | )* | 0.18 | 0.16 | 0.37 | * | |||||||||
| Common Stock Closing Price: | ||||||||||||||||
| High | 18.50 | 20.56 | 19.06 | 22.06 | ||||||||||||
| Low | 11.31 | 11.13 | 11.56 | 16.31 | ||||||||||||
| 1998: | ||||||||||||||||
| Sales | $ | 231,136 | $ | 196,872 | $ | 204,220 | $ | 220,687 | $ | 852,915 | ||||||
| Gross profit | 89,597 | 77,110 | 81,315 | 82,897 | 330,919 | |||||||||||
| Income from continuing operations before income taxes | 42,932 | 36,585 | 37,257 | 40,570 | 157,344 | |||||||||||
| Net income | 28,334 | 24,147 | 24,590 | 26,776 | 103,847 | |||||||||||
| Basic and diluted income from continuing operations per share | 0.32 | 0.27 | 0.28 | 0.31 | 1.18 | |||||||||||
| Basic and diluted net income per share | 0.32 | 0.27 | 0.28 | 0.31 | 1.18 | |||||||||||
| Common Stock Closing Price: | ||||||||||||||||
| High | 29.31 | 29.63 | 23.90 | 18.75 | ||||||||||||
| Low | 22.38 | 19.31 | 18.00 | 12.25 | ||||||||||||
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Andrew Corporation
We have audited the accompanying consolidated balance sheets of Andrew Corporation and subsidiaries as of September 30, 1999 and 1998, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards requires that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Andrew Corporation and subsidiaries at September 30, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1999, in conformity with generally accepted accounting principles.
/s/
Ernst & Young LLP
Chicago, Illinois
October 22, 1999
Eleven Year Financial Summary
| Dollars in thousands, except per share amounts |
1999 |
1998 |
1997 |
1996 |
1995 |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operations (1, 2) | ||||||||||||||||
| Sales | $ | 791,760 | $ | 852,915 | $ | 869,475 | $ | 766,007 | $ | 624,743 | ||||||
| Gross profit | 251,685 | 330,919 | 355,666 | 320,486 | 264,013 | |||||||||||
| Operating income | 47,911 | 159,796 | 163,793 | 151,304 | 116,803 | |||||||||||
| Other (income) expense | (1,267 | ) | 2,452 | (1,989 | ) | 4,738 | 4,362 | |||||||||
| Income from continuing operations before taxes | 49,178 | 157,344 | 165,782 | 146,566 | 112,441 | |||||||||||
| Income from continuing operations | 30,427 | 103,847 | 107,758 | 93,802 | 71,854 | |||||||||||
| Discontinued Operations | ||||||||||||||||
| Loss (income) from operations of network business, net of taxes | 0 | 0 | 3,330 | 3,405 | 1,899 | |||||||||||
| Loss on disposal of network business, net of taxes | 0 | 0 | 16,086 | 0 | 0 | |||||||||||
| Net income | 30,427 | 103,847 | 88,342 | 90,397 | 69,955 | |||||||||||
| Basic Income from continuing operations per share | 0.37 | 1.18 | 1.18 | 1.04 | 0.81 | |||||||||||
| Diluted income from continuing operations per share | 0.37 | 1.18 | 1.18 | 1.03 | 0.80 | |||||||||||
| Basic net income per share | 0.37 | 1.18 | 0.97 | 1.00 | 0.78 | |||||||||||
| Diluted net income per share | 0.37 | 1.18 | 0.97 | 0.99 | 0.78 | |||||||||||
| Financial Position | ||||||||||||||||
| Working capital | 303,853 | 320,117 | 332,721 | 284,602 | 227,164 | |||||||||||
| Total assets | 666,090 | 682,903 | 691,154 | 631,229 | 505,114 | |||||||||||
| Long-term debt | 48,760 | 38,031 | 35,693 | 40,423 | 45,255 | |||||||||||
| Stockholders' equity | 484,010 | 508,778 | 509,123 | 456,214 | 357,191 | |||||||||||
| Cash Flow | ||||||||||||||||
| From operations | 72,835 | 149,852 | 151,680 | 66,796 | 55,816 | |||||||||||
| Used in investing activities | (70,074 | ) | (64,117 | ) | (61,427 | ) | (78,683 | ) | (55,367 | ) | ||||||
| From (used for) financing activities | (44,655 | ) | (100,361 | ) | (25,499 | ) | (1,972 | ) | 4,570 | |||||||
| Cash and equivalents | $ | 38,287 | $ | 78,395 | $ | 93,823 | $ | 31,295 | $ | 46,064 | ||||||
| Ratios and Other Data | ||||||||||||||||
| Current ratio | 3.8 | 3.7 | 3.6 | 3.4 | 3.4 | |||||||||||
| Return on Sales: | ||||||||||||||||
| Income from continuing operations | 3.8 | % | 12.2 | % | 12.4 | % | 12.2 | % | 11.5 | % | ||||||
| Net income | 3.8 | % | 12.2 | % | 10.2 | % | 11.8 | % | 11.2 | % | ||||||
| Return on average assets | 4.5 | % | 15.1 | % | 13.4 | % | 15.9 | % | 15.0 | % | ||||||
| Return on average stockholders' equity | 6.1 | % | 20.4 | % | 18.3 | % | 22.2 | % | 22.1 | % | ||||||
| Stockholder's equity per share outstanding | $ | 5.89 | $ | 6.02 | $ | 5.68 | $ | 5.03 | $ | 3.97 | ||||||
| Foreign exchange gain (loss) | (2,372 | ) | (2,988 | ) | 3,433 | 972 | (1,612 | ) | ||||||||
| Research and development | 29,622 | 25,810 | 41,076 | 29,624 | 21,041 | |||||||||||
| Additions to property, plant and equipment | 51,418 | 58,529 | 49,144 | 52,475 | 48,076 | |||||||||||
| Net assets located outside U.S. at year end | 258,117 | 272,661 | 228,488 | 220,600 | 160,700 | |||||||||||
| Orders entered | 824,252 | 874,717 | 864,918 | 790,621 | 684,504 | |||||||||||
| Order backlog at year end (under 12 months) | 170,706 | 141,847 | 132,610 | 152,205 | 125,446 | |||||||||||
| Order backlog at year end (over 12 months) | $ | 3,276 | $ | 12,317 | $ | 5,950 | $ | 14,756 | $ | 18,529 | ||||||
| Number of full-time equivalent employees at year end: | ||||||||||||||||
| Outside United States | 1,261 | 1,219 | 1,185 | 1,162 | 763 | |||||||||||
| Total employees | 4,572 | 4,221 | 4,227 | 4,622 | 3,677 | |||||||||||
| Average basic shares of stock outstanding (thousands) | 82,675 | 87,941 | 90,947 | 90,263 | 89,177 | |||||||||||
| Average diluted shares of stock outstanding (thousands) | 82,813 | 88,306 | 91,539 | 91,033 | 89,964 | |||||||||||
| Registered stockholders at year end | 4,365 | 4,727 | 4,599 | 3,242 | 2,340 | |||||||||||
Eleven Year Financial Summary (Cont)
| Dollars in thousands, except per share amounts |
1994 |
1993 |
1992 |
1991 |
1990 |
1989 |
|||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Operations 1, 2 | |||||||||||||||||||
| Sales | $ | 536,025 | $ | 394,276 | $ | 397,721 | $ | 371,590 | $ | 325,455 | $ | 285,037 | |||||||
| Gross profit | 217,796 | 156,130 | 144,281 | 135,550 | 118,199 | 97,719 | |||||||||||||
| Operating income | 84,497 | 51,149 | 45,591 | 42,994 | 35,175 | 26,720 | |||||||||||||
| Other (income) expense | 7,226 | 3,145 | 3,904 | 4,999 | 4,470 | 1,314 | |||||||||||||
| Income from continuing operations before taxes | 77,271 | 48,004 | 41,687 | 37,995 | 30,705 | 25,406 | |||||||||||||
| Income from continuing operations | 49,360 | 30,587 | 26,080 | 23,390 | 18,832 | 15,751 | |||||||||||||
| Discontinued Operations | |||||||||||||||||||
| Loss (income) from operations of network business, net of taxes | 3,593 | 1,184 | (71 | ) | 1,456 | 671 | (484 | ) | |||||||||||
| Loss on disposal of network business, net of taxes | — | — | — | — | — | — | |||||||||||||
| Net income | 45,767 | 29,403 | 26,151 | 21,934 | 18,161 | 16,235 | |||||||||||||
| Basic Income from continuing operations per share | 0.56 | 0.35 | 0.27 | 0.24 | 0.19 | 0.16 | |||||||||||||
| Diluted Income from continuing operations per share | 0.55 | 0.35 | 0.26 | 0.23 | 0.19 | 0.16 | |||||||||||||
| Basic Net Income per share | 0.52 | 0.34 | 0.27 | 0.22 | 0.18 | 0.16 | |||||||||||||
| Diluted Net income per share | 0.51 | 0.33 | 0.27 | 0.22 | 0.18 | 0.16 | |||||||||||||
| Financial Position | |||||||||||||||||||
| Working capital | 171,705 | 142,675 | 126,764 | 151,280 | 136,068 | 99,711 | |||||||||||||
| Total assets | 425,326 | 343,876 | 318,062 | 345,261 | 319,542 | 265,660 | |||||||||||||
| Long-term debt | 46,092 | 52,467 | 54,223 | 59,928 | 63,447 | 15,568 | |||||||||||||
| Stockholders' equity | 276,553 | 221,872 | 192,956 | 217,036 | 198,524 | 182,187 | |||||||||||||
| Cash Flow | |||||||||||||||||||
| From operations | 52,343 | 54,911 | 51,725 | 32,285 | 34,602 | 14,089 | |||||||||||||
| Used in investing activities | (38,692 | ) | (33,295 | ) | (12,113 | ) | (22,903 | ) | (47,900 | ) | (27,365 | ) | |||||||
| From (used in) financing activities | 4,259 | (5,938 | ) | (50,764 | ) | (5,508 | ) | 18,622 | 11,532 | ||||||||||
| Cash and equivalents | $ | 40,714 | $ | 22,001 | $ | 7,763 | $ | 17,168 | $ | 13,823 | $ | 7,395 | |||||||
| Ratios and Other Data | |||||||||||||||||||
| Current ratio | 2.8 | 3.2 | 2.9 | 3.5 | 3.6 | 2.5 | |||||||||||||
| Return on Sales: | |||||||||||||||||||
| Income from continuing operations | 9.2 | % | 7.8 | % | 6.6 | % | 6.3 | % | 5.8 | % | 5.5 | % | |||||||
| Net Income | 8.5 | % | 7.5 | % | 6.6 | % | 5.9 | % | 5.6 | % | 5.7 | % | |||||||
| Return on average assets | 11.9 | % | 8.9 | % | 7.9 | % | 6.6 | % | 6.2 | % | 6.5 | % | |||||||
| Return on average stockholders' equity | 18.4 | % | 14.2 | % | 12.8 | % | 10.6 | % | 9.5 | % | 9.3 | % | |||||||
| Stockholder's equity per share outstanding | $ | 3.12 | $ | 2.54 | $ | 2.27 | $ | 2.19 | $ | 2.04 | $ | 1.80 | |||||||
| Foreign exchange gain (loss) | (1,922 | ) | 1,380 | 41 | 583 | (560 | ) | 132 | |||||||||||
| Research and development | 20,377 | 17,118 | 14,248 | 14,786 | 16,621 | 14,493 | |||||||||||||
| Additions to property, plant and equipment | 28,471 | 18,479 | 18,188 | 25,124 | 25,151 | 16,278 | |||||||||||||
| Net assets located outside U.S. at year end | 130,900 | 90,300 | 65,100 | 70,400 | 59,800 | 54,700 | |||||||||||||
| Orders entered | 532,881 | 401,284 | 373,700 | 374,900 | 323,000 | 305,100 | |||||||||||||
| Order backlog at year end (under 12 months) | 83,884 | 85,170 | 82,500 | 106,700 | 109,200 | 107,400 | |||||||||||||
| Order backlog at year end (over 12 months) | $ | 595 | $ | 1,573 | $ | 5,500 | $ | 8,300 | $ | 9,300 | $ | 6,400 | |||||||
| Number of full time equivalent employees at year end: | |||||||||||||||||||
| Outside United States | 661 | 584 | 596 | 717 | 738 | 714 | |||||||||||||
| Total employees | 3,405 | 3,110 | 3,144 | 3,450 | 3,200 | 2,870 | |||||||||||||
| Average basic shares of stock outstanding (thousands) | 87,845 | 86,193 | 96,981 | 98,408 | 100,916 | 100,703 | |||||||||||||
| Average diluted shares of stock outstanding (thousands) | 89,204 | 87,831 | 98,521 | 99,971 | 101,647 | 101,416 | |||||||||||||
| Registered Stockholders at year end | 1,482 | 1,133 | 1,057 | 1,137 | 1,300 | 1,285 | |||||||||||||
| PAGE WHERE GRAPHIC IMAGE APPEARS | DESCRIPTION OF GRAPHIC AND IMAGE MATERIAL | |
| Page 15 |
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Bar Graph of Sales (Dollars in Millions) Data Points: 1995-$625, 1996-$766, 1997-$869, 1998-$853, 1999-$792 |
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Gross Profit (Dollars in Millions) Data Points: 1995-$264, 1996-$320, 1997-$356, 1998-$331, 1999-$252 |
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Operating Expenses (Dollars in Millions) Data Points: 1995-$147, 1996-$169, 1997-$192, 1998-$171, 1999-$204 |
| Page 17 |
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Net Income (Dollars in Millions) Data Points: 1995-$70, 1996-$90, 1997-$88, 1998-$104, 1999-$30 Net Income Including Discontinued Operations and Restructuring Charges Data Points: 1995-$72, 1996-$94, 1997-$111, 1998-$104, 1999-$59 |
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Net Cash From Operations (Dollars in Millions) Data Points: 1995-$56, 1996-$67, 1997-$152, 1998-$150, 1999-$73 |
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Capital Expenditures (Dollars in Millions) Data Points: 1995-$48, 1996-$52, 1997-$49, 1998-$59, 1999-$51 |
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