<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
-----------------
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 1-6016
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ALLEN TELECOM INC. (formerly The Allen Group Inc.)
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 38-0290950
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
25101 Chagrin Boulevard, Beachwood, Ohio 44122
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (216) 765-5818
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ------------------------
Common Stock, $1 par value New York Stock Exchange
Pacific Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
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, and (2) has been subject to such filing requirements
for the past 90 days: Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
As of March 3, 1997, there were 26,832,305 shares of the Registrant's Common
Stock issued and outstanding, and the aggregate market value (based upon the
last sale price of the Registrant's Common Stock on the New York Stock Exchange
Composite Tape on March 3, 1997) of the Registrant's Common Stock held by
nonaffiliates of the Registrant was $576,894,558.
Exhibit Index is on pages 18 to 24 of this Report.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders for fiscal year ended December 31, 1996
incorporated by reference into Parts I and II hereof.
Proxy Statement dated March 14, 1997 for Annual Meeting of Stockholders to be
held April 25, 1997 incorporated by reference into Part III hereof.
<PAGE> 2
ALLEN TELECOM INC.
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FORM 10-K
---------
(For the fiscal year ended December 31, 1996)
TABLE OF CONTENTS
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Page
----
PART I
Item 1 - Business ................................................. 3
Item 2 - Properties ............................................... 8
Item 3 - Legal Proceedings ........................................ 8
Item 4 - Submission of Matters to a Vote of Security Holders ...... 8
Executive Officers of The Registrant ............................... 9
PART II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters ...................................... 11
Item 6 - Selected Financial Data .................................. 11
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 11
Item 8 - Financial Statements and Supplementary Data .............. 11
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ...................... 11
PART III
Item 10 - Directors and Executive Officers of the Registrant ....... 12
Item 11 - Executive Compensation ................................... 12
Item 12 - Security Ownership of Certain Beneficial Owners
and Management ........................................... 12
Item 13 - Certain Relationships and Related Transactions ........... 12
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and
Reports on Form 8-K ...................................... 13
SIGNATURES ............................................................ 16
EXHIBIT INDEX ......................................................... 18
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<PAGE> 3
ALLEN TELECOM INC.
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FORM 10-K
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PART I
------
ITEM 1 - BUSINESS
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GENERAL
- -------
Allen Telecom Inc. ("Allen", the "Company" or the "Registrant") was
incorporated under the laws of the State of Delaware on February 3, 1969. Its
predecessor was Allen Electric and Equipment Company, incorporated under the
laws of the State of Michigan on January 13, 1928, which merged into the
Delaware corporation on May 1, 1969. On February 28, 1997, the name of the
Company was changed from The Allen Group Inc. to Allen Telecom Inc., upon the
merger of its wholly owned subsidiary, Allen Telecom Group, Inc. with and into
the Company.
In 1996, the Company decided to exit the centralized automotive emissions
testing business operated by its MARTA Technologies, Inc. subsidiary. The
Company determined that the disposal of this business will allow it to fully
devote management and financial resources to its expanding wireless
communications product lines. Additional information regarding this development
is incorporated herein by reference to Note 9 of the Notes to Consolidated
Financial Statements, "Acquisitions and Dispositions," on pages 23 to 24, and to
the "Discontinued Operations" section of "Management's Discussion and Analysis
of Financial Condition and Results of Operations," on pages 30 to 31, of Allen's
1996 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to
this Report.
There have been no other significant changes in the business, kinds of
products produced or services rendered or in the markets or methods of
distribution since the beginning of the last fiscal year.
Allen is a leading equipment supplier of system expansion, site management
products and mobile and base station antennas to the worldwide wireless
communications market. The principal product lines are systems products,
including repeaters, microcells, wireless PBX systems, paging repeaters, test
and measurement analyzers and power amplifiers; site management and other
non-antenna products, including filters, tower mounted amplifiers, combiners,
duplexers, isolators and cable; and mobile and base station antennas. The demand
for equipment is primarily a function of the development of wireless
communications systems throughout the world, and Allen's ability to develop new
products and technologies related to system coverage and capacity and components
for other manufacturers' wireless communications systems. In this regard, in
1995, the Company introduced its SmartcellTM microcell, which has the ability to
enhance geographic coverage as well as serve as a platform for wireless PBX. The
Company also has developed several new wireless test and measurement products
which have applications in cellular, PCS, trunking and paging systems. These
products perform analysis for AMPS, TACS and paging systems standards, as well
as digital TDMA, GSM and CDMA standards. The Company's wireless
telecommunications manufacturing business in the U.S. is conducted principally
through its divisions and wholly owned subsidiaries, which includes its Grayson
Electronics Company, Antenna Specialists, Decibel Products, Systems and Site
Products divisions, and its wholly owned subsidiary, Signal Science,
Incorporated. In Europe, the Company's business is conducted through its 80%
owned subsidiary, FOR.E.M. S.p.A., in Italy; FOREM's 62% owned subsidiary, Mikom
G.m.b.H., in Germany; and the Company's 64.3% owned subsidiary, Tekmar Sistemi
S.r.l., in Italy.
-3-
<PAGE> 4
Allen's Comsearch division is a leading supplier of frequency planning and
coordinating services as well as system design and field engineering services
and software products for the wireless and personal communications systems
("PCS") markets. Comsearch is involved with carriers and original equipment
manufacturers ("OEMs") in the process of designing the cell layout of a system.
Comsearch's engineering expertise in spectrum sharing, microwave inter-
connectivity, microwave migration and cell system design has enabled it to
obtain orders from most major PCS carriers. Comsearch's spectrum sharing
software, comprised of IQ.Clear and IQ. Link, currently is licensed in most
major domestic PCS markets, and its IQ.Clear software for microwave
interconnection is operational in several European PCS systems.
International sales of the Company have increased substantially and are now
more than 56% of total sales. The Company's export sales from the U.S. are
primarily to major wireless telephony companies and are typically payable in
U.S. dollars. European sales are primarily to major European OEMs and cellular
or PCS operators in local currencies. The Company currently has
sales/engineering offices in Canada, China, Brazil, Australia, Singapore,
France, United Kingdom, Austria, Peru, India, Mexico and Hong Kong. The Company
sees no significantly greater risk as a result of the greater proportion of
international business than that of its domestic operations.
Allen's wireless telephony products generally are manufactured or assembled
by the Company. With respect to its European operations, a substantial portion
of product manufacturing labor is outsourced to third parties. Comsearch's
frequency planning and coordination services are provided principally at its
central headquarters facility and at customer locations. Products are sold
directly through commissioned sales employees or through distributors and sales
representatives to OEMs, common carriers and other large uses of
telecommunications products.
WORKING CAPITAL
- ---------------
The Company's products consist of standard manufactured products for which
inventory levels are generally based on product demand. As previously indicated,
the increase in international export sales generally resulted in extended
collection periods as such receivables make up a greater proportion of trade
receivables. This factor, in conjunction with the general increase in sales, has
increased the working capital needs of the Company's business.
During 1996, the Company entered into an agreement and made an equity
investment in a wireless telecommunications company in the amount of $5,000,000.
This company has agreed to purchase from the Company $50,000,000 of equipment
and services through December 31, 2001. In connection with this purchase
commitment, the Company will make available up to $50,000,000 of product
financing in the form of secured, interest bearing loans to be used solely to
finance the purchase price of the equipment and services supplied by the
Company. The Company believes that existing credit lines and continued cash flow
from operations provide sufficient flexibility for this arrangement.
COMPETITION
- -----------
In each of Allen's product lines, competition is vigorous. The Company
believes that it has established a major market position in the United States
for mobile cellular telephone antennas, where competition is distributed among
many manufacturers. In its other product lines, the Company believes that it is
among the major manufacturers and that competition is widely distributed.
Allen's principal methods of competition include price, service, warranty,
market availability, product research and development, innovation and
performance. In certain of its product lines, the Company has augmented its own
resources through licensing agreements with companies possessing complementary
resources and technologies.
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<PAGE> 5
MAJOR CUSTOMERS
- ---------------
There is no single customer the loss of which would have a material adverse
effect on the Company. However, three major telecommunications equipment
companies accounted for approximately 21% (none individually greater than 10%)
of sales in 1996. The balance of the Company's sales were widely distributed
among many customers.
BACKLOG
- -------
The approximate backlog of orders as of December 31, 1996 and 1995 are as
follows (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Wireless Communications $108,741 $ 85,339
Discontinued Centralized Automotive
Emissions Inspections - 144,138
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108,741 229,477
Backlog not expected to be filled within one year:
Wireless Communications ( 1,935) -
Discontinued Centralized Automotive
Emissions Inspections ( -) (121,274)
------- -------
Backlog expected to be filled in
1997 fiscal year $106,806 $108,203
======= =======
</TABLE>
The backlog for wireless communications products represents orders for systems
and site management products and base station and mobile antennas. The increase
in the wireless communications backlog for 1996 reflects a general increase in
the level of business for existing products.
During 1996, the Company entered into an agreement and made an equity
investment in a wireless telecommunications Company in the amount of $5,000,000.
This Company has agreed to purchase from the Company $50,000,000 of equipment
and services through December 31, 2001. Pending the receipt of orders, this
purchase commitment has been excluded from the above order backlog amounts.
As noted previously, the Company has decided to exit the centralized
automotive emissions inspections business. The Company has entered into a
contract to transfer its Cincinnati, Ohio program (which currently is not
operating pending the sale). The Jacksonville, Florida program is also subject
to ongoing contract negotiations under which that program also may be sold at
some future date. In the event the aforementioned agreement for sale is not
consummated, the Company will continue to endeavor to sell MARTA's operating
programs or operate them until the termination of the respective contracts, and
will not bid upon or seek new emissions testing programs. Total backlog for this
business (excluding the suspended Cincinnati, Ohio program under contract for
sale) was approximately $22,400,000 at December 31, 1996, of which $12,660,000
is expected to be filled within one year.
PRODUCTION, RAW MATERIALS AND SUPPLIES
- --------------------------------------
In addition to manufacturing certain products, Allen also assembles at its
facilities certain components manufactured for it by non-affiliated companies.
The principal materials used in the production of Allen's products are
electronic components, steel, aluminum and plastics. These materials are
purchased regularly from several producers and have been generally available in
sufficient quantities to meet Allen's requirements, although occasionally
shortages have occurred. The Company believes that the supplies of materials
through the end of 1997 will be adequate.
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<PAGE> 6
PATENTS, LICENSES AND FRANCHISES
- --------------------------------
The Company owns a number of patents, trademarks and copyrights and
conducts certain operations under licenses granted by others. Although the
Company does not believe that the expiration or loss of any one of these items
would materially affect its business considered as a whole or the operations of
any industry segment, it does consider certain of them to be important to the
conduct of its business in certain product lines. Business franchises and
concessions are not of material importance to Allen's industry segments.
RESEARCH AND DEVELOPMENT
- ------------------------
The Company is engaged in research and development activities
(substantially all of which are Company-sponsored) as part of its ongoing
business. The Company is continuing to emphasize the development of specialty
products and accessories to serve the wireless communications markets.
Currently, these development activities are not expected to require a material
investment in assets. For additional information, see "Research and Development
Costs" in Note 1 of Notes to Consolidated Financial Statements on pages 16 to 17
of Allen's 1996 Annual Report to Stockholders, a copy of which is filed as
Exhibit 13 to this Report.
ENVIRONMENTAL CONTROLS
- ----------------------
The Company is subject to federal, state and local laws designed to protect
the environment and believes that, as a general matter, its policies, practices
and procedures are properly designed to prevent unreasonable risk of
environmental damage and financial liability to the Company. Additional
information regarding environmental issues is incorporated herein by reference
to the last paragraph of Note 5, "Commitments and Contingencies," of the Notes
to Consolidated Financial Statements on page 20 of Allen's 1996 Annual Report to
Stockholders, a copy of which is filed as Exhibit 13 to this Report.
EMPLOYEES
- ---------
As of December 31, 1996, Allen had approximately 2,900 employees.
SEASONAL TRENDS
- ---------------
Generally, the Company's sales are not subject to significant seasonal
variations; however, its sales and earnings tend to be lower in the first fiscal
quarter due to lower outdoor installations of its products in the northern
climates.
INDUSTRY SEGMENTS, CLASSES OF PRODUCTS, FOREIGN OPERATIONS AND EXPORT SALES
- ---------------------------------------------------------------------------
Information relating to the Company's classes of similar products or
services, foreign and domestic operations and export sales is incorporated
herein by reference to "Geographic Data" in Note 8 of the Notes to Consolidated
Financial Statements on page 23, and the information presented in the charts and
graphs on pages 28 to 31, of the Company's 1996 Annual Report to Stockholders, a
copy of which is filed as Exhibit 13 to this Report.
The Company now has sizeable manufacturing and sales operations in Italy
and Germany. With the opportunities represented by the rapid deployment of
wireless telephony systems throughout the world, the Company has seen extensive
growth in international markets. The Company's export sales have increased from
$62 million in 1994 to $98 million in 1995, and $87 million in 1996. This growth
and the growth in non-European opportunities for our European produced product,
has encouraged the Company to continue to expand the size and number of its
international sales and service offices. The Company also has a manufacturing
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<PAGE> 7
operation in Mexico (a "maquiladora") which principally supplies mobile
antennas. In the opinion of management, any risks inherent in Allen's existing
foreign operations and sales are not substantially different than the risks
inherent in its domestic operations.
-7-
<PAGE> 8
ITEM 2 - PROPERTIES
-------------------
At December 31, 1996, Allen's continuing operations were conducted in 36
facilities in 13 states and 14 foreign countries. Allen's wireless
communications operations occupy approximately 951,000 square feet of space for
manufacturing, assembly, warehousing, research and development, sales and
administrative offices. Approximately 504,000 square feet are rented under
operating leases. The Company's principal facilities are located in Ohio, Texas,
Virginia, Italy, Germany and Mexico.
Information concerning all of the Company's properties at December 31, 1996
is as follows (amounts in thousands):
<TABLE>
<CAPTION>
Square Footage
----------------------------------------------------
Domestic Foreign
-------- -------
Owned Leased Owned Leased Total
----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Wireless Communications 269 448 178 56 951
Discontinued Centralized Auto-
motive Emissions Inspections 74 126 - - 200
--- --- --- --- -----
343 574 178 56 1,151
=== === === === =====
</TABLE>
Allen's machinery, plants, warehouses and offices are in good condition,
reasonably suited and adequate for the purposes for which they are presently
used and generally are fully utilized.
Domestic leased facilities includes approximately 100,000 square feet
relating to facilities under a capital lease arrangement for the discontinued
centralized automotive emissions inspections business. In addition to the above,
Allen owns two manufacturing facilities that had been utilized by previously
discontinued operations. These facilities (totalling 116,000 square feet)
currently are under short-term leases to third parties.
ITEM 3 - LEGAL PROCEEDINGS
--------------------------
The information required by this Item is incorporated herein by reference
to the fourth paragraph of Note 5, "Commitments and Contingencies", of the Notes
to Consolidated Financial Statements on page 20 of the Registrant's 1996 Annual
Report to Stockholders, a copy of which is filed as Exhibit 13 to this Report.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
Not applicable.
-8-
<PAGE> 9
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
The following list sets forth the names of the executive officers (as
defined under rules promulgated by the Securities and Exchange Commission) of
Allen, their ages and business experience during at least the last five years.
ROBERT G. PAUL - President and Chief Executive Officer; age 55.
Mr. Paul has been President and Chief Executive Officer of the Company
since February 1991. He was President and Chief Operating Officer of the Company
from December 1989 to February 1991, Senior Vice President - Finance from April
1987 to December 1989, Vice President-Finance from January 1987 to April 1987
and a Vice President from 1974 to January 1987. He also was President of the
Antenna Specialists Company division of the Company's former subsidiary, Orion
Industries, Inc. (a predecessor of the Company's wholly owned subsidiary, Allen
Telecom Group, Inc. ("ATG"), which was merged into Allen in February 1997), from
1978 to June 1990. Mr. Paul joined the Company in 1970 as an Assistant to the
President and also served as Assistant Treasurer from 1970 to 1972. He was
elected Treasurer in 1972 and Vice President and Treasurer of Allen in 1974. Mr.
Paul was appointed Vice President-Finance and Administration of the Antenna
Specialists Company division of Allen's former subsidiary, Orion Industries,
Inc. in 1976, its Vice President-Operations in 1977 and its President in 1978,
while continuing as a Vice President of Allen.
ERIK H. VAN DER KAAY - Executive Vice President; age 56.
Mr. van der Kaay joined the Company in 1990 as President of the Antenna
Specialists Company division of Allen's former subsidiary, Orion Industries,
Inc. and was President of ATG from June 1993 until its merger into Allen in
February 1997. He was elected Vice President of Allen in February 1993 and was
promoted to Executive Vice President in February 1997. Prior to joining Allen,
Mr. van der Kaay was the Chief Executive Officer of Millitech Corporation, a
developer and manufacturer of millimeter communication components and systems,
South Deerfield, Massachusetts, from 1988 to 1990, and Group Vice President of
Telecommunications at Avantek Inc., a developer and manufacturer of microwave
radios and CATV systems, Santa Clara, California, from 1984 to 1988.
ROBERT A. YOUDELMAN - Executive Vice President, Chief Financial Officer and
Assistant Secretary; age 55.
Mr. Youdelman joined the Company in 1977 as Director of Taxes and was
elected Vice President-Taxation in February 1980. In December 1989, he was
elected Senior Vice President-Finance, Chief Financial Officer and Assistant
Secretary of the Company and was promoted to Executive Vice President in
February 1997. Mr. Youdelman is an attorney.
PETER G. DEVILLIERS - Vice President; age 43.
Mr. deVilliers joined the Company in July 1992 upon the acquisition by the
Company of Alliance Telecommunications Corporation ("Alliance"), Dallas, Texas,
where he served as Vice President-Marketing and Sales since joining Alliance in
March 1991. Mr. deVilliers served as Vice President-Strategic Planning for ATG
upon the merger of Alliance into ATG in June 1993 until February 1997. In
February 1997, he was elected Vice President of Allen.
JAMES L. LEPORTE, III - Vice President, Treasurer and Controller; age 42.
Mr. LePorte joined the Company in 1981 as Senior Financial Analyst. In
1983, he was appointed Manager of Financial Analysis, and, in 1984, was named
Assistant Controller. Mr. LePorte was elected Controller of the Company in April
1988; its Vice President in December 1990; and Treasurer of the Company in
September 1995.
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<PAGE> 10
MCDARA P. FOLAN, III - Vice President, Secretary and General Counsel; age 38.
Mr. Folan joined the Company in August 1992 as Corporate Counsel and was
elected Secretary and General Counsel in September 1992 and Vice President in
December 1994. Prior to joining Allen, Mr. Folan was affiliated with the law
firm of Jones, Day, Reavis and Pogue, Cleveland, Ohio, from September 1987 to
August 1992. Mr. Folan is an attorney.
There is no family relationship between any of the foregoing officers. All
officers of Allen hold office until the first meeting of directors following the
annual meeting of stockholders and until their successors have been elected and
qualified.
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<PAGE> 11
PART II
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ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
------------------------------------------------------------------------------
The information required by this Item is incorporated herein by reference
to the last paragraph of Note 2, "Financing," of the Notes to Consolidated
Financial Statements on page 17, and to "Exchange Listings," "Market Price Range
of Common Stock," "Dividends Declared On Common Stock" and "Stockholders" on the
inside back cover of the Registrant's 1996 Annual Report to Stockholders, a copy
of which is filed as Exhibit 13 to this Report.
ITEM 6 - SELECTED FINANCIAL DATA
--------------------------------
The information required by this Item is incorporated herein by reference
to "Five Year Summary of Operations" on page 32, and to "Dividends Declared on
Common Stock" on the inside back cover of the Registrant's 1996 Annual Report to
Stockholders, a copy of which is filed as Exhibit 13 to this Report.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by this Item is incorporated herein by reference
to pages 28 to 31 of the Registrant's 1996 Annual Report to Stockholders, a copy
of which is filed as Exhibit 13 to this Report, as updated below.
Statements made in Managements Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
regarding the Company's future performance and financial results are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those set forth in the forward-looking statements due to a
variety of factors, including, besides those mentioned, business conditions and
growth in the general economy and the wireless telecommunications industry,
timely development and acceptance of new products, changes in product mix, the
uncertain level of purchases by current and prospective customers of the
Company's products, the impact of competitive products and pricing, inventory
risk due to shifts in market demand, and other risks identified from time to
time in the Company's reports filed with the Securities Exchange Commission
pursuant to the Exchange Act of 1934. Further, the amount of charges to
discontinued operations with respect to the centralized automotive emissions
testing business will depend on a number of factors, including, among others,
the outcome of negotiations with the purchaser of one test program and various
state representatives, as well as the valuation of assets to be sold,
transferred or otherwise realized.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
The information required by this Item is incorporated herein by reference
to the Consolidated Statements of Income, Consolidated Balance Sheets,
Consolidated Statements of Cash Flows and Consolidated Statements of
Stockholders' Equity on pages 12 to 15, to the Notes to Consolidated Financial
Statements on pages 16 to 26, and to the "Report of Independent Accountants" on
page 27, of the Registrant's 1996 Annual Report to Stockholders, a copy of which
is filed as Exhibit 13 to this Report.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
Not applicable.
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<PAGE> 12
PART III
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ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
--------------------------------------------------------
The information required by this Item relating to the Company's executive
officers is included on pages 9 to 10 hereof under "EXECUTIVE OFFICERS OF THE
REGISTRANT" and is incorporated herein by reference to "EXECUTIVE COMPENSATION
AND TRANSACTIONS WITH MANAGEMENT - Employment, Termination of Employment and
Change of Control Arrangements" on pages 15 to 17 of the Registrant's definitive
proxy statement dated March 14, 1997 and filed with the Securities and Exchange
Commission pursuant to Section 14(a) of the Securities Act of 1934. The other
information required by this Item is incorporated herein by reference to
"ELECTION OF DIRECTORS - Information Regarding Nominees" on pages 1 to 3 of the
Registrant's definitive proxy statement dated March 14, 1997 and filed with the
Securities and Exchange Commission pursuant to Section 14(a) of the Securities
Exchange Act of 1934.
ITEM 11 - EXECUTIVE COMPENSATION
--------------------------------
The information required by this Item is incorporated herein by reference
to "ELECTION OF DIRECTORS - Compensation of Directors" on pages 4 to 5, and to
"EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT" on pages 6 to 17, of
the Registrant's definitive proxy statement dated March 14, 1997 and filed with
the Securities and Exchange Commission pursuant to Section 14(a) of the
Securities Exchange Act of 1934.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------------------------------------------------------------------------
The information required by this Item is incorporated herein by reference
to "STOCK OWNERSHIP" on pages 20 to 22 of the Registrant's definitive proxy
statement dated March 14, 1997 and filed with the Securities and Exchange
Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The information required by this Item is incorporated herein by reference
to "EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT - Transactions with
Executive Officers and Directors" on page 19 of the Registrant's definitive
proxy statement dated March 14, 1997 and filed with the Securities and Exchange
Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934.
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<PAGE> 13
PART IV
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ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------
(a)(1) FINANCIAL STATEMENTS OF THE REGISTRANT
--------------------------------------
The Consolidated Financial Statements of the Registrant listed below,
together with the Report of Independent Accountants, dated February 17, 1997,
are incorporated herein by reference to pages 12 to 27 of the Registrant's
1996 Annual Report to Stockholders, a copy of which is filed as Exhibit 13 to
this Report.
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Accountants
(2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
The following additional information should be read in conjunction with the
Consolidated Financial Statements of the Registrant described in Item
14(a)(1) above:
FINANCIAL STATEMENT SCHEDULES OF THE REGISTRANT
-----------------------------------------------
Report of Independent Accountants, on page 14 of this Report, relating
to the financial statement schedule
Valuation and Qualifying Accounts Schedule, on page 15 of this Report
Schedules other than the schedule listed above are omitted because they are
not required or are not applicable, or because the information is furnished
elsewhere in the financial statements or the notes thereto.
(3) EXHIBITS*
--------
The information required by this Item relating to Exhibits to this Report is
included in the Exhibit Index on pages 18 to 24 hereof.
(b) REPORTS ON FORM 8-K
-------------------
None.
- -----------------
*A copy of any of the Exhibits to this Report will be furnished to persons who
request a copy upon the payment of a fee of $.25 per page to cover the Company's
duplication and handling expenses.
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<PAGE> 14
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Stockholders of
Allen Telecom Inc.:
Our report on the consolidated financial statements of Allen Telecom Inc.
has been incorporated by reference in this Annual Report on Form 10-K from page
27 of the 1996 Annual Report to Stockholders of Allen Telecom Inc. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedule listed in the Index on page 13 of this Form 10-K
Annual Report.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
February 17, 1997
-14-
<PAGE> 15
ALLEN TELECOM INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- ------------------------------- ---------- -------------------- ---------- ----------
Additions
Balance -------------------- Balance
at Charged to Charged Deductions at End
Beginning Costs and to Other from of
Description of Period Expenses Accounts Reserves Period
- ------------------------------- ---------- ---------- -------- ---------- ----------
Allowance for doubtful accounts:
<S> <C> <C> <C> <C> <C>
1996 $ 1,232 825 - 447(1) $ 1,610
======= ======= ======= ======= =======
1995 $ 1,684 592 - 1,044(1)(2) $ 1,232
======= ======= ======= ======= =======
1994 $ 1,270 417 - 3(1) $ 1,684
======= ======= ======= ======= =======
<FN>
(1) Represents the write-off of uncollectible accounts, less recoveries.
(2) Includes the elimination of related balances for its Truck Products
Business spun off in 1995.
</TABLE>
-15-
<PAGE> 16
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ALLEN TELECOM INC.
------------------
(Registrant)
By /s/ Robert A. Youdelman
---------------------------
Robert A. Youdelman
Executive Vice President and
Chief Financial Officer
Date: March 27, 1997
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert G. Paul March 27, 1997
- ---------------------------
Robert G. Paul, President, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ Robert A. Youdelman March 27, 1997
- ---------------------------
Robert A. Youdelman, Executive Vice President and
Chief Financial Officer (Principal Financial Officer)
/s/ James L. LePorte March 27, 1997
- ---------------------------
James L. LePorte, Vice President Treasurer
and Controller (Principal Accounting Officer)
/s/ George A. Chandler March 27, 1997
- ---------------------------
George A. Chandler, Director
/s/ Philip Wm. Colburn March 27, 1997
- ---------------------------
Philip Wm. Colburn, Chairman of the Board
and Director
/s/ Jill K. Conway March 27, 1997
- ---------------------------
Jill K. Conway, Director
/s/ Albert H. Gordon March 27, 1997
- ---------------------------
Albert H. Gordon, Director
/s/ William O. Hunt March 27, 1997
- ---------------------------
William O. Hunt, Director
-16-
<PAGE> 17
/s/ J. Chisholm Lyons March 27, 1997
- ---------------------------
J. Chisholm Lyons, Director
/s/ John F. McNiff March 27, 1997
- ---------------------------
John F. McNiff, Director
/s/ Charles W. Robinson March 27, 1997
- ---------------------------
Charles W. Robinson, Director
/s/ William M. Weaver, Jr. March 27, 1997
- ---------------------------
William M. Weaver, Jr., Director
-17-
<PAGE> 18
EXHIBIT INDEX
EXHIBIT NUMBERS PAGES
- --------------- -----
(3) Certificate of Incorporation and By Laws -
(a) Restated Certificate of Incorporation (filed as
Exhibit Number 3(a) to Registrant's Form 10-K
Annual Report for the fiscal year ended December
31, 1984 (Commission file number 1-6016) and
incorporated herein by reference)......................... -
(b) Certificate of Designations, Powers, Preferences
and Rights of the $1.75 Convertible Exchangeable
Preferred Stock, Series A (filed as Exhibit Number
3(b) to Registrant's Form 10-K Annual Report for
the fiscal year ended December 31, 1986
(Commission file number 1-6016) and incorporated
herein by reference) ..................................... -
(c) Certificate of Amendment of Restated Certificate
of Incorporation (filed as Exhibit Number 3(c) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1987 (Commission file number
1-6016) and incorporated herein by reference) ............ -
(d) Certificate of Designations, Powers, Preferences
and Rights of the Variable Rate Preferred Stock,
Series A (filed as Exhibit Number 3(d) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1987 (Commission file number
1-6016) and incorporated herein by reference) ............ -
(e) Certificate of Designation, Preferences and Rights
of Series B Junior Participating Preferred Stock
(filed as Exhibit Number 3(e) to Registrant's
Form 10-K Annual Report for the fiscal year
ended December 31, 1987 (Commission file number
1-6016) and incorporated herein by reference) ............ -
(f) Certificate Eliminating Variable Rate Preferred
Stock, Series A (filed as Exhibit Number 3(f) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1989 (Commission file
number 1-6016) and incorporated herein by
reference) ............................................... -
(g) Certificate of Amendment of Restated Certificate
of Incorporation (filed as Exhibit Number 3(g) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1993 (Commission file number
1-6016) and incorporated herein by reference)............. -
(h) Certificate Eliminating $1.75 Convertible Exchangeable
Preferred Stock, Series A (filed as Exhibit Number 3(h)
to Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1993 (Commission file number
1-6016) and incorporated herein by reference)............. -
(i) Certificate of Ownership and Merger Merging
Allen Telecom Group, Inc. into The Allen Group Inc........ 25
(j) By-Laws, as amended through September 10, 1992 (filed
as Exhibit Number 3(g) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1992
(Commission file number 1-6016) and incorporated herein
by reference)............................................. -
-18-
<PAGE> 19
(4) Instruments defining the rights of security holders -
(a) Rights Agreement, dated as of January 7, 1988,
between the Registrant and Manufacturers Hanover
Trust Company (filed as Exhibit Number 4 to
Registrant's Form 8-K Current Report dated
January 7, 1988 (Commission file number 1-6016)
and incorporated herein by reference) .................... -
(b) Amended and Restated Credit Agreement, dated as
of November 11, 1996, among the Registrant,
MARTA Technologies, Inc., the Banks signatories
thereto, and Bank of Montreal, as agent (filed as
Exhibit Number 4 to Registrant's Form 10-Q Quarterly
Report for the quarterly period ended September 30,
1996 (Commission file number 1-6016) and incorporated
herein by reference....................................... -
Additional information concerning Registrant's
long-term debt is set forth in Note 2, "Financing," of
the Notes to Consolidated Financial Statements on page
17 of Registrant's 1996 Annual Report to Stockholders,
a copy of which is filed as Exhibit 13 to this Report.
Other than the Credit Agreement referred to above, no
instrument defining the rights of holders of such
long-term debt relates to securities having an
aggregate principal amount in excess of 10% of the
consolidated assets of Registrant and its
subsidiaries; therefore, in accordance with paragraph
(iii) of Item 4 of Item 601(b) of Regulation S-K, the
other instruments defining the rights of holders of
long-term debt are not filed herewith. Registrant
hereby agrees to furnish a copy of any such other
instrument to the Securities and Exchange Commission
upon request.
(10) Material contracts (Other than Exhibit 10(a), all
of the exhibits listed as material contracts
hereunder are management contracts or compensatory
plans or arrangements required to be filed as
exhibits to this Report pursuant to Item 14(c)
of this Report.)
(a) Contribution Agreement, dated September 29, 1995,
between Registrant and TransPro, Inc. (filed as
Exhibit Number 2.1 to Registrant's Form 8-K dated
October 12, 1995) (Commission file number 1-6016)
and incorporated herein by reference) .................... -
(b) Allen Telecom Inc. 1982 Stock Plan, as amended
through November 3, 1987 (filed as Exhibit Number 10(c)
to Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1987 (Commission file number
1-6016) and incorporated herein by reference)............. -
(c) Amendment, dated as of December 4, 1990, to the Allen
Telecom Inc. 1982 Stock Plan, as amended (filed as
Exhibit Number 10(d) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1990
(Commission file number 1-6016) and incorporated
herein by reference)...................................... -
(d) Amendment, dated as of June 14, 1995, to the Allen
Telecom Inc. 1982 Stock Plan, as amended (filed as
Exhibit Number 10.1 to Registrant's Form 10-Q
Quarterly Report for the quarterly period ended
June 30, 1995 (Commission file number 1-6016) and
incorporated herein by reference ......................... -
-19-
<PAGE> 20
(e) Amendment, dated as of February 28, 1997, to the
Allen Telecom Inc. 1982 Stock Plan, as amended............ 28
(f) Form of Restricted Stock Agreement pursuant to the
Allen Telecom Inc. 1982 Stock Plan, as amended
(filed as Exhibit Number 10(e) to Registrant's
Form 10-K Annual Report for the fiscal year ended
December 31, 1990 (Commission file number 1-6016)
and incorporated herein by reference) .................... -
(g) Allen Telecom Inc. 1992 Stock Plan (filed as Exhibit
Number 10(f) to Registrant's Form 10-K Annual Report
for the fiscal year ended December 31, 1992 (Commission
file number 1-6016) and incorporated herein by reference). -
(h) Amendment to the Allen Telecom Inc. 1992 Stock Plan, dated
September 13, 1994 (filed as Exhibit Number 10 to the
Registrant's Form 10-Q Quarterly Report for the quarterly
period ended September 30, 1994 (Commission file number
1-6016) and incorporated herein by reference)............. -
(i) Second Amendment to the Allen Telecom Inc. 1992 Stock Plan,
dated February 23, 1994 (filed as Exhibit Number 10(h) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1994 (Commission file number 1-6016)
and incorporated herein by reference ..................... -
(j) Third Amendment to the Allen Telecom Inc. 1992 Stock Plan,
dated February 23, 1994 (filed as Exhibit Number 10(i)
to Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1994 (Commission file number
1-6016) and incorporated herein by reference) ............ -
(k) Fourth Amendment to the Allen Telecom Inc. 1992 Stock Plan,
dated as of June 14, 1995 (filed as Exhibit Number 10.2
to Registrant's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1995 (Commission file
number 1-6016) and incorporated herein by reference) ..... -
(l) Fifth Amendment to the Allen Telecom Inc. 1992 Stock Plan,
dated as of February 28, 1997 ............................ 29
(m) Form of Restricted Stock Agreement pursuant to Allen
Telecom Inc. 1992 Stock Plan (Salary Increase Deferral),
dated November 30, 1993, entered into by the Registrant
with certain executive and divisional officers (filed
as Exhibit Number 10(g) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31,
1993 (Commission file number 1-6016) and incorporated
herein by reference) ..................................... -
(n) Form of Restricted Stock Agreement pursuant to Allen
Telecom Inc. 1992 Stock Plan (Salary Increase Deferral),
dated April 28, 1992, entered into by the Registrant with
certain executive and divisional officers (filed as
Exhibit Number 10(g) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1992
(Commission file number 1-6016) and incorporated
herein by reference) ..................................... -
(o) Amendment to Restricted Stock Agreements pursuant to
1992 Stock Plan (Salary Increase Deferral), dated
February 22, 1995 (filed as Exhibit Number 10(l) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1994 (Commission file number
1-6016) and incorporated herein by reference) ............ -
-20-
<PAGE> 21
(p) Form of Non-Qualified Option to Purchase Stock
granted to certain directors of the Registrant
on September 12, 1989 (filed as Exhibit Number
10(e) to Registrant's Form 10-K Annual Report
for the fiscal year ended December 31, 1989
(Commission file number 1-6016) and incorporated
herein by reference) ..................................... -
(q) Form of Non-Qualified Option to Purchase Stock
granted to certain directors of the Registrant
on February 19, 1997 ..................................... 30
(r) Allen Telecom Inc. 1994 Non-Employee Directors
Stock Option Plan (filed as Exhibit A to Registrant's
Proxy Statement dated March 17, 1994 (Commission file
number 1-6016) and incorporated herein by reference)...... -
(s) First Amendment to the Allen Telecom Inc. 1994
Non-Employee Directors Stock Option Plan ................. 35
(t) Form of Non-Qualified Option to Purchase Stock pursuant
to the Allen Telecom Inc. 1994 Non-Employee Directors
Stock Option Plan (filed as Exhibit Number 10(o) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1994 (Commission file number
1-6016) and incorporated herein by reference) ............ -
(u) Allen Telecom Inc. Amended and Restated Key
Management Deferred Bonus Plan (incorporating
all amendments through February 27, 1992) (filed as
Exhibit Number 10(i) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1992
(Commission file number 1-6016) and incorporated
herein by reference)...................................... -
(v) Amendment, dated as of February 28, 1997, to the
Allen Telecom Inc. Amended and Restated Key Management
Deferred Bonus Plan ...................................... 36
(w) Form of Restricted Stock Agreement pursuant to the
Allen Telecom Inc.1992 Stock Plan and Key Management
Deferred Bonus Plan (filed as Exhibit Number 10(j)
to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1992 (Commission file
number 1-6016) and incorporated herein by reference)...... -
(x) Form of Severance Agreement, dated as of November 3,
1987, entered into by the Registrant with certain
executive officers, officers and division presidents
(filed as Exhibit Number 10(g) to Registrant's
Form 10-K Annual Report for the fiscal year ended
December 31, 1987 (Commission file number 1-6016)
and incorporated herein by reference) .................... -
(y) Form of Amendment, dated December 5, 1989, to
Severance Agreement entered into by the Registrant
with certain executive officers, officers and division
presidents (filed as Exhibit Number 10(j) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1989 (Commission file number
1-6016) and incorporated herein by reference) ............ -
(z) Allen Telecom Inc. Master Discretionary Severance
Pay Plan, effective January 1, 1993 (filed as Exhibit
10(t) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1994 (Commission file
number 1-6016) and incorporated herein by reference) ..... -
-21-
<PAGE> 22
(aa) First Amendment, dated as of February 28, 1997, to
the Allen Gelecom Inc. Master Discretionary Severance
Pay Plan ................................................. 37
(bb) Allen Telecom Inc. Key Employee Severance Policy
adopted by the Registrant on November 3, 1987
(filed as Exhibit Number 10(h) to Registrant's
Form 10-K Annual Report for the fiscal year ended
December 31, 1987 (Commission file number 1-6016)
and incorporated herein by reference) .................... -
(cc) Amendment, dated May 14, 1991, to the Allen Telecom
Inc. Key Employee Severance Policy adopted by the
Registrant on November 3, 1987 (filed as Exhibit
Number 10(n) to Registrant's Form 10-K Annual Report
for the fiscal year ended December 31, 1992 (Commission
file number 1-6016) and incorporated herein by
reference)................................................ -
(dd) Amendment No. 2, dated February 22, 1996, to the Allen
Telecom Inc. Key Employee Severance Policy (filed as
Exhibit Number 10(x) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1995,
(Commission file number 1-6016) and incorporated
herein by reference)...................................... -
(ee) Amendment No. 3, dated as of September 12, 1996, to the
Allen Telecom Inc. Key Employee Severance Policy (filed
as Exhibit Number 10 to Registrant's Form 10-Q
Quarterly Report for the quarter ended September 30,
1996, (Commission file number 1-6016) and incorporated
herein by reference ...................................... -
(ff) Amendment No. 4, dated as of February 28, 1997, to the
Allen Telecom Inc. Key Employee Severance Policy.......... 38
(gg) Employment Agreement, dated June 28, 1988, between
the Registrant and Philip Wm. Colburn (filed as
Exhibit Number 10(m) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31,
1988 (Commission file number 1-6016) and incorporated
herein by reference) ..................................... -
(hh) Amendment, dated as of February 27, 1992, of Employment
Agreement, dated June 28, 1988, between the Registrant
and Philip Wm. Colburn (filed as Exhibit Number 10(p) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1992 (Commission file number
1-6016) and incorporated herein by reference)............. -
(ii) Amendment, dated as of February 26, 1991, of
Employment Agreement, dated June 28, 1988, between
the Registrant and Philip Wm. Colburn (filed as
Exhibit Number 10(n) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1990
(Commission file number 1-6016) and incorporated herein
by reference) ............................................ -
(jj) Amended and Restated Post Employment Consulting
Agreement, dated as of December 20, 1990, between
the Registrant and Philip Wm. Colburn (filed as
Exhibit Number 10(o) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1990
(Commission file number 1-6016) and incorporated herein
by reference) ............................................ -
-22-
<PAGE> 23
(kk) First Amendment to Amended and Restated Post Employment
Consulting Agreement, dated as of February 19, 1997,
between the Registrant and Philip Wm. Colburn ............ 39
(ll) Amended and Restated Supplemental Pension Benefit
Agreement, dated as of December 20, 1990, between
the Registrant and Philip Wm. Colburn (filed as
Exhibit Number 10(p) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1990
(Commission file number 1-6016) and incorporated herein
by reference) ............................................ -
(mm) Insured Supplemental Retirement Benefit Agreement,
dated as of September 4, 1985, between the Registrant
and Philip Wm. Colburn (filed as Exhibit Number 10(l)
to Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1987 (Commission file number
1-6016) and incorporated herein by reference) ............ -
(nn) Split Dollar Insurance Agreement, dated as of July 1,
1991, between the Registrant and Philip Wm. Colburn
(filed as Exhibit Number 10(u) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31,
1992 (Commission file number 1-6016) and incorporated
herein by reference....................................... -
(oo) Supplemental Pension Benefit Agreement, dated
as of December 6, 1983, between the Registrant and
J. Chisholm Lyons (filed as Exhibit Number 10(r) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1983 (Commission file
number 1-6016) and incorporated herein by reference)...... -
(pp) Amendment, dated as of December 20, 1990, of
Supplemental Pension Benefit Agreement, dated as of
December 6, 1983, between the Registrant and
J. Chisholm Lyons (filed as Exhibit Number 10(s)
to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1990 (Commission file
number 1-6016) and incorporated herein by reference)...... -
(qq) Post Employment Consulting Agreement, dated as of
September 12, 1989, between the Registrant and
J. Chisholm Lyons (filed as Exhibit Number 10(s) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1989 (Commission file number
1-6016) and incorporated herein by reference)............. -
(rr) Amendment, dated as of December 20, 1990, of
Post Employment Consulting Agreement, dated as of
September 12, 1989, between the Registrant and
J. Chisholm Lyons (filed as Exhibit Number 10(u) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1990 (Commission file number
1-6016) and incorporated herein by reference)............. -
(ss) Employment Agreement, dated June 25, 1991, between
the Registrant and Robert G. Paul (filed as Exhibit
Number 10(x) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1991
(Commission file number 1-6016) and incorporated
herein by reference)...................................... -
(tt) Supplemental Target Pension Benefit Agreement, dated
as of January 1, 1996, between the Registrant and
Robert G. Paul (filed as Exhibit Number (kk) to
Registrant's Form 10-K Annual Report for the fiscal
-23-
<PAGE> 24
year ended December 31, 1995 (Commission file number
1-6016) and incorporated herein by reference ............. -
(uu) Form of Split Dollar Insurance Agreement, dated as of
November 1, 1991, entered into by the Registrant with
certain executive and divisional officers (filed as
Exhibit Number 10(bb) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1992
(Commission file number 1-6016) and incorporated herein
by reference ............................................. -
(vv) Allen Telecom Inc. Deferred Compensation Plan,
effective December 1, 1995 (filed as Exhibit Number
10(mm) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1995 (Commission file
number 1-6016) and incorporated herein by reference ...... -
(ww) First Amendment to the Allen Telecom Inc. Deferred
Compensation Plan, dated as of February 28, 1997 ......... 41
(xx) Allen Telecom Inc. Restoration Plan, effective
January 1, 1996 (filed as Exhibit Number 10(nn) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1995 (Commission file number
1-6016) and incorporated herein by reference ............. -
(yy) First Amendment to the Allen Telecom Inc. Restoration
Plan, dated as of February 28, 1997 ...................... 42
(zz) Comsearch Division Supplemental Savings Plan, effective
January 1, 1995 (filed as Exhibit Number 10(oo) to
Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1995 (Commission file number
1-6016) and incorporated herein by reference ............. -
(aaa) First Amendment to the Comsearch Division Supplemental
Savings Plan, dated as of February 28, 1997 .............. 43
(bbb) Form of Supplemental Target Pension Benefit Agreement,
dated as of January 1, 1996, entered into by the
Registrant with certain executive and divisional
officers (filed as Exhibit Number 10(pp) to Registrant's
Form 10-K Annual Report for the fiscal year ended
December 31, 1995 (Commission file number 1-6016) and
incorporated herein by reference ......................... -
(11) Statement re Computation of Earnings Per
Common Share ............................................. 44
(13) 1996 Annual Report to Stockholders*....................... 45
(21) Subsidiaries of the Registrant ........................... 81
(23) Consent of Independent Accountants ....................... 83
(27) Financial Data Schedule................................... 84
* Furnished for the information of the Securities and Exchange
Commission and not to be deemed "filed" as part of this Report except
for the Consolidated Financial Statements of the Registrant and the
Accountants' Report on pages 12 to 27 of said Annual Report to
Stockholders and the other information incorporated by reference in
Items 1 and 3 of Part I hereof and Items 5 to 8 of Part II hereof.
A copy of any of these Exhibits will be furnished to persons who request a
copy upon the payment of a fee of $.25 per page to cover the Company's
duplication and handling expenses.
-24-
<PAGE> 1
Exhibit 3(i)
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
ALLEN TELECOM GROUP, INC.
INTO
THE ALLEN GROUP INC.
* * * * *
THE ALLEN GROUP INC., a corporation organized and existing under the laws
of Delaware,
DOES HEREBY CERTIFY:
FIRST: That The Allen Group Inc., a Delaware corporation (the "Surviving
Corporation"), was incorporated on the 3rd day of February, 1969, pursuant to
the General Corporation Law of the State of Delaware.
SECOND: That the Surviving Corporation owns all of the outstanding shares
of stock of Allen Telecom Group, Inc., a Delaware corporation incorporated on
the 26th day of October, 1988, pursuant to the General Corporation Law of the
State of Delaware (the "Merged Corporation").
THIRD: That the Surviving Corporation, by the following resolutions of its
Board of Directors, duly adopted at a meeting held on the 5th day of December,
1996, determined to merge into itself said Merged Corporation:
NOW, THEREFORE, BE IT RESOLVED, that, pursuant to the provisions of
Section 253 of the Delaware General Corporation Law, the Board of
Directors of the Surviving Corporation hereby approves the merger of
the Merged Corporation with and into the Surviving Corporation (the
"Merger") and, on the effective date of the Merger:
(a) The Surviving Corporation shall be the surviving
corporation of the Merger, and shall continue to exist as a
domestic
<PAGE> 2
corporation under the laws of the State of Delaware, with all of
the rights and obligations of a surviving domestic corporation as
are provided by the Delaware General Corporation Law, including,
without limitation, the obligation to satisfy all of the
obligations, if any, of the Merged Corporation; and
(b) The Merged Corporation shall cease to exist and its
property shall become the property of the Surviving Corporation
as the surviving corporation.
FURTHER RESOLVED, that the Merger shall be effective at the close of
business on February 28, 1997;
FURTHER RESOLVED, that the Surviving Corporation change its name by
amending and restating in its entirety Article FIRST of its Restated
Certificate of Incorporation, as amended, to read as follows:
"FIRST: The name of the corporation is Allen Telecom Inc."
-----
FURTHER RESOLVED, that all authorized and outstanding shares of stock
of the Merged Corporation shall be canceled on the effective date of
the Merger, and the certificates representing such shares shall be
surrendered to the Surviving Corporation and canceled;
FURTHER RESOLVED, that, notwithstanding any of the foregoing, the
Board of Directors of the Surviving Corporation at any time prior to
the effectiveness of the Merger, and for any reason it may deem
sufficient and proper, shall have the power and authority to abandon
the Merger as set forth herein;
FURTHER RESOLVED, that the officers of the Surviving Corporation, and
each of them, hereby are authorized and empowered (1) to make and
execute a Certificate of Ownership and Merger setting forth the
resolutions of the Board of Directors of the Surviving Corporation
approving the Merger and the assumption by the Surviving Corporation
of the Merged Corporation's liabilities and obligations, and the date
of adoption thereof, (2) to cause the Certificate of Ownership and
Merger to be filed with the Secretary of State of Delaware and (3) to
do all acts and deeds, whether within or without the State of
Delaware, which may be necessary or proper to effect, or which may be
advisable in connection with, the Merger; and
FURTHER RESOLVED, that the officers of the Surviving Corporation, and
each of them, hereby are authorized and empowered, in the name and on
behalf of the Surviving Corporation, to execute and deliver such
additional agreements,
-2-
<PAGE> 3
instruments and documents, and to take or cause to be taken such other
actions, as any such officer may determine to be necessary or
desirable, in order to implement the immediately preceding resolutions
and consummate the transactions contemplated thereby, each such
agreement, instrument and document to be in such form and to contain
such terms and conditions, consistent with the foregoing resolutions,
as the officer of the Surviving Corporation executing the same may in
his discretion approve, the execution and delivery thereof by such
officer or the taking of such action to constitute conclusive evidence
of such determination and approval and that the same are in accordance
with these resolutions and are the duly authorized acts of the
Surviving Corporation.
FOURTH: That anything herein or elsewhere to the contrary notwithstanding,
the terms of the Merger may be amended or the Merger may be terminated and
abandoned by the Board of Directors of the Surviving Corporation at any time
prior to the date of filing this Certificate of Ownership and Merger with the
Secretary of State of Delaware.
IN WITNESS WHEREOF, said The Allen Group Inc. has caused this Certificate
of Ownership and Merger to be signed by McDara P. Folan, III, its Vice
President, this _____ day of February, 1997.
THE ALLEN GROUP INC.
By: /s/ McDara P. Folan, III
--------------------------------
McDara P. Folan, III, Vice President
-3-
<PAGE> 1
Exhibit 10(e)
AMENDMENT TO
THE ALLEN GROUP INC. 1982 STOCK PLAN
ALLEN TELECOM INC., formerly known as The Allen Group Inc. (the "Company"),
hereby adopts this Amendment to The Allen Group Inc. 1982 Stock Plan (the
"Plan"), effective as of the close of business on February 28, 1997.
I.
As a result of the Company's name change from The Allen Group Inc. to Allen
Telecom Inc., the Plan is hereby amended to change the name of the Company
wherever it is set forth herein, including in the name of the Plan, if
applicable; provided, however, that such name change shall not affect the
substantive meaning of any provision of the Plan.
EXECUTED on this 28th day of February, 1997.
ALLEN TELECOM INC.
By: /s/ McDara P. Folan, III
-------------------------------
McDara P. Folan, III
Vice President, Secretary
and General Counsel
<PAGE> 1
Exhibit 10(l)
FIFTH AMENDMENT TO
THE ALLEN GROUP INC. 1992 STOCK PLAN
ALLEN TELECOM INC., formerly known as The Allen Group Inc. (the
"Company"), hereby adopts this Fifth Amendment to The Allen Group Inc. 1992
Stock Plan (the "Plan"), effective as of the close of business on February 28,
1997.
I.
As a result of the Company's name change from The Allen Group Inc. to
Allen Telecom Inc., the Plan is hereby amended to change the name of the
Company wherever it is set forth herein, including in the name of the Plan, if
applicable; provided, however, that such name change shall not affect the
substantive meaning of any provision of the Plan.
EXECUTED on this 28th day of February, 1997.
ALLEN TELECOM INC.
By: /s/ McDara P. Folan, III
-------------------------------
McDara P. Folan, III
Vice President, Secretary
and General Counsel
<PAGE> 1
Exhibit 10(s)
FIRST AMENDMENT TO
THE ALLEN GROUP INC. 1994 NON-EMPLOYEE
DIRECTORS STOCK OPTION PLAN
ALLEN TELECOM INC., formerly known as The Allen Group Inc. (the "Company"),
hereby adopts this First Amendment to The Allen Group Inc. 1994 Non-Employee
Directors Stock Option Plan (the "Plan"), effective as of the close of business
on February 28, 1997.
I.
As a result of the Company's name change from The Allen Group Inc. to Allen
Telecom Inc., the Plan is hereby amended to change the name of the Company
wherever it is set forth herein, including in the name of the Plan, if
applicable; provided, however, that such name change shall not affect the
substantive meaning of any provision of the Plan.
EXECUTED on this 28th day of February, 1997.
ALLEN TELECOM INC.
By: /s/ McDara P. Folan, III
-------------------------------
McDara P. Folan, III
Vice President, Secretary
and General Counsel
<PAGE> 1
Exhibit 10(t)
AMENDMENT TO THE ALLEN GROUP INC.
AMENDED AND RESTATED
KEY MANAGEMENT DEFERRED BONUS PLAN
ALLEN TELECOM INC., formerly known as The Allen Group Inc. (the "Company"),
hereby adopts this Amendment to The Allen Group Inc. Amended and Restated Key
Management Deferred Bonus Plan (the "Plan"), effective as of the close of
business on February 28, 1997.
I.
As a result of the Company's name change from The Allen Group Inc. to Allen
Telecom Inc., the Plan is hereby amended to change the name of the Company
wherever it is set forth herein, including in the name of the Plan, if
applicable; provided, however, that such name change shall not affect the
substantive meaning of any provision of the Plan.
EXECUTED on this 28th day of February, 1997.
ALLEN TELECOM INC.
By: /s/ McDara P. Folan, III
-------------------------------
McDara P. Folan, III
Vice President, Secretary
and General Counsel
<PAGE> 1
Exhibit 10(aa)
FIRST AMENDMENT TO THE ALLEN GROUP INC.
MASTER DISCRETIONARY SEVERANCE PAY PLAN
ALLEN TELECOM INC., formerly known as The Allen Group Inc. (the "Company"),
hereby adopts this First Amendment to The Allen Group Inc. Master Discretionary
Severance Pay Plan (the "Plan"), effective as of the close of business on
February 28, 1997.
I.
As a result of the Company's name change from The Allen Group Inc. to Allen
Telecom Inc., the Plan is hereby amended to change the name of the Company
wherever it is set forth herein, including in the name of the Plan, if
applicable; provided, however, that such name change shall not affect the
substantive meaning of any provision of the Plan.
EXECUTED on this 28th day of February, 1997.
ALLEN TELECOM INC.
By: /s/ McDara P. Folan, III
-------------------------------
McDara P. Folan, III
Vice President, Secretary
and General Counsel
<PAGE> 1
Exhibit 10(ff)
AMENDMENT NO. 4 TO THE ALLEN GROUP INC.
KEY EMPLOYEE SEVERANCE POLICY
ALLEN TELECOM INC., formerly known as The Allen Group Inc. (the "Company"),
hereby adopts this Amendment No. 4 to The Allen Group Inc. Key Employee
Severance Policy (the "Policy"), effective as of the close of business on
February 28, 1997.
I.
As a result of the Company's name change from The Allen Group Inc. to Allen
Telecom Inc., the Policy is hereby amended to change the name of the Company
wherever it is set forth herein, including in the name of the Policy, if
applicable; provided, however, that such name change shall not affect the
substantive meaning of any provision of the Policy.
EXECUTED on this 28th day of February, 1997.
ALLEN TELECOM INC.
By: /s/ McDara P. Folan, III
-------------------------------
McDara P. Folan, III
Vice President, Secretary
and General Counsel
<PAGE> 1
Exhibit 10(kk)
AMENDMENT NO. 1
TO THE AMENDED AND RESTATED
POST EMPLOYMENT CONSULTING AGREEMENT
------------------------------------
THIS AMENDMENT NO. 1 made as of February 19, 1997 (this "Amendment"),
to the Amended and Restated Post Employment Consulting Agreement dated as of
December 20, 1990 (the "Agreement"), by and between PHILIP WM. COLBURN
("Consultant") and THE ALLEN GROUP INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
--------------------
WHEREAS, Consultant is performing consulting services under the
Agreement; and
WHEREAS, it is considered expedient and in the best interests of the
Company and Consultant to amend the provisions of the Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and for
other valuable consideration had and received, the parties hereto covenant and
agree as follows:
1. Paragraph 3 of the Agreement hereby is deleted and the
following paragraph is substituted in its place and stead:
"3. Subject to the provisions of paragraph 6 hereof, the
Company agrees to pay Consultant annually an amount equal to not less
than $236,879.65 (hereinafter referred to as the "Base Amount"), in
equal monthly installments, commencing with the last day of the month
in which the Consultant retires and recommences rendering consulting
services hereunder and continuing through December 31, 1998, unless
further extended or sooner terminated as hereinafter provided
(hereinafter referred to as the "Post Employment Consulting Period");
provided, that the Base Amount shall be reduced by any benefits
received by the Consultant prior to January 1, 1994, pursuant to the
Amended and Restated Supplemental Pension Benefit Agreement, between
the Company and Consultant, dated as of even date herewith, except
after a "change in control of the Company", as defined in the
Employment Agreement, dated as of June 28, 1988, between the Company
and Consultant; and it is further provided that the Base Amount shall
be adjusted annually as of each June 30, so that the amount paid
annually to the Consultant hereunder for the twelve months immediately
following such adjustment shall be not less than an amount (hereinafter
referred to as the "Adjusted Amount") which shall bear the same ratio
to the Base Amount as the Consumer Price Index for All Urban Consumers
(1982-1984 = 100) published by the Bureau of Labor Statistics of the
U.S. Department of Labor (hereinafter referred to as the "CPI") for the
most recent month proceeding each such annual anniversary of retirement
bears to such Consumer Price Index for the month preceding the actual
month during which Consultant so retired, which for greater certainty
may be expressed as follows:
Adjusted Amount = most recent month CPI
--------------- ---------------------
Base Amount retirement month CPI
<PAGE> 2
provided that in the event such Consumer Price Index is no longer
published a mutually acceptable index shall be selected, and failing
agreement as to such index the index shall be selected by arbitration,
and provided further that the Base Amount or the Adjusted Amount, or
both, may be increased at any time, or from time to time, in the sole
discretion of the Board of Directors of the Company.
The Adjusted Amount is sometimes hereinafter referred to as
the "Consulting Compensation."
Commencing on January 1, 1999, and each January 1 thereafter,
the term of this Agreement and of the Post Employment Consulting period
shall automatically be extended for one additional year to December 31,
1999 and each December 31 thereafter, unless not later than September
30 immediately preceding such January 1, either the Company or
Consultant shall have given written notice to the other party that the
Company or Consultant, as the case may be, does not wish to extend this
Agreement and the Post Employment Consultant period.
The Company's obligation to make the payments provided herein
shall be contingent upon the faithful performance or observance by
Consultant of his obligations under paragraphs 2 and 5 hereof."
2. Except as specifically amended in writing, the Agreement is
ratified and confirmed.
3. This Amendment and the Agreement shall be read, interpreted
and construed as a single agreement.
IN WITNESS WHEREOF, the Company and Consultant have caused this
Amendment to be duly executed as of the 19th day of February, 1997.
ATTEST: THE ALLEN GROUP INC.
/s/ McDara P. Folan, III By: /s/ Robert G. Paul
- ------------------------------- -----------------------------
McDara P. Folan, III, Secretary Robert G. Paul, President
Chief Executive Officer
WITNESS:
/s/ Philip Wm. Colburn
- ------------------------------ ------------------------------
Philip Wm. Colburn
2
<PAGE> 1
Exhibit 10(q)
THE ALLEN GROUP INC.
NON-QUALIFIED OPTION TO PURCHASE STOCK
--------------------------------------
Number of Shares ______________ ______________, 19__
THE ALLEN GROUP INC., a Delaware corporation (hereinafter called the
"Company"), hereby awards unto _____________________ (hereinafter called the
"Director") a non-qualified option to purchase _______ shares of Common Stock,
par value $1.00 per share, of the Company ("Common Stock") held in the Company's
treasury, at a price of $________ per share, on the terms and subject to the
conditions hereinafter set forth:
1. The number of shares and purchase price are subject to adjustment
as provided in paragraph 8 hereof.
2. This option shall expire on the tenth anniversary of the date
hereof and shall be exercisable 33 1/3 percent after the first anniversary of
the date hereof, 66 2/3 percent after the second anniversary of the date hereof
and 100 percent after the third anniversary of the date hereof. Notwithstanding
the foregoing, upon the death of the Director at any time prior to the tenth
anniversary of the date hereof, or upon the cessation of the Director's service
as a director of the Company six months or more after the date hereof and prior
to the tenth anniversary of the date hereof, this option shall become
immediately exercisable.
3. (a) If the Director shall cease to serve as a director of the
Company at any time six months or more after the date hereof, for any reason
other than death, this option may be exercised within three months after such
cessation. In the event of the Director's death within such three-month period
or if the cessation of the Director's service as director shall have been due to
his or her death, this option may be exercised at any time within one year after
the Director's death by his or her executor or administrator or by the
distributee to whom this option may have been transferred by will or by the laws
of descent and distribution.
(b) Notwithstanding anything to the contrary contained herein, if
upon the Director's cessation of service, the Director is or becomes an employee
or a senior management consultant to the Company and/or its subsidiaries, this
option may be exercised by the Director during the period ending on the earliest
of (i) the ninetieth (90th) day following the date that the Director permanently
ceases to render employment or consulting services to the Company and/or its
subsidiaries, for any reason other than cessation by reason of death, or (ii)
the date that is one year after the date described in clause (i) if the Director
ceases to render employment or consulting services on account of his or her
death (in which case the option may be exercised by the Director's executor or
administrator or by the distributee to whom this option may have been
transferred by will or by the laws of descent and distribution).
(c) Except as permitted by this paragraph 3, no option shall be
exercisable after the date of cessation of the Director's service as a director
of the Company. Anything herein to the contrary notwithstanding, this option may
in no event be exercised after the tenth anniversary of the date hereof.
4. During the lifetime of the Director, this option is exercisable
only by the Director, and neither this option nor any right or privilege
pertaining hereto may be transferred, assigned, pledged or hypothecated in any
way, by operation of law or otherwise, and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of this option or any right or privilege
pertaining hereto, otherwise than by will or by the laws of descent and
distribution, or upon the levy of any execution, attachment or similar process
thereupon, this option and all rights and privileges given hereby shall
immediately become null and void.
<PAGE> 2
5. Subject to the conditions set forth herein, this option may be
exercised only by the execution and delivery by the Director (or any person
entitled to act under paragraph 3 hereof), to the Company of a written notice of
exercise in the form attached hereto as EXHIBIT A (with appropriate changes in
the case of a deceased Director), specifying the number of shares to be
purchased and accompanied by payment in full for the shares purchased, either
(a) in cash; (b) by the delivery of such number of shares of the Company's
Common Stock multiplied by the last sale price of such Common Stock as reported
on the New York Stock Exchange Composite Tape on the day such notice is received
by the Company (or if no sale of such Common Stock shall have been made on such
Exchange on that date, on the next preceding day on which there was a sale)
which equals the option price stated in this option multiplied by the number of
shares subject to that portion of this option in respect of which such notice
shall be given; or (c) any combination of cash and shares of the Company's
Common Stock valued as of the date and in the manner provided in (b) above. No
fractional share of Common Stock shall be issued or transferred, and any such
fractional share resulting from an adjustment pursuant to paragraphs 1 and 8
hereof shall be eliminated.
6. The Company shall, upon payment of the exercise price per share
for the number of shares purchased and paid for, make prompt delivery of a
certificate evidencing such shares to the Director (or his or her executor,
administrator or distributee pursuant to paragraph 3 hereof).
7. It shall be a condition to the obligation of the Company to issue
or transfer shares of Common Stock upon the exercise of this option, whether
such purchase price is paid in shares of Common Stock or cash, that the Director
(or any person entitled to act under paragraph 3 hereof) pay to the Company,
upon its demand, such amount as may be requested by the Company for the purpose
of satisfying its liability, if any, to withhold federal, state or local income
or other taxes incurred by the Company by reason of the exercise of this option.
If the amount requested is not paid, the Company may refuse to issue or transfer
shares of Common Stock upon exercise of this option.
8. The Company shall make or provide for such adjustments in the
option price and in the number or kind of shares or other securities covered by
this option as the Company in its sole discretion, exercised in good faith,
shall determine is equitably required to prevent dilution or enlargement of
rights of the Director that would otherwise result from (a) any stock dividend,
stock split, combination of shares, issuance of rights or warrants to purchase
stock, recapitalization or other changes in the capital structure of the
Company, (b) any merger, consolidation, reorganization or partial or complete
liquidation, or (c) any other corporate transaction or event having an effect
similar to any of the foregoing. The Company also shall make or provide for such
adjustments in the number or kind of shares of the Company's Common Stock or
other securities which may be acquired pursuant to this option and the number of
such securities to be awarded to the Director as the Company in its sole
discretion, exercised in good faith, shall determine is appropriate to reflect
any transaction or event described in the preceding sentence. The determination
of the Company as to what adjustments shall be made, and the extent thereof,
shall be final, binding and conclusive.
9. The exercise of this option, and the Company's obligation to
accept, sell and deliver shares of Common Stock pursuant to any such exercise,
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any regulatory or government agency as may be required.
The Company shall not be required to issue or deliver any certificate or
certificates for shares of its Common Stock prior to (a) the admission of such
shares to listing on any stock exchange on which the stock may then be listed
and (b) the completion of any registration or other qualification of such shares
under any state or federal law or rulings or regulations of any government body,
which the Company shall, in its sole discretion, determine to be necessary or
advisable.
10. Except as provided herein, this option may not be amended or
otherwise modified in a manner that is adverse to the interests of the Director
unless evidenced in writing and signed by the Company and the Director.
-2-
<PAGE> 3
11. The granting of this option shall in no way constitute or be
evidence of any agreement or understanding, express or implied, that the
Director has a right to continue as a director of the Company for any period of
time, or at any particular rate of compensation.
12. All notices required hereby shall, unless otherwise provided
herein, be mailed or delivered by hand or by recognized overnight delivery
service to the parties at their respective addresses set forth beneath their
names below or at such other address as may be designated in writing by either
of the parties to one another.
THE ALLEN GROUP INC.
By:
______________________________
The Allen Group Inc.
25101 Chagrin Boulevard
Suite 350
Beachwood, Ohio 44121
Attn: Treasurer
The foregoing option is hereby accepted on the terms and conditions set
forth herein.
- ---------------------------
Director's Signature
- --------------------------
Director's Social Security Number
- --------------------------
- --------------------------
Director's Address
-3-
<PAGE> 4
Exhibit A
---------
NON-QUALIFIED OPTION
__________________, 19__
The Allen Group Inc.
25101 Chagrin Boulevard
Suite 350
Beachwood, OH 44122
ATTN: Treasurer
I hereby exercise the non-qualified stock option granted to
_______________ under date of ________________ to the extent of __________
shares of Common Stock of The Allen Group Inc. (the "Company") (the "Purchased
Shares") at the option price of $________ per share, for a total exercise cost
of $__________.
In payment of the option price for the Purchased Shares, I am enclosing
the following:
A. Cash represented by a (personal check) (bank cashier's
check) (money order)* payable to the order of the Company in
the amount of $____________**, or
B. ___________ shares of the Company's Common Stock owned by me
having an aggregate fair market value to be determined by the
last sale price of the Company's Common Stock as reported on
the New York Stock Exchange Composite Tape on the date of
receipt at the corporate office of the Company of this Exhibit
A plus cash, if any, required to complete the full purchase
price, represented by a (personal check) (bank cashier's
check) (money order)* payable to the order of the Company in
the amount of $______________.
If the aggregate value of the Common Stock tendered herewith plus the
amount of any cash do not constitute the full purchase price for the Purchased
Shares, I agree to deliver additional shares and/or cash represented by a
personal check, bank cashier's check or money order payable to the order of the
Company for the balance due promptly after I am notified by you.
-4-
<PAGE> 5
I understand that all shares issuable to me upon the exercise of such
stock option have not been registered by the Company with the United States
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended, and I also hereby agree that any sale of such shares by me will be made
only through a prospectus complying with the registration provisions of the
Securities Act of 1933, as amended, or through an exemption from such
provisions.
Very truly yours,
--------------------------------------
Address:
--------------------------------------
--------------------------------------
- ------------------------------
Witness
* Strike out words that are not applicable.
** Payment of the option price may also be made by a transfer of funds or
an irrevocable credit to an authorized bank account of the Company; in
such case, the foregoing exercise of the option will be effective on
the date of such transfer or credit.
-5-
<PAGE> 1
Exhibit 10(ww)
FIRST AMENDMENT TO THE ALLEN GROUP INC.
DEFERRED COMPENSATION PLAN
ALLEN TELECOM INC., formerly known as The Allen Group Inc. (the "Company"),
hereby adopts this First Amendment to The Allen Group Inc. Deferred Compensation
Plan (the "Plan"), effective as of the close of business on February 28, 1997.
I.
As a result of the Company's name change from The Allen Group Inc. to Allen
Telecom Inc., the Plan is hereby amended to change the name of the Company
wherever it is set forth herein, including in the name of the Plan, if
applicable; provided, however, that such name change shall not affect the
substantive meaning of any provision of the Plan.
EXECUTED on this 28th day of February, 1997.
ALLEN TELECOM INC.
By: /s/ McDara P. Folan, III
-------------------------------
McDara P. Folan, III
Vice President, Secretary
and General Counsel
<PAGE> 1
Exhibit 10(yy)
FIRST AMENDMENT TO THE ALLEN GROUP INC.
RESTORATION PLAN
ALLEN TELECOM INC., formerly known as The Allen Group Inc. (the "Company"),
hereby adopts this First Amendment to The Allen Group Inc. Restoration Plan (the
"Plan"), effective as of the close of business on February 28, 1997.
I.
As a result of the Company's name change from The Allen Group Inc. to Allen
Telecom Inc., the Plan is hereby amended to change the name of the Company
wherever it is set forth herein, including in the name of the Plan, if
applicable; provided, however, that such name change shall not affect the
substantive meaning of any provision of the Plan.
EXECUTED on this 28th day of February, 1997.
ALLEN TELECOM INC.
By: /s/ McDara P. Folan, III
-------------------------------
McDara P. Folan, III
Vice President, Secretary
and General Counsel
<PAGE> 1
Exhibit 10(aaa)
AMENDMENT NO. 1 TO COMSEARCH DIVISION
SUPPLEMENTAL SAVINGS PLAN
(Effective January 1, 1996)
-------------------------
WHEREAS, Allen Telecom Group, Inc. adopted the Comsearch Division
Supplemental Savings Plan (the "Plan"), effective January 1, 1996;
WHEREAS, Allen Telecom Group, Inc. merged with and into The Allen Group
Inc., thereafter called Allen Telecom Inc., as of the close of business on
February 28, 1997, resulting in Allen Telecom Inc. becoming the sponsor of this
Plan.
NOW, THEREFORE, the Company (as hereinafter defined) hereby amends the Plan
as follows, effective as of the close of business on February 28, 1997:
I.
Section 2.2 of the Plan is hereby amended to add the following thereto:
After the close of business on February 28, 1997, ALLEN shall mean
Allen Telecom Inc.
II.
Section 2.5 of the Plan is hereby amended to add the following thereto:
After the close of business on February 28, 1997, COMPANY shall mean
Allen Telecom Inc.
III.
Section 2.6 of the Plan is hereby amended by deleting the words "The Allen
Group Inc. Deferred Compensation Plan" and substituting in lieu thereof the
words "Allen Telecom Inc. Deferred Compensation Plan."
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to be
executed this 28th day of February, 1997.
ALLEN TELECOM INC.
By: /s/ McDara P. Folan, III
-----------------------------
Its: Vice President, Secretary
and General Counsel
<PAGE> 1
Exhibit 11
STATEMENT RE COMPUTATION OF EARNINGS PER COMMON SHARE
-----------------------------------------------------
NET INCOME AND COMMON SHARES USED IN CALCULATION OF EARNINGS PER COMMON SHARE
FOR THE FIVE YEARS ENDED DECEMBER 31, 1996 WERE COMPUTED AS FOLLOWS (AMOUNTS IN
THOUSANDS):
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------
1992 1993 1994 1995 1996
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
- --------
Net Income $15,340 $24,127 $29,194 $32,639 $13,066
Less preferred stock dividends(1) (4,025) (2,180) - - -
------ ------ ------ ------ ------
Net income applicable to common
stock (primary and fully
diluted) $11,315 $21,947 $29,194 $32,639 $13,066
====== ====== ====== ====== ======
Common Shares:(2)
- -------------
Weighted average shares outstanding
during each year 19,177 22,302 25,574 26,166 26,470
Shares issuable upon assumed
exercise of stock options 503 638 496 754 590
------ ------ ------ ------ ------
Common shares - primary 19,680 22,940 26,070 26,920 27,060
Adjustment for full dilution:
Incremental stock options 30 65 44 50 50
Convertible securities(3) - 3,405 356 125 -
------ ------ ------ ------ ------
Common shares - assuming full
dilution 19,710 26,410 26,470 27,095 27,110
====== ====== ====== ====== ======
<FN>
(1) In 1993, the Company exercised its redemption rights; however, prior to
the planned redemption date, 2,289,615 shares of convertible Preferred
Stock were converted into 4,579,230 shares of Common Stock of the Company.
(2) All share amounts have been adjusted to reflect a 10% Common Stock
dividend paid January 17, 1992 to stockholders of record December 23, 1991
and a two-for-one Common Stock split paid October 18, 1993 to stockholders
of record September 30, 1993.
(3) The assumed conversion of preferred stock and/or outstanding convertible
subordinated debentures (fully redeemed in 1995) into Common Stock
resulted in no reportable dilution for purposes of calculating fully
diluted earnings per common share for each year in the periods ended
December 31, 1992 through 1995.
</TABLE>
<PAGE> 1
Exhibit 13
ALLEN TELECOM INC.
Annual Report 1996
<PAGE> 2
BOARD OF DIRECTORS
Philip Wm. Colburn
Chairman of the Board,
Allen Telecom Inc.
J. Chisholm Lyons
Vice Chairman of the Board,
Allen Telecom Inc.,
Counsel to Smith Lyons,
Toronto, Ontario, Canada
George A. Chandler
Business Consultant,
Princeton, New Jersey
Jill K. Conway
Visiting Scholar,
Program in Science,
Technology and Society,
Massachusetts Institute
of Technology,
Cambridge, Massachusetts
Albert H. Gordon
Advisor and Director,
Deltec, Inc.,
New York, New York
William O. Hunt
Chairman of the Board,
Chief Executive Officer,
President and Director,
Intellicall Inc.
Dallas, Texas
John F. McNiff
Vice President - Finance and Director,
Dover Corporation,
New York, New York
Robert G. Paul
President and
Chief Executive Officer,
Allen Telecom Inc.
Charles W. Robinson
Chairman,
Robinson & Associates Inc.,
Santa Fe, New Mexico
William M. Weaver, Jr.
Limited Partner Emeritus,
Alex, Brown & Sons
Incorporated,
New York, New York
MANAGEMENT
Philip Wm. Colburn
Chairman of the Board
Robert G. Paul
President and
Chief Executive Officer
Erik H. van der Kaay
Executive Vice President
Robert A. Youdelman
Executive Vice President,
Chief Financial Officer
McDara P. Folan, III
Vice President, Secretary
and General Counsel
James L. LePorte, III
Vice President,
Treasurer and Controller
Peter de Villiers
Vice President,
Strategic Development
Andrea Casini
Managing Director,
Tekmar Sistemi S.r.l.
Kenton S. Day
President,
Signal Science, Incorporated
Terry N. Garner
President,
Grayson Electronics Company
F. Kim Goryance
President,
Antenna Specialists Division
John P. Kepple
President,
Allen Telecom Site Products
Peter Mailandt
President,
Decibel Products Division
Goffredo Modena
Managing Director,
FOR.E.M. S.p.A.
Michael K. Morin
President,
Comsearch
Christopher H. Morton
President,
Allen Telecom Systems Division
Karl-Heinz Schmidt
Managing Director,
Mikom G.m.b.H.
<PAGE> 3
Safe Harbor Cautionary Statement
Statements made in this Annual Report which are not historical in nature are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
regarding the Companys future performance and financial results are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those set forth in the forward-looking statements due to a
variety of factors, including, among others, the uncertain level of purchases by
current and prospective customers of the Companys products and the impact of
competitive products and pricing. Further, the amount of charges to discontinued
operations with respect to the centralized automotive emissions testing business
will depend on a number of factors, including, among others, the outcome of
negotiations with the purchaser of one test program and various state
representatives, as well as the valuation of assets to be sold, transferred or
otherwise realized.
<TABLE>
<CAPTION>
THE YEAR AT A GLANCE
1996 1995
---- ----
FINANCIAL HIGHLIGHTS:
<S> <C> <C>
Sales $ 369,498,000 $ 306,556,000
Income Before Income Taxes
and Minority Interests $ 46,526,000 $ 50,441,000
Income From Continuing
Operations $ 20,556,000 $ 27,276,000
Net Income $ 13,066,000 $ 32,639,000
Return On Equity 6.0% 14.7%
FINANCIAL POSITION, YEAR-END:
Stockholders Equity $225,951,000 $210,377,000
Working Capital $ 94,378,000 $ 93,371,000
Shares Outstanding 26,763,000 26,560,000
PER COMMON SHARE:
Income From Continuing Operations $ .76 $1.02
Net Income $ .48 $1.22
Book Value $8.44 $7.92
</TABLE>
TABLE OF CONTENTS
The Year at a Glance 1
Letter to Shareholders 2
Financial Review 4
Business Review 6
Consolidated Financial Statements 12
Notes to Consolidated Financial Statements 16
Managements Discussion and Analysis of
Financial Condition and Results of Operations 28
Five-year Summary of Operations 32
Directors and Management Inside front cover
Shareholder Information Inside back cover
_______________________________________________________________________
1
<PAGE> 4
[Photo] Letter to Shareholders
Robert G. Paul (left), and Philip Wm. Colburn
The cover of this years annual report features the new name of your
corporation, Allen Telecom Inc. The Company was known as The Allen Electric and
Equipment Company for 44 years before it adopted The Allen Group Inc. name in
1972. Our new name clearly reflects the focus and future of the Company. The
decision to exit the centralized emissions testing business was the final step
in the Companys multi-year transition from a conglomerate of businesses
primarily in the automotive industry, to a company solely focused on the
wireless communications industry. We believe it is important to add the word
Telecom to our name to identify our business. Our focus will be to operate our
business in a more cohesive and integrated manner in order to maximize our
presence in this expanding marketplace. The degree of success that we achieve in
the future will be governed by how well we, as a corporation, can marshal
resources to capitalize on new product opportunities and new markets, rather
than simply the sum of the successes of a "Group" of individual businesses.
Our recent marketing thrust throughout the world has been as Allen Telecom,
and this name will provide an umbrella of recognition for the strong brand names
which our products now carry, such as FOREM, Decibel, Mikom, Allen Systems,
Grayson Electronics, Comsearch, Tekmar, Allen Site Products, Signal Science and,
the origin of our wireless communications involvement, Antenna Specialists. The
ability to enter into new countries as they begin to develop their wireless
telecommunications infrastructure, under the Allen Telecom mantle, allows us to
present a broad range of products and brand names under one unifying entity.
This marketing and product offering strength allows us to participate
aggressively in many international markets where our competitors, many of whom
are smaller than Allen Telecom, might find it economically disadvantageous.
Our performance from continuing operations in 1996 was highlighted by
record sales levels and a disappointing earnings performance. Sales were $369
million, a 21% increase from $307 million in 1995. Income from continuing
operations in 1996 was $23,218,000 ($.86 per share), before the one-time charge
of $.10 per share for the write-off of incomplete research and development in
connection with the Signal Science acquisition. This is a reduction from the
$27,276,000 ($1.02 per share) earned in 1995.
The biggest contributions to the sales and earnings growth during 1996 were
from our European operations. The FOREM and Mikom acquisitions of late 1994 have
contributed very strongly to Allens worldwide presence. Their performance has
been enhanced by the continued growth in the use of the GSM technology around
the world, by the continued increase in the use of repeater products throughout
the GSM networks (a particular product strength of our Mikom subsidiary) and by
their strong market share with the European Original Equipment Manufacturers
(OEMs) for the supply of site management products.
We continue to see significant growth in the international markets as
existing cellular systems are expanded, as new cellular licenses are granted in
many countries, and as other parts of the world begin to install advanced
wireless systems. During 1996, more than 56% of our revenue came from outside
the U.S. To maximize our benefit from that continued international growth, we
have continued to develop and enhance our
2
<PAGE> 5
relationships with the major OEM communication manufacturers that will be
shipping cell site equipment to those countries. In addition, we have added and
expanded our own international sales, service and engineering offices to work
more closely with the wireless operators in various parts of the world.
The new personal communications systems (PCS) in North America have
developed slower than originally anticipated. Approximately 10% of our revenues
in 1996 can be traced to the U.S. PCS industry. Most of the small number of
cities that did commence operations in 1996 did not begin until the end of the
year. One of the operators that began service in late 1996 quoted statistics
that would indicate that only 40% of their expected cell sites for those areas
were built out at the time they started service. This is confirmation of our
expectation to participate in the PCS rollout for a significant number of years.
Our best judgment is that, overall, perhaps only 20% to 30% of the ultimate cell
sites of the A and B block PCS licensees were installed during 1996. We have not
seen any significant activity yet by the C block auction winners, whose auction
ended in March 1996. We should begin to benefit from that construction sometime
during 1997. The D, E and F block auctions for PCS licenses were not completed
until January 1997, and their construction is likely to lag behind the C block
winners.
Allen Telecom benefits in its base station antenna business and its site
management product business from the construction and startup of new cell sites,
as these products are necessary for the operation and performance of those
cells. As additional cells are added, additional antennas and site management
products are required. Only after enough cells have been constructed for the
system to be turned on does Allen Telecom begin to benefit from the sale of its
systems products (although often with a six to 12 month lag). These products
include repeaters, tower mount amplifiers and inbuilding coverage products as
the carriers begin to solve operating problems and enhance both the coverage and
performance of their systems.
The Company made two acquisitions during the year that complement the
implementation of our strategic vision. It is our desire to continue to add
additional technologies to those we already possess either through internal
research and development or by acquisition. By utilizing and integrating these
varied technologies, the Company can better support the wireless
telecommunications operators and OEMs in implementing, enhancing and improving
their wireless systems. The acquisitions of Tekmar Sistemi S.r.l. and Signal
Science, Incorporated have added significant technology in the area of fiber
optic distribution systems and digital signal processing, respectively. Although
these two companies only total approximately $10 million in combined annual
sales, the technologies of these two companies are applicable to products that
could represent significant sales in future periods.
We continue our efforts to insure that most of Allen Telecoms products are
either totally suitable for, or adaptable to, both analog and digital wireless
communications systems, and the different standards within each of those
categories. This breadth of our technological compatibility gives the Company
confidence that it will participate in the continued growth of wireless
communications no matter which standards are adopted in the various countries
around the world.
During the summer of 1996, the Company made the decision to exit the
emissions testing business, and accordingly, we have classified results of that
business segment as discontinued operations. This business has fallen short of
our expectations and has proven to be dilutive to our primary focus on
telecommunications. We presently have a contract for the sale of the Ohio
emissions testing program. If a sale of the Maryland and Florida programs cannot
be negotiated on reasonable terms, the Company will operate these programs under
existing contracts which only have a few years remaining.
The decision to focus Allen Telecom on the wireless communications industry
has been validated by the strong operating results of the Company and the
five-fold increase in our shareholder value since 1989. In 1996, approximately
50 million new wireless subscribers were added worldwide, achieving a total
user population of approximately 137 million, and industry analysts estimate
300 to 400 million subscribers by the year 2000. We believe that most of our
growth in this dynamic industry is still ahead of us. Allen Telecom, while
having a new name, has the same desire to maintain an industry leadership role
and to continue to enhance shareholder value.
/s/ Philip Wm. Colburn
Philip Wm. Colburn
Chairman of the Board
/s/ Robert G. Paul
Robert G. Paul
President and Chief Executive Officer
3
<PAGE> 6
1996 was a year of many dynamics for Allen Telecom. Sales from continuing
operations increased a strong 21% on an overall basis to reach record levels,
reflecting sales increases in most of our individual product lines. Backlog at
the end of 1996 also increased to a record level and exceeded $100 million.
At the same time, the cost of sales in our expanding and competitive
market-places increased at a somewhat faster pace this year, restraining growth
in our earnings. These cost increases were compounded by a lower portion of the
Companys total sales being derived from the generally higher-margin systems
products, most particularly the decline in sales of Extend-a-Cells(R). In
addition, a portion of the increased costs resulted from the slower than
expected ramp up in domestic PCS sales. We had added additional capacity and
personnel early in 1996 in order to be prepared for increased production
requirements which materialized later in the year than expected.
With the decision to focus the Companys operations and future growth on the
wireless communications industry, the financial results of the centralized
emission testing business have been reported as discontinued operations. The
$7.5 million after-tax loss from the discontinued operations includes both 1996
operating results and anticipated reserves which were established to sell the
Ohio program and either to sell or continue to operate the other two programs
for their remaining contract lives of approximately three years.
The $6.7 million decline in income from continuing operations in 1996, as
compared to 1995, was principally driven by three factors: a one-time write-off
of $2.7 million (or $.10 per share) for in-process research and development
expenses related to an acquisition during 1996, an increase in the Companys
effective tax rate and a significant increase in the deduction for minority
interests from $3.0 million in 1995 to $6.3 million in 1996. Both the larger
minority interest deduction and the higher tax rate are the result of the very
strong performance of our European operations, where there are high tax rates
and in which there are minority ownership interests.
Sales in our wireless equipment business, including antennas, site
management and systems products, increased 18% on a year to year basis. Revenues
generated by the frequency planning and system design business grew at more than
double that rate (43%) principally
<TABLE>
<CAPTION>
FINANCIAL REVIEW
1996
SALES FROM
CONTINUING OPERATIONS
amounts in millions of dollars
92 93 94 95 96
-- -- -- -- --
<C> <C> <C> <C> <C>
$126.4 $183.6 $213.5 $306.6 $369.5
</TABLE>
<TABLE>
<CAPTION>
INCOME BEFORE TAXES
AND MINORITY INTERESTS
amounts in millions of dollars
92 93 94 95 96
-- -- -- -- --
<C> <C> <C> <C> <C>
$25.2 $24.5 $31.5 $50.4 $46.5
</TABLE>
4
<PAGE> 7
related to the ongoing design and development work related to the large new PCS
systems being deployed in the United States. In total, sales of equipment and
services for these new domestic PCS networks amounted to over 10% of Allen
Telecoms revenues in 1996 and, as the deployment of these PCS networks
continues, should account for an increasing share of our sales in future years.
International sales, including both export sales from the U.S. and sales from
our international operations, reflected another strong increase and now comprise
56% of total sales as compared to 50% in 1995. The increasing amounts of
international sales are driven by the continuing strong growth in the
international marketplace for wireless communications systems.
The Company continues to invest in the future with total expenditures for
research and development and other new product engineering growing from $17
million in 1995 to $21 million in 1996 representing 5.5% and 5.7% of sales,
respectively. These expenditures, coupled with strategic acquisitions and
capacity related capital expenditures for facilities and equipment, provide for
the updating, modification and evolution of the Companys products to keep pace
with the rapidly evolving technological and cost improvements demanded in the
marketplace.
Selling, general and administrative expenses continued to run at the same
percentage of sales, even as the Company continued to expand its sales,
marketing and engineering support services around the globe. We have added
qualified technical personnel to existing locations as well as in new markets,
such as Peru, Hong Kong, Austria and India, to support the developing markets
throughout the world.
With the strongest growth in sales and income coming from our highly taxed
overseas operations in Italy and Germany, the Companys effective tax rates
increased from 39.9% in 1995 to 42.3% in 1996. Tax rates can be expected to
remain at these relatively high levels in future periods as a result of
continued strong international growth.
The cash portion of acquisition expenditures during 1996, together with
capital expenditures and research costs, were all financed from the Companys
internally generated funds and available cash. Notwithstanding these sizable
investments, our debt to equity ratio remains very comfortable at .25 to 1. The
Company continues to have strong backing from our banks with whom we have a
revolving credit agreement in the amount of $100 million, which continues
through December 1999.
<TABLE>
<CAPTION>
Research &
Development and
New Product
Engineering Costs
amounts in millions of dollars
92 93 94 95 96
-- -- -- -- --
<C> <C> <C> <C> <C>
$4.5 $7.9 $8.9 $17.0 $21.0
<CAPTION>
as a percent of sales
92 93 94 95 96
-- -- -- -- --
<S> <C> <C> <C> <C>
3.6% 4.3% 4.2% 5.5% 5.7%
</TABLE>
This credit facility and the Companys own resources provide significant
flexibility for the Company to make substantial investments to stimulate
internal development and to pursue external growth through acquisitions. Allen
Telecom has all of the required financial resources to support its future growth
and to pursue its long-term strategic objectives.
/s/ Robert A. Youdelman
Robert A. Youdelman
Executive Vice President
Chief Financial Officer
5
<PAGE> 8
THE AMERICAS
Overview Americas
The market for wireless telephony systems has grown at a 52% annual rate
over the last six years, and is expected to grow at a 26% annual growth rate
through the year 2000. The number of wireless subscribers worldwide is expected
to grow from approximately 137 million currently to approximately 300-400
million by the year 2000. The demand for wireless infrastructure equipment is
being driven by the need for basic telephone service in lesser developed
countries, the proliferation of new carriers as a result of privatization and
liberalization of licensing, and new digital technology which enables carriers
to increase their subscriber capacity, improve call quality and offer low cost
enhanced services.
Allen Telecom supplies a variety of equipment, engineering services and
software to support the wireless telephone infrastructure development. We have
developed a global network of sales, engineering and service offices in sixteen
countries and full scale manufacturing operations in four of these countries to
better serve our customers. The following sections describe the wireless
telephone markets in the Americas, Europe, Africa, and Asia Pacific, and how
Allen Telecom is postured to participate in these markets.
Wireless telecommunications growth over the last several years in the
Americas has been fueled by a number of macro forces, including the demand for
ubiquitous telephone coverage (at home, in the car, or at the office), increased
emphasis on security, and strong increase in consumer demand due to the
significant elasticity of this market as costs to own and operate cellular/PCS
phones decline. In Central and South America, demand has been enhanced further
by a need in many regions to supply basic telephone service quickly and
relatively inexpensively.
The number of subscribers in the Americas is presently estimated at 52
million, with approximately 43 million in the United States. The current
penetration of cellular/PCS subscribers is estimated to be approximately 16% in
the United States and 2% for the balance of the Americas. Notwithstanding the
relatively high penetration level for cellular/PCS in the United States,
cellular/ PCS subscriber growth has grown at a 39% annual rate from 1993 to
1996. The 16% penetration rate for cellular and PCS in the U.S. is still small
compared to Sweden where it is in excess of 25%. Some industry experts predict
cellular penetration to exceed 50% in the United States in less than a decade.
In Central and South America, most countries have cellular penetration
rates of less than 1%. If cellular subscriber growth increased to 5% in Brazil
and Mexico alone, there would be over 11 million new subscribers.
In North America, wireless telephony infrastructure growth is expected to
continue at double digit rates. With the completion of PCS auctions in both the
United States and Canada (which netted over $20 billion in license fees), the
PCS carriers are expected to spend many billions of dollars for equipment for
their wireless systems. In addition, cellular carriers plan to convert their
subscriber base from analog to digital systems (approximately 75% of current
subscribers worldwide use analog systems), as a means to increase overall system
capacity and improve call quality and security.
In Central and South America, cellular telephone growth is expected to
exceed average world-wide growth because of the need for basic telephone
services and because of privatization efforts in several major Central and South
American countries. For example, Brazil is in the process of awarding cellular
licenses to ten new operators in the first half of 1997 in order to foster
competition in the telecommunications market. Allen Telecom serves the carriers
in Central and South America
6
<PAGE> 9
through our sales, engineering and service operations in Brazil, Mexico and
Peru. Most of our product sales to carriers in this region include repeaters,
boosters and base station antennas.
It is not surprising that the Americas accounted for the majority of Allen
Telecom's sales (56% in 1996), with approximately 44% of Allen's sales in the
United States. Emerging markets in Central and South America (notably Brazil)
accounted for a significant portion (approximately $32 million) of Allen's 1996
sales.
Large systems providers, such as Motorola and Lucent, manufacture a number
of base station and switch products for these cellular and PCS systems, but the
large systems and switch providers rely on companies such as Allen Telecom to
provide subsystems and components, such as repeaters, boosters, base station
antennas, filters, combiners, tower mounted amplifiers, mobile antennas and
cable. These products are designed for both cellular (800-900MHz) and PCS (1.8
GHz) applications and may be deployed in systems using CDMA, TDMA, GSM and
analog technologies. Through the recent purchase of Signal Science,
Incorporated, Allen Telecom has acquired several new technologies, including
digital signal processing, which are instrumental in the development of new
products for cellular fraud detection and emergency 911 geolocation systems,
which presently are more applicable to the Americas.
In addition to Allen Telecom's wide range of equipment capabilities, our
Comsearch division is a leading supplier of frequency planning and coordinating
services as well as systems design, field engineering and software products for
the wireless cellular and PCS markets. Comsearch's services are utilized by
carriers and Original Equipment Manufacturers (OEMs) to perform a number of
critical functions during the early stages of a cellular/PCS system design and
deployment. Comsearch's engineering expertise in spectrum sharing, microwave
interconnection, microwave migration and cellular/PCS systems design enabled
them to provide services for almost all of the major PCS carriers in the United
States. Comsearch was the first to develop engineering and software expertise
relating to microwave interconnection and sharing, which are critical to the
deployment of PCS systems in the United States, through its groundbreaking
development efforts for DCS-1900 carriers in Germany and the United Kingdom.
Our Grayson division has developed test and measurement equipment that is
linked to Comsearch's capabilities. This equipment provides real time
statistical signal quality and systems coverage data and may be used on all
transmission standards for PCS and cellular, as well as paging and trunking.
<TABLE>
<CAPTION>
Wireless Subscribers Worldwide
millions of subscribers
95 96 2000
<S> <C> <C>
87 137 400
300
<CAPTION>
Wireless Subscriber Penetration - 1996
percentage of penetration
USA CANADA ARGENTINA MEXICO BRAZIL
<S> <C> <C> <C> <C>
16.5% 13.2% .9% .7% .6%
<FN>
________________________________________________________________________________
PCS: Personal Communication Systems (PCS) telephone systems typically operate at
a frequency of 1.8 - 2.0 GHz. PCS systems exist in a few countries,
including Germany, United Kingdom, France and now the United States and
Canada.
CDMA: Code Division Multiple Access (CDMA) is a spread spectrum cellular
standard which describes a method in which radio signals are sent over a
number of different frequencies via a coding and decoding process that goes
through the switch. CDMA is a digital technology used principally in North
America and Asia.
TDMA: Time Division Multiple Access (TDMA) is a digital cellular standard where
callers share a single frequency and radio signals are sent in bursts with
a barely perceptible pause (hence, the time division). TDMA is primarily
used in North American cellular and PCS wireless systems.
</TABLE>
7
<PAGE> 10
EUROPE, AFRICA
Wireless telecommunications in certain regions of Europe are perhaps
further developed than in any other region of the world. Overall, the
penetration of wireless telephones in Europe is approximately 4%, ranging from a
high of nearly 30% penetration in Sweden to less than 1% in many Eastern
European countries.
The model for wireless telephone growth in Europe for the last decade and
prospects for the future are similar, in many respects, to that of the Americas.
First, additional carriers have been licensed in most European countries, and
these carriers will build out their systems over the next several years. Second,
basic and reliable telephone service is needed in Eastern Europe, and wireless
telephony systems offer the quickest and, in some cases, the most cost efficient
solutions. Third, analog systems in Europe are in the process of being converted
to digital (primarily GSM technology) in order to increase capacity and improve
call quality.
Allen Telecom has a significant market presence in Europe through its
Italian and German based companies, FOR.E.M. S.p.A., Mikom G.m.b.H. and Tekmar
Sistemi, S.r.l. In addition to these companies which have full scale local
manufacturing, sales and marketing, and R&D capabilities, Allen also has sales,
engineering and service support operations in France, Austria and the United
Kingdom. Allen's European operations serve both OEMs and the carriers.
Allen's significant growth in Europe is a function of both the overall
growth of the European systems themselves, as well as the world-wide acceptance
(and related sales growth) of GSM as the de facto wireless standard outside of
the Americas. Over the last two years, a large portion of our growth in Europe
has been attributable to our tower mounted amplifier and
8
<PAGE> 11
& MIDDLE EAST
repeater products, where we are the world leader in terms of sales and overall
product capabilities. These products offer cost-effective solutions to enhance
overall system coverage and performance and typically are installed after the
basic wireless infrastructure is in place and gaps in coverage need to be
filled. Some unique applications for these products include wireless coverage of
the Berlin subway system and tunnels in the Alpine region. In 1996, Allen had
sales of approximately $133 million to European customers.
OEMs, such as Ericsson, Nokia, Siemens, Alcatel, Motorola, Lucent and Northern
Telecom supply the global market for GSM base station and switching equipment.
Allen's European operations supply products, such as filters, combiners,
duplexers and cell site subsystems, to nearly all these OEMs, and thus have
participated in the rapid proliferation of GSM systems in Europe and throughout
the world. In 1996, there were approximately 150 GSM service providers operating
in over 80 countries with an estimated subscriber base in excess of 33 million.
Some industry experts estimate the number of GSM subscribers to grow to 100 -
150 million by the year 2000. This rapid growth bodes well for Allen's European
businesses which supply systems and components to these European OEMs.
The development of wireless telephony systems in several Middle Eastern
countries have resulted in sales for Allen. On the other hand, opportunities
have been limited to date in Africa. Eventually, most telephony systems in this
region will likely be provided by OEMs on a turnkey basis. Infrastructure needs
in this region will eventually offer interesting prospects for growth for Allen
Telecom over the long term.
<TABLE>
<CAPTION>
Wireless Subscriber Penetration - 1996
percentage of penetration
SWEDEN ISRAEL UK ITALY GERMANY RUSSIA
<S> <C> <C> <C> <C> <C>
29.5% 14.0% 11.6% 10.4% 6.3% .1%
<FN>
______________________________________________________________________________
Tower Mounted Amplifiers (TMAs): TMAs strengthen the signal power of cell sites,
thereby allowing users to complete calls more
often and save battery power on their phones.
Allen Telecom has been very successful in
marketing TMAs, particularly in Europe.
GSM: Global System for Mobile communications (GSM)
is a digital cellular standard which was
initially developed in Europe, and has become
the dominant standard in Europe and Asia.
IQ.Link, IQ.Clear: Software tools developed by Allen Telecom's
Comsearch division, which optimize microwave
links between PCS cells and the central
switch, and determine the extent to which
radio frequency spectrum may be shared
between PCS systems and other microwave users
in the same radio spectrum.
</TABLE>
9
<PAGE> 12
ASIA & THE PACIFIC
China - Australia - Pacific Rim
The wireless telecommunications market in the Asia Pacific region of the
world offers perhaps the greatest opportunities for growth for the next decade,
and likely will become the largest overall market in terms of equipment
infrastructure purchases. Cellular/PCS subscriber growth in Asia Pacific
increased approximately 100% in 1996 compared with the prior year to over 40
million subscribers. Penetration is high in Australia, Singapore, Hong Kong and
growing rapidly in Japan, but is still less than 1% in China and India. If
subscriber penetration reaches only 5% in China and India, over 100 million
subscribers will be added. Korea has recently deployed two new CDMA systems, and
by late 1996 had approximately 700 thousand subscribers, making these the
largest CDMA systems in the world.
Wireless telephony services in developed countries in the Asia Pacific
region are market driven in much the same way as in Europe and North America.
Customers in all three regions are demanding ubiquitous telephone coverage.
However, a major portion of wireless telephone growth in other areas of the Asia
Pacific region is expected to be driven by the development of basic telephone
infrastructure in China and India, as well as dozens of other lesser developed
countries. The overall number of subscribers in the Asia Pacific region is
estimated to grow from slightly more than 40 million at year end 1996 to more
than 120 million by the year 2000. In addition to the rapid development of high
profile markets in China, Japan, India and Korea, Allen Telecom expects markets
in Malaysia, Thailand, Philippines, Singapore and Indonesia to be quite
promising.
10
<PAGE> 13
Excluding Japan which has developed its own digital standards (PDC and
PHS), most carriers in the Asia Pacific region plan to use GSM or CDMA as their
digital standard. In addition to the deployment of traditional base station
equipment to supply the backbone of the wireless systems, wireless local loop
systems (WLL) are expected to be utilized with increasing frequency. In WLL
systems, basic telephone service is provided over a wireless network rather than
using a traditional hard-wired system. WLL is increasingly utilized to help
bring down the overall cost of a telephone system and increase the speed of
deployment, and is particularly effective where there is little or no existing
wired infrastructure. Recent technological advances have made WLLs more cost
efficient, and WLL equipment sales growth is expected to exceed the industry
average. Allen Telecom's SmartCell(TM) products may be used in WLL applications,
and are expected to be in strong demand over the next several years.
Allen Telecom sold approximately $27 million of product directly to the
Asia Pacific market (excluding shipments to OEMs that ultimately went to Asian
markets). Allen Telecom markets to local carriers through its sales, engineering
and service support offices in China, Hong Kong, Singapore, and India, and
participates in a joint venture in Australia that has local manufacturing and
engineering capabilities. Allen Telecom has been an important provider of
equipment to several cellular telephony systems in China, and has received
orders to provide in-building wireless coverage in Singapore, where such
in-building coverage is mandatory. Allen Telecom also supplies sub-systems and
components directly to base station OEMs throughout the world which are
ultimately shipped to carriers in the Asia Pacific region. Allen Telecoms
Comsearch division also participates in Asia through various engineering and
measurement studies, as well as software sales relating to overall system
design, microwave applications and spectrum sharing.
<TABLE>
<CAPTION>
Wireless Subscriber Penetration - 1996
percentage of penetration
AUSTRALIA HONG KONG SINGAPORE JAPAN CHINA INDIA
<S> <C> <C> <C> <C> <C>
21.4% 17.3% 15.0% 10.6% .5% .1%
<FN>
_______________________________________________________________________________
WLL: Wireless Local Loop (WLL) systems provide basic telephone
services over a wireless network rather than using a traditional
hard-wired system. WLL is well suited for introducing new
telephone coverage in both rural and urban environments because
of their speed to deploy and relatively low cost.
SmartCell(TM): A microcell designed by Allen Telecom which has several
applications including WLL, wireless PBX and rural service area
mobile cellular.
PDC: Personal Digital Cellular (PDC) is a digital cellular standard
which was developed in Japan and is deployed primarily in that
country.
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Allen Telecom Inc. - (amounts in thousands, except per share data)
- -------------------------------------------------------------------------------------------------------
For the years ended December 31, 1996, 1995 & 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 369,498 $ 306,556 $ 213,517
Cost and Expenses:
Cost of sales 238,401 189,103 127,160
Selling, general and administrative expenses 58,101 47,908 44,252
Research and development and new product engineering costs 21,023 17,006 8,865
Write-off of acquired in-process research and development 2,662 -- --
Interest and Financing Expenses:
Interest expense (3,773) (3,505) (2,948)
Interest income 988 1,407 1,163
- -------------------------------------------------------------------------------------------------------
Income Before Income Taxes and Minority Interests 46,526 50,441 31,455
Provision for Income Taxes (19,665) (20,138) (11,191)
- -------------------------------------------------------------------------------------------------------
Income Before Minority Interests 26,861 30,303 20,264
Minority Interests (6,305) (3,027) (523)
- -------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 20,556 27,276 19,741
========================================================================================================
Discontinued Operations
Income (loss) from discontinued operations:
Automotive and truck products business -- 7,119 9,983
Emissions testing business (3,766) (1,756) (530)
Loss on disposal of emissions testing business (3,724) -- --
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 13,066 $ 32,639 $ 29,194
========================================================================================================
EARNINGS PER COMMON SHARE
(Primary and fully diluted):
Income from continuing operations $ .76 $ 1.02 $ .76
Discontinued operations:
Income (loss) from discontinued operations:
Automotive and truck products business -- .27 .38
Emissions testing business (.14) (.07) (.02)
Loss on disposal of emissions testing business (.14) -- --
- -------------------------------------------------------------------------------------------------------
Net Income $ .48 $ 1.22 $ 1.12
- -------------------------------------------------------------------------------------------------------
Average common and common equivalent shares outstanding 27,060 26,920 26,100
========================================================================================================
<FN>
The Notes are an integral part of these statements.
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Allen Telecom Inc. - (amounts in thousands)
- ------------------------------------------------------------------------------------------------------------
December 31, 1996 & 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------
ASSETS:
<S> <C> <C>
Current Assets:
Cash and equivalents $ 23,879 $ 15,706
Accounts receivable, less allowance for doubtful accounts
1996, $1,610,000; 1995, $1,232,000 93,409 82,015
Inventories 71,304 70,152
Current assets of discontinued emissions testing business 3,332 --
Other current assets 7,256 9,941
- ------------------------------------------------------------------------------------------------------------
Total Current Assets 199,180 177,814
============================================================================================================
Property, Plant and Equipment, at cost,
less accumulated depreciation and amortization 51,942 77,124
Other Assets:
Excess of cost over net assets of businesses acquired 75,502 68,310
Assets of discontinued emissions testing business 42,031 --
Other assets 41,857 40,317
- ------------------------------------------------------------------------------------------------------------
Total Assets $ 410,512 $ 363,565
============================================================================================================
LIABILITIES AND STOCKHOLDERS EQUITY:
Current Liabilities:
Notes payable and current maturities of long-term obligations $ 5,998 $ 8,741
Accounts payable 36,639 34,299
Accrued expenses (including accrued wages and commissions -
1996, $14,663,000; 1995, $9,323,000) 37,991 25,444
Income taxes payable 19,830 10,163
Deferred income taxes 4,344 5,796
- ------------------------------------------------------------------------------------------------------------
Total Current Liabilities 104,802 84,443
============================================================================================================
Long-Term Debt 49,957 47,058
Other Liabilities and Deferred Credits 29,802 21,687
- ------------------------------------------------------------------------------------------------------------
Total Liabilities 184,561 153,188
============================================================================================================
Commitments and Contingencies (Note 5) -- --
============================================================================================================
Stockholders Equity:
Common stock, par value $1.00; authorized - 50,000,000 shares; issued -
1996, 29,614,000; 1995, 29,595,000; outstanding - 1996, 26,763,000;
1995, 26,560,000 29,614 29,595
Paid-in capital 170,945 168,632
Retained earnings 46,742 34,948
Translation adjustments (304) 102
Less: Treasury stock common shares, at cost, 1996, 2,851,000; 1995,
3,035,000 shares (17,932) (18,746)
Unearned compensation (2,908) (3,794)
Minimum pension liability (206) (360)
- -----------------------------------------------------------------------------------------------------------
Total Stockholders Equity 225,951 210,377
============================================================================================================
Total Liabilities and Stockholders Equity $ 410,512 $ 363,565
============================================================================================================
</TABLE>
The Notes are an integral part of these statements.
13
<PAGE> 16
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Allen Telecom Inc. - (amounts in thousands)
- --------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 & 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Income from continuing operations $ 20,556 $ 27,276 $ 19,741
Adjustments to reconcile income to net cash flow:
Depreciation 11,666 8,280 3,683
Amortization of goodwill 2,432 2,088 1,636
Amortization of capitalized software 2,383 2,659 1,524
Other amortization 2,006 1,015 3,471
Deferred income taxes (2,849) 6,338 (1,852)
Non-cash charge for acquired in-process research and development 2,662 -- --
Changes in operating assets and liabilities:
Receivables (13,362) (21,996) (3,362)
Inventories (85) (13,653) (1,393)
Accounts payable and accrued expenses 7,879 1,016 1,523
Income taxes payable 17,095 (2,812) 16,401
Other, net 3,229 (3,341) 2,886
- --------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities 53,612 6,870 44,258
==========================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (17,457) (16,829) (6,410)
Capitalized software product costs (4,745) (4,386) (1,971)
Sales and retirements of fixed assets 62 170 24
Investments in telecommunications companies (5,002) (1,077) (259)
Acquisition of businesses, net of cash acquired (11,907) (671) (8,458)
Proceeds from sale of automotive diagnostics and lease financing businesses -- -- 19,737
- --------------------------------------------------------------------------------------------------------------------------
Cash (used) provided by investing activities (39,049) (22,793) 2,663
==========================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of notes payable and long-term debt (2,129) (4,882) (5,282)
Dividends paid -- (3,942) (4,431)
Exercise of stock options 239 566 80
Treasury stock sold to employee benefit plans 1,572 1,435 854
Cash reclassified to assets held for spin-off distribution -- (4,002) --
- --------------------------------------------------------------------------------------------------------------------------
Cash used by financing activities (318) (10,825) (8,779)
- --------------------------------------------------------------------------------------------------------------------------
Cash (used) provided by discontinued operations (6,072) (12,786) 5,925
==========================================================================================================================
NET CASH PROVIDED (USED) 8,173 (39,534) 44,067
==========================================================================================================================
Cash at beginning of year 15,706 55,240 11,173
- --------------------------------------------------------------------------------------------------------------------------
Cash at end of year $ 23,879 $ 15,706 $ 55,240
==========================================================================================================================
</TABLE>
The Notes are an integral part of these statements.
14
<PAGE> 17
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Allen Telecom Inc. - (amounts in thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1996, 1995 and 1994
Minimum
Pension
Common Paid-In Retained Translation Treasury Unearned Liability
Stock Capital Earnings Adjustment Stock Compensation Adjustment
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1993 $29,058 $159,989 $32,671 ($90) ($17,916) ($6,192) ($2,359)
Net income -- -- 29,194 -- -- -- --
Cash dividends -- -- (4,431) -- -- -- --
Exercise of stock options 17 87 -- -- (24) -- --
Treasury stock reissued, 54,504 common shares, at cost -- 393 -- -- 461 -- --
Restricted shares issued, net 71 1,089 -- -- -- (1,159) --
Remeasurement of restricted shares -- 44 -- -- -- (44) --
Amortization of unearned compensation -- -- -- -- -- 1,723 --
Acceleration of restricted shares -- -- -- -- -- 1,362 --
Stock option tax benefits -- 42 -- -- -- -- --
Minimum pension liability adjustment -- -- -- -- -- -- 614
Adjustment from translating foreign
financial statements into U.S. dollars -- -- -- 113 -- -- --
Other -- -- (532) -- -- -- --
====================================================================================================================================
BALANCE DECEMBER 31, 1994 29,146 161,644 56,902 23 (17,479) (4,310) (1,745)
Net income -- -- 32,639 -- -- -- --
Cash dividends -- -- (3,942) -- -- -- --
Net assets distributed in TransPro spin-off -- -- (50,651) -- -- -- 822
Exercise of stock options 72 463 -- -- 31 -- --
Conversion of convertible debentures 355 4,623 -- -- -- -- --
Treasury stock reissued, 61,781
common shares, at cost -- 998 -- -- 437 -- --
Restricted shares issued, net 22 324 -- -- (1,735) (346) --
Remeasurement of restricted shares -- 18 -- -- -- (18) --
Amortization of unearned compensation -- -- -- -- -- 880 --
Stock option tax benefits -- 562 -- -- -- -- --
Minimum pension liability adjustment -- -- -- -- -- -- 563
Adjustment from translating foreign
financial statements into U.S. dollars -- -- -- 79 -- -- --
====================================================================================================================================
BALANCE DECEMBER 31, 1995 29,595 168,632 34,948 102 (18,746) (3,794) (360)
Net income -- -- 13,066 -- -- -- --
Exercise of stock options 36 293 -- -- (90) -- --
Treasury stock reissued, 94,839
common shares, at cost -- 883 -- -- 689 --
Restricted shares cancelled (17) (270) -- -- -- 271 --
Amortization of unearned compensation -- -- -- -- -- 615 --
Stock option tax benefits -- 82 -- -- -- -- --
Stock issued in acquisitions -- 1,325 -- -- 265 -- --
TransPro dividend adjustment -- -- (1,272) -- -- -- --
Minimum pension liability adjustment -- -- -- -- -- -- 154
Adjustment from translating foreign
financial statements into U.S. dollars -- -- -- (406) -- -- --
Other -- -- -- -- (50) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 $29,614 $170,945 $46,742 ($304) ($17,932) ($2,908) ($206)
====================================================================================================================================
</TABLE>
The Notes are an integral part of these statements.
15
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
Accounting policies followed by the Company that materially affect the
determination of financial position and results of operations are described
below.
Accounting Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Basis of Consolidation: The Company's consolidated financial statements
include the accounts of all wholly owned and majority owned subsidiaries.
Other investments (all of which are less than 20% owned) are accounted for
using the cost method. Intercompany accounts and transactions have been
eliminated. To facilitate preparation of financial statements, the Companys
European operations are included in the consolidated financial statements on
a two-month delayed basis.
Cash and Cash Equivalents: Cash equivalents consist of temporary bank
deposits and money market instruments with an original maturity of three months
or less at the date of purchase. The Company invests its excess cash in bank
deposits, money market and tax-exempt securities which are afforded one of the
two highest ratings by nationally recognized ratings firms.
Excess of Cost Over Net Assets of Businesses Acquired (Goodwill): The
excess of investments in consolidated subsidiaries over the net asset value at
acquisition is being amortized on a straight-line basis over periods not
exceeding forty years. The Company's policy is to evaluate the excess of cost
over the net assets of businesses acquired based on an evaluation of such
factors as the occurrence of a significant adverse event or change in the
environment in which the business operates or if the expected future net cash
flows (undiscounted and without interest) would become less than the carrying
amount of the asset. An impairment loss would be recorded in the period such
determination is made based on the fair value of the related businesses.
Foreign Currency Translation: Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at the current rate of
exchange, while revenues and expenses are translated at the average exchange
rate during the year. Adjustments from translating foreign subsidiaries
financial statements are excluded from the results of operations and are
reported as a separate component of stockholders equity.
Valuation of Inventories: The Company values inventories including
materials, labor and overhead at the lower of cost (first-in, first-out) or
market. Inventories consisted of the following at December 31, 1996 and 1995
(amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw material $ 36,869 $ 36,809
Work-in-process 19,256 21,310
Finished goods 15,179 12,033
- -----------------------------------------
$ 71,304 $ 70,152
=========================================
</TABLE>
Certain of these inventories pertain to the production of sophisticated
equipment which could be subject to technological obsolescence. The Company
maintains and periodically revises reserves for excess inventory based on the
most current information available of anticipated usage requirements.
Property, Plant and Equipment: Property, plant and equipment is recorded at
cost, less accumulated depreciation and amortization. Land improvements,
buildings and machinery and equipment are depreciated over their estimated
useful lives under the straight-line method. The provision for amortization of
leasehold improvements and assets held under capital leases is based on the term
of the lease or the estimated useful lives, whichever is shorter. Property,
plant and equipment consisted of the following at December 31, 1996 and 1995
(amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and improvements $ 2,315 $ 4,241
Buildings 22,843 22,370
Machinery and equipment 52,039 51,984
Leasehold improvements 4,465 3,066
Land and buildings under capital lease -- 16,375
- -----------------------------------------------------------------
81,662 98,036
Less accumulated depreciation and amortization (29,720) (20,912)
- -----------------------------------------------------------------
$ 51,942 $ 77,124
=================================================================
</TABLE>
Computer Software Costs: The Company's policy is to capitalize costs
incurred in creating computer software products once technological feasibility
is established and to amortize such costs over periods ranging from two to ten
years. The Company also capitalizes costs incurred in the development of
computerized databases, which are amortized over periods of ten to twenty years.
In 1996, 1995 and 1994, approximately $4,745,000, $4,386,000 and $1,971,000,
respectively, of these costs were capitalized and approximately $2,383,000,
$2,659,000 and $1,524,000, respectively, were amortized.
Software License Revenue: Revenues from software licenses for the Company's
frequency planning, systems design and related services business are recognized
upon delivery of the software if vendor obligations are insignificant and if
collectibility is probable. Revenues from post-contract support that are
significant and/or unbundled with regards to the initial licensing fee are
recognized ratably over the post-contract period.
Research and Development Costs: Expenditures relating to the development of
new products and processes, including significant improvements to existing
products, are expensed as incurred. Research and development expenses were
$18,059,000, $13,453,000 and $7,700,000 in 1996, 1995 and 1994, respectively. In
addition, the Company incurred other engineering expenses relating to new prod-
16
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
uct development (that do not meet the accounting definition of "Research and
Development") in the amount of $2,964,000, $3,553,000 and $1,165,000 in 1996,
1995 and 1994, respectively.
Stock Based Compensation: The Company accounts for stock based compensation
awards pursuant to Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and its related interpretations which prescribe the
use of the intrinsic value based method. Accordingly, no compensation cost has
been recognized for its fixed stock option plans. However, the Company has
adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation."
See Note 4 for additional information.
Income Taxes: The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standard No. 109 ("SFAS 109"),
"Accounting for Income Taxes." Under SFAS 109, deferred income taxes are
recorded to reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts at each year-end.
Earnings Per Common Share: The primary earnings per common share
calculations are based upon the weighted average number of common and common
equivalent shares outstanding. The calculations also include, if dilutive, the
incremental number of common shares issuable on a pro forma basis upon the
exercise of employee stock options, assuming the proceeds are used to repurchase
outstanding shares at the average market price during the year. The calculations
of fully diluted earnings per common share begin with the primary calculations
but further reflect, if dilutive, the pro forma effect of the conversion of the
then outstanding convertible debentures (redeemed in 1995) into common stock at
the beginning of the year and such incremental stock option shares should the
market price of common stock at year-end exceed the average price. This
calculation resulted in no reportable dilution for the years 1996, 1995 and
1994.
Other: The 1995 and 1994 statements of income and cash flows have been
reclassified to conform to the 1996 presentation.
NOTE 2: FINANCING
Long-term obligations consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Foreign credit agreement borrowings $ 7,120 $ 6,687
Floating rate industrial revenue
bonds due 2012 - 2025 15,500 12,000
8.13% fixed rate note payable to
insurance company due 2001 - 2003 15,000 15,000
Capital lease obligation 15,502 16,375
Other 223 115
Unamortized debt expense (645) (701)
- -----------------------------------------------------------------
52,700 49,476
Less current maturities (2,743) (2,418)
- -----------------------------------------------------------------
$49,957 $47,058
=================================================================
</TABLE>
The Company maintains a domestic revolving credit agreement in the
aggregate amount of $100,000,000 expiring December 18, 1999. Of this total,
$15,900,000 has been designated for the issuance of letters of credit relating
to the Companys industrial revenue bonds. The balance of funds available under
the revolving credit agreement may be utilized for borrowings or other letters
of credit; however a maximum of $20,000,000 may be allocated to such letters of
credit. Interest may be determined on a LIBOR or prime rate basis at the
Companys option. The Company has agreed to pay a commitment fee varying from 1/8
- - 1/2 of 1% per annum on the unused portion of the commitment. At December 31,
1996, $82,200,000 was available under this agreement.
The Company also has short-term credit lines utilized by its European
subsidiaries. At year-end, direct borrowings under these agreements totaled
$3,255,000; an additional $15,650,000 remained unused. These credit lines bear
interest based on LIBOR. Foreign long-term debt includes long-term arrangements
at fixed and variable rates with the Industry Ministry of Italy totaling
$1,889,000 (due 1997 - 2008), and variable rate borrowings with various
international banks of $5,231,000 (due 1997 - 2004). Further, two of the
aforementioned arrangements are mortgage notes, under which the Company has
pledged the respective land and buildings as collateral. These facilities had
an aggregate net book value of $6,000,000 at year-end 1996. During 1996, the
average interest rate for all foreign credit arrangements approximated 6.95%.
The floating rate industrial revenue bonds bear interest at rates based
upon a short-term tax exempt bond index, as defined in the bonds, which
approximated 4.19% at December 31, 1996. The average interest rate for all
industrial revenue borrowings approximated 3.43% during 1996.
In connection with its discontinued emissions inspection business programs
(see Note 9), the Company has a lease agreement under which it leases
the land and inspection facilities for an initial lease term equal to the
program life of ten years expiring on December 31, 2005. The lease agreement
contains an extension agreement such that if the inspection program is extended,
the lease is automatically extended to run concurrently with the program life.
For financial reporting purposes the lease has been classified as a capital
lease; accordingly, an obligation and related asset of approximately $15,283,000
is recorded at December 31, 1996.
The aggregate maturities of long-term obligations for the years 1997
through 2001 are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
$2,743 $2,663 $2,702 $2,523 $6,973
</TABLE>
The Company's borrowing agreements include various restrictive covenants as
to the amount and type of indebtedness, investments and guarantees, maintenance
of net worth, the purchase or redemption of the Companys shares and the
disposition of assets of the Company not in the ordinary course of business.
17
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allen Telecom Inc.
Note 3: Other Assets and Liabilities
Other assets consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Capitalized computer software
and database files $14,550 $12,645
Investment in telecommunication
companies, at cost 7,827 2,778
Deferred start-up and pre-operating costs -- 6,100
Investment in specialty rubber
products business 4,344 4,344
Unliquidated assets of
discontinued operations 3,217 3,282
Prepaid pension costs 3,070 2,244
Other 8,849 8,924
- ------------------------------------------------------------
$41,857 $40,317
============================================================
</TABLE>
Other liabilities and deferred credits consisted of the following
(amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Minority interests $10,633 $ 7,376
Deferred income taxes 8,872 5,549
Long-term pension liabilities 4,382 3,637
Accrued post-retirement benefits 1,609 1,599
Other 4,306 3,526
- ----------------------------------------------------------
$29,802 $21,687
==========================================================
</TABLE>
Note 4: Capital Stock and Stock Compensation Plans
The Company is authorized to issue up to 50,000,000 shares of common stock,
$1.00 par value, and 3,000,000 shares of preferred stock, without par value, in
one or more series. In addition, the Company can fix the powers, designations,
preferences and rights of each of the preferred stock series.
The Company has adopted the "disclosure-only" provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," ("SFAS No. 123") but applies Accounting Principles Board
Opinion No. 25 ("APB 25") and related interpretations for its Plans. The
Company has two active stock plans, the 1992 Stock Plan and the 1994
Non-Employee Directors Stock Option Plan. The 1982 Stock Plan, under which
options remain outstanding, was terminated in 1992.
The Company's 1992 Stock Plan provides for the granting of options (and
restricted shares as discussed below) to key employees as determined by the
Management Compensation Committee of the Board of Directors. The total number of
options for which the Company may grant options and award restricted shares of
common stock under the 1992 Stock Plan cannot exceed 2,228,221 shares, subject
to certain adjustments. Options are awarded at a price not less than the fair
market value on the date the option is granted, have a ten-year term whereby 50%
of the option shares vest after two years and an additional 25% in each of years
three and four. Options may contain stock appreciation rights under which the
Company, upon request of the optionee, may, at its discretion, purchase the
exercisable portion of an option for cash and/or shares at a price equal to the
difference between the option price and the market price of the shares covered
by such portion of the option in lieu of issuing shares upon exercise. There
were no exercise of stock appreciation rights in 1996, 1995 and 1994.
Pursuant to the 1994 Non-Employee Directors Stock Option Plan, the total
number of shares to be issued may not exceed 278,528 shares. Each year, each
Non-Employee Director who previously has not been employed by the Company will
automatically receive an option to purchase 1,000 shares of common stock
("Formula Awards"). No Non-Employee Director who previously has been employed by
the Company is eligible to receive Formula Awards. However, Non-Employee
Directors who have been previously employed by the Company are eligible to
receive discretionary awards of options to purchase shares of common stock.
Shares granted under the 1994 Plan have a ten year term and vest in the same
manner as the 1992 Stock Plan, subject to certain accelerated vesting upon the
cessation of service.
Stock option activity for the three years ended December 31, 1996 is
summarized as follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance, December 31, 1993 785,595 $ 6.72
Granted 462,867 $15.22
Exercised (21,501) $ 5.33
Terminated and canceled (4,456) $10.77
- -------------------------------------------------------------------------------
Balance, December 31, 1994 1,222,505 $ 9.95
Granted (weighted average
fair value, $11.10) 331,762 $21.58
Exercised (85,766) $ 6.66
Terminated and canceled (80,575) $18.36
- -------------------------------------------------------------------------------
Balance, December 31, 1995 1,387,926 $12.44
Granted (weighted average
fair value, $10.15) 391,400 $20.39
Exercised (37,545) $ 8.84
Terminated and canceled (32,317) $20.21
- -------------------------------------------------------------------------------
Balance, December 31, 1996 1,709,464 $14.19
===============================================================================
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for stock option grants: expected volatility of 40% and 42%,
risk free interest rates of 6.42% and 6.93%, and expected lives of 6.1 years and
6.0 years for 1996 and 1995, respectively. The calculations assume no future
dividend payments for grants in both 1996 and 1995.
18
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the status of outstanding stock options as of
December 31, 1996:
<TABLE>
<CAPTION>
Stock Options Oustanding
-------------------------------------
Weighted Average Stock Options Exercisable
------------------------- -------------------------
Range of Contractual Exercise Weighted Average
Exercise Prices Shares Life Price Shares Exercise Price
- --------------- ------ ---- ----- ------ --------------
<C> <C> <C> <C> <C> <C>
$ 4.18 to $10.77 586,604 3.2 years $ 5.70 586,604 $ 5.70
$11.28 to $19.97 487,373 7.5 years $15.39 364,321 $15.27
$20.50 to $28.00 635,487 8.9 years $21.10 15,635 $22.73
- --------------------------------------------------------------------------------------
$ 4.18 to $28.00 1,709,464 6.5 years $14.19 966,560 $ 9.58
======================================================================================
</TABLE>
Restricted stock awards made to date under the 1992 Stock Plan were issued
at no cash cost to the recipients; however, such employees agreed to forego
salary increases and new stock option grants for a period of two years, other
than for exceptional promotions. The restricted shares vest in 25% increments in
the seventh, eighth, ninth and tenth year from the year of award. An accelerated
vesting schedule may be triggered if certain performance targets are achieved.
Specifically, the vesting of 50% of such shares may be accelerated (but not
sooner than three years from the award year) based upon the average sale price
of the Company's stock price during a period of 91 consecutive calendar days
exceeding specified target levels. The remaining 50% of such shares may be
accelerated based on average earnings per common share over three consecutive
fiscal years exceeding specified target levels beginning with the award year.
Restricted shares are subject to forfeiture in certain circumstances as defined
in the 1992 Stock Plan.
Restricted stock activity for the three years ended December 31, 1996 is
summarized as follows:
<TABLE>
<CAPTION>
Shares
---------
<S> <C>
Balance, December 31, 1993 546,429
Granted 59,219
Vested (47,779)
Terminated and canceled --
- --------------------------------------------------------------------------------
Balance, December 31, 1994 557,869
Granted (weighted average fair value, $25.00) 35,783
Vested (211,794)
Terminated and canceled (61,253)
- -------------------------------------------------------------------------------
Balance, December 31, 1995 320,605
Granted --
Vested (28,347)
Terminated and canceled (17,328)
- --------------------------------------------------------------------------------
Balance, December 31, 1996 274,930
===============================================================================
</TABLE>
Unearned compensation with respect to restricted shares, representing the
fair value of the restricted shares at date of award, is charged to income over
a ten-year period or over the period of actual vesting whichever is shorter.
Compensation expense with respect to restricted shares amounted to $382,000 in
1996, $391,000 in 1995 and $2,794,000 in 1994.
At December 31, 1996 and 1995, 2,996,262 and 2,847,859 common shares,
respectively, were reserved for outstanding stock options and for future grants
of stock options and restricted shares. In addition, 125,000 shares of Series B
Junior Participating Preferred Stock are authorized for issuance under the
Company's Stockholder Rights Plan. If the Company had elected to recognize
compensation cost for its stock based compensation plans based on the fair value
at the grant dates for awards under those plans in accordance with SFAS 123, net
income and earnings per common share would have been reduced to the pro forma
amounts below (amounts in thousands, except per share data):
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Net Income: As reported $13,066 $32,639
Pro forma $11,794 $31,726
Earnings per common share: As reported $.48 $1.22
Pro forma $.44 $1.19
=======================================================================
</TABLE>
Note 5: Commitments and Contingencies
The Company's leases consist primarily of facilities and equipment and
expire principally between 1997 and 2005. A number of leases require that the
Company pay certain executory costs (taxes, insurance and maintenance) and
contain renewal and purchase options. Annual rental expense for operating leases
included in results from continuing operations approximated $3,900,000 in 1996,
$4,200,000 in 1995 and $2,700,000 in 1994. Future minimum payments under
noncancelable leases as of December 31, 1996 were as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Operating Capitalized
Leases Lease
--------- -----------
<C> <C> <C>
1997 $ 4,020 $ 2,450
1998 3,690 2,450
1999 3,090 2,450
2000 2,920 2,450
2001 2,810 2,450
Thereafter 5,660 9,800
- ---------------------------------------------------------
Total minimum lease payments $22,190 $22,050
- ---------------------------------------------------------
Less: amount representing interest (6,548)
- ---------------------------------------------------------
Present value of future minimum
lease payments including
current maturities of $1,160 $15,502
=========================================================
</TABLE>
19
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allen Telecom Inc.
The Company is self insured for health care, workers compensation, general
liability and product liability up to predetermined amounts above which third
party insurance applies. The Company is contingently liable to insurance
carriers under its workers compensation and liability policies and has provided
a letter of credit in favor of these carriers in the amount of $1,881,000.
During 1996, the Company entered into an agreement and made an equity
investment in a wireless telecommunications company in the amount of $5,000,000.
This company has agreed to purchase from the Company $50,000,000 of equipment
and services through December 31, 2001. In connection with this purchase
commitment, the Company will make available up to $50,000,000 of product
financing in the form of secured, interest bearing loans to be used solely to
finance the purchase price of the equipment and services supplied by the
Company.
Various legal actions are pending against or involve the Company and its
subsidiaries with respect to such matters as product liability and casualty
claims. In the opinion of management, after review and consultation with
counsel, the aggregate liability, if any, that ultimately may be incurred in
excess of amounts already provided should not have a material adverse effect on
the consolidated financial position or results of operations of the Company.
In connection with the sale of its former specialty rubber products
operations and spin-off of its Truck Products business, the Company remains as
guarantor or remains contingently liable under certain long-term leases or other
obligations assigned to the purchasing/spun-off company.
In connection with the pending sale of the centralized emissions testing
programs, the Company remains liable under certain leases and other obligations.
See Note 9 for additional information.
The Company is subject to federal, state and local laws designed to protect
the environment and believes that, as a general matter, its policies, practices,
and procedures are properly designed to reasonably prevent risk of environmental
damage and financial liability to the Company. The Company has been named as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 ("CERCLA") with respect to alleged
environmental conditions at one industrial site. This action was dismissed on a
motion for summary judgment, and the dismissal has been appealed to the United
States Court of Appeals for the Sixth Circuit. In addition, the Company settled
one environmental matter in 1995 for approximately $70,000. The Company believes
it is reasonably possible that environmental related liabilities may exist with
respect to one industrial site formerly occupied by the Company. Based upon
environmental site assessments, the Company believes that the cost of any
potential remediation, for which the Company may ultimately be responsible, will
not have a material adverse effect on the consolidated financial position,
results of operations or liquidity of the Company.
Note 6: Pension and Employee Benefit Plans
The Company has noncontributory pension plans covering the majority of its
full-time domestic employees. Plans covering salaried employees provide
benefits that are based on years of service and compensation during the
ten-year period prior to retirement, while the plan covering hourly employees
typically provides benefits based on specified amounts for each year of
service. Domestic pension costs are funded in compliance with the requirements
of the Employee Retirement Income Security Act of 1974, as amended, as
employees become eligible to participate, generally upon employment.
Net periodic pension cost of continuing operations for the Company's plans
included the following components (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost benefits
earned during the year $1,165 $ 926 $1,311
Interest cost on the projected
benefit obligation 2,143 2,487 3,282
Actual income on plan assets (3,474) (5,781) (1,469)
Settlement (gains) costs -- (2,135) 35
Net amortization and deferral 1,509 3,193 (2,050)
- ---------------------------------------------------------------
Net periodic pension
cost (benefit) 1,343 (1,310) 1,109
Less allocated to discontinued
operations -- -- (414)
- --------------------------------------------------------------
$1,343 ($1,310) $ 695
==============================================================
</TABLE>
In 1995, the Company experienced a settlement gain in the amount of
approximately $2,208,000 ($1,325,000 after related deferred income taxes); this
net gain was credited to retained earnings in connection with the spin-off. (See
Note 9).
20
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Plan assets consist principally of equity securities (including 92,000
common shares of the Company) and investments in the separate accounts and
general funds of insurance companies. The following tables set forth the plans
combined funded status, at December 31, 1996 and 1995 (amounts in thousands):
<TABLE>
<CAPTION>
Assets Benefits
Exceed Exceed
Benefits Assets
<S> <C> <C>
1996:
Actuarial present value of benefit obligations:
Vested benefits $17,972 $7,301
Nonvested benefits 894 408
- ----------------------------------------------------------------------------
Accumulated benefit obligation 18,866 7,709
Effect of projected future compensation levels 1,590 1,047
- ----------------------------------------------------------------------------
Projected benefit obligations 20,456 8,756
Plan assets at fair market value 20,948 3,022
- ----------------------------------------------------------------------------
Projected benefit obligation less than
(in excess of) plan assets 492 (5,734)
Loss due to actual experience
varying from actuarial assumptions 1,595 252
Prior service cost not yet
recognized in pension cost (133) 2,140
Transition liability (asset)
on adoption of new accounting
standard to be recognized in the future (252) 10
Adjustment required to recognize
minimum liability -- (1,355)
- ----------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 1,702 ($4,687)
============================================================================
<CAPTION>
<S> <C> <C>
1995:
Actuarial present value of benefit obligations:
Vested benefits $17,564 $ 9,870
Nonvested benefits 558 94
- ---------------------------------------------------------------------------
Accumulated benefit obligation 18,122 9,964
Effect of projected future compensation levels 1,384 --
- ---------------------------------------------------------------------------
Projected benefit obligations 19,506 9,964
Plan assets at fair market value 20,860 5,622
- ---------------------------------------------------------------------------
Projected benefit obligation less than
(in excess of) plan assets 1,354 (4,342)
Loss due to actual experience
varying from actuarial assumptions 1,207 606
Prior service cost not yet
recognized in pension cost (141) 156
Transition liability (asset)
on adoption of new accounting standard
to be recognized in the future (330) 15
Adjustment required to recognize
minimum liability -- (777)
- ----------------------------------------------------------------------------
Prepaid (accrued) pension cost $2,090 ($4,342)
============================================================================
</TABLE>
Assumptions used in determining pension cost for the plans are:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Discount rate 7 1/2% 7 1/4% - 8%
Expected rate of increase
in compensation 5 1/2% 5 1/2%
Expected long-term rate of return on plan assets 9% 9%
</TABLE>
The discount rates used by the Company in 1995 were 7 1/4% for all U.S.
pension plans and 7 1/2% and 8% (the termination rates) for its Canadian plans,
which were terminated in 1996.
The Company provides health care and life insurance benefits for certain
retired employees who reach retirement age while working for the Company. The
components of the expense for postretirement health care and life insurance
benefits from continuing operations are as follows (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net periodic cost:
Service cost benefits
attributed to service
during period $ 15 $ 12 $182
Interest cost on accumulated
postretirement benefit obligation 110 108 348
Amortization of (gain)/loss (2) (7) 51
- --------------------------------------------------------------------
Net postretirement health care cost 123 113 581
Less allocated to
discontinued operations -- -- (451)
- --------------------------------------------------------------------
$123 $113 $130
====================================================================
</TABLE>
The components of the accumulated postretirement benefit obligation (all of
which are unfunded) are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Retirees $1,103 $1,173 $1,742
Fully eligible active plan participants 102 78 123
Other active plan participants 141 302 1,346
Unrecognized net gain/(loss) 263 46 (99)
- ---------------------------------------------------------------------------
Accumulated postretirement
benefit obligations $1,609 $1,599 $3,112
===========================================================================
</TABLE>
The actuarial calculation assumed a 13.2% increase in the health care cost
trend rate for 1996 (13.7% in 1995 and 14.1% in 1994). Based upon more recent
data, the assumed trend rate to be used for 1997 was reduced to 9.6%. The
assumed rate decreases approximately .4% per year through the year 2010 to 5.0%
and remains constant beyond that point. The health care cost trend rate has a
significant effect on the amounts reported. For example, a one percentage point
increase in the health care cost trend rate would increase the accumulated
postretirement benefit obligation by $56,000 and increase net periodic cost by
$8,700. The weighted average discount used in determining the accumulated
postretire-
-21-
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allen Telecom Inc.
ment benefit obligation was 7.50% in 1996, 7.25% in 1995 and 8.25% in 1994,
respectively. In addition, the Company negotiated and modified certain
postretirement pension obligations which resulted in actuarially based net
gains. Accordingly, the Company reported a gain of $1,855,000 (of which,
$1,365,000 was included in income from discontinued operations) in 1994.
Note 7: Income Taxes
Information with respect to income taxes in continuing operations is as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income before taxes and
minority interests:
Domestic $ 9,472 $35,636 $34,846
Foreign 37,054 14,805 (3,391)
- ---------------------------------------------------------------------
$46,526 $50,441 $31,455
- ---------------------------------------------------------------------
Provision (Benefit) for income taxes:
Current:
Federal $ 2,764 $ 5,550 $11,620
Foreign 19,170 7,323 --
State and local 580 927 1,423
- ---------------------------------------------------------------------
22,514 13,800 13,043
- ---------------------------------------------------------------------
Deferred:
Federal (2,054) 5,173 (1,852)
Foreign 108 868 --
State and local (903) 297 --
- ----------------------------------------------------------------------
(2,849) 6,338 (1,852)
- ----------------------------------------------------------------------
$19,665 $20,138 $11,191
======================================================================
</TABLE>
A reconciliation of the provision for income taxes at the Federal statutory
rate of 35% to the reported tax provisions is as follows (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Provision computed at the
Federal statutory rate $16,284 $17,654 $11,009
State and local income
taxes, net of Federal
income tax benefit (210) 796 925
Net higher (lower) tax rates
on foreign income 6,082 3,304 (471)
Benefit of foreign sales corporation
and other tax credits (2,055) (1,881) (734)
Tax effect of write-off of non-deductible
acquired in-process research
and development costs 932 -- --
Other (1,368) 265 462
- ------------------------------------------------------------------------
$19,665 $20,138 $11,191
========================================================================
</TABLE>
The following table summarizes the Companys total provision (benefit) for
income taxes (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Continuing operations $19,665 $20,138 $11,191
Discontinued operations (3,780) 3,672 6,524
Tax benefit of carryforward
allocated to goodwill -- -- (1,330)
Allocated to equity:
Stock options (82) (509) (42)
Pension gain (loss) from
business disposition and other
pension items 112 1,164 (940)
- --------------------------------------------------------------------
$15,915 $24,465 $15,403
====================================================================
</TABLE>
The components of deferred tax assets (liabilities) are comprised of the
following as of December 31, 1996 and 1995 (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Gross deferred tax assets:
Inventory $ 3,599 $ 3,732
Pensions and deferred compensation 2,000 1,838
Tax credit carryforwards 1,480 2,986
Product warranty claims 1,108 861
Other 2,005 2,067
- ------------------------------------------------------------------------------
10,192 11,484
- ------------------------------------------------------------------------------
Gross deferred tax liabilities:
Intangible assets (8,497) (6,820)
Depreciation (1,205) (1,082)
Unremitted foreign earnings (1,500) (2,154)
Plant closings and costs of
discontinued operations (203) (1,719)
Deferred start-up costs (2,924) (1,811)
Other (8,147) (8,355)
- ------------------------------------------------------------------------------
(22,476) (21,941)
- ------------------------------------------------------------------------------
Net deferred tax liabilities ($12,284) ($10,457)
==============================================================================
</TABLE>
Deferred tax assets (liabilities) are recorded in the consolidated balance
sheet as follows (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Other current assets $932 $888
Current liabilities - deferred income taxes (4,344) (5,796)
Other liabilities and deferred credits (8,872) (5,549)
- -----------------------------------------------------------------------
($ 12,284) ($10,457)
=======================================================================
</TABLE>
-22-
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1996, 1995 and 1994, general business tax credits of approximately
$500,000, $359,000 and $300,000 generated in the respective year were used to
reduce the provision for income taxes. At December 31, 1996, the Company has
available alternative minimum tax credits in the amount of $1,480,000 available
to reduce future federal income tax liabilities.
United States income taxes are not provided on undistributed earnings of
the Companys foreign subsidiaries because of the intent to reinvest these
earnings. The amount of undistributed earnings which are considered to be
indefinitely reinvested is approximately $18,000,000 at December 31, 1996. While
the amount of federal income taxes, if such earnings are distributed in the
future, cannot now be determined, it is expected such taxes may be reduced by
tax credits and other deductions.
Note 8: Geographic Data
The distribution of the Companys geographic operations is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Sales:
<S> <C> <C> <C>
United States $ 241,657 $ 245,210 $ 208,441
Canada 7,427 6,112 2,068
Europe 120,414 55,234 3,008
- -----------------------------------------------------------------------------
$ 369,498 $ 306,556 $ 213,517
=============================================================================
Operating Income:
United States $ 17,454 $ 40,665 $ 40,135
Canada 345 (56) 33
Europe 37,116 15,304 (256)
- -----------------------------------------------------------------------------
54,915 55,913 39,912
Financing costs (2,785) (2,098) (1,785)
General corporate expenses (5,604) (3,374) (6,672
- ------------------------------------------------------------------------------
$ 46,526 $ 50,441 $ 31,455
- ------------------------------------------------------------------------------
Assets:
United States, including
Mexican Maquiladora $ 293,191 $ 282,439 $ 339,135
Canada 3,707 6,700 8,835
Europe 113,614 74,426 9,746
- -----------------------------------------------------------------------------
$ 410,512 $ 363,565 $ 357,716
==============================================================================
</TABLE>
Export sales of continuing operations were $86,542,000, $98,205,000 and
$62,175,000 in 1996, 1995 and 1994, respectively.
The aggregate net currency transaction and translation amounts in income
from continuing operations included gains of $126,000 and $34,000 in 1996 and
1995, respectively, and a loss of $32,000 in 1994.
Note 9: Acquisitions and Dispositions
On August 26, 1996, as amended on January 15, 1997, the Company's
subsidiary, MARTA Technologies, Inc. ("MARTA"), which operates centralized
automotive emissions testing programs, entered into a contract to transfer its
Cincinnati, Ohio testing program to Envirotest Systems Corp. ("Envirotest"). The
Jacksonville, Florida program is also subject to ongoing contract provisions
between MARTA and Envirotest under which that program may also be sold, under
certain circumstances, to Envirotest at some future date. The transaction has
not, as yet, been consummated. The contract is subject to a number of
pre-closing conditions including state government approval.
Pursuant to the terms of the agreement, the Company will receive a
stipulated amount, in cash, in exchange for MARTA's contractual rights to
operate the Cincinnati, Ohio program, and Envirotest will sub-lease from MARTA
the land and buildings as well as lease from MARTA the testing equipment and
other assets utilized in the program. The leases would run through the
remaining initial term of the program, which terminates December 31, 2005. The
Company will account for such leases as operating leases and will remain as
primary obligor under the existing land and buildings capitalized lease
obligation.
The Company has decided that it will exit the centralized automotive
emissions testing business. In the event the aforementioned agreement for sale
is not consummated, the Company will continue to endeavor to sell MARTA's
operating programs, or operate them until the termination of the respective
contracts, and will not bid upon or seek new emissions testing programs. The
State of Maryland program currently runs through April 30, 1998, and the State
has options for two one-year extensions. The contract for the Jacksonville,
Florida program initially ran through March 31, 1998; however, the State
recently has decided to extend the program for two years as provided in the
contract. The Company will continue to operate these programs pursuant to its
contractual commitments pending any disposal.
MARTA's El Paso, Texas program was officially terminated in January 1996.
MARTA has filed a claim with the State and is proceeding with the settlement
provisions set forth in the contract with the State. The Company believes that
its contract provides for appropriate compensation and will pursue all remedies
to protect its interests. The recorded carrying amount of its investment in the
El Paso program is $7,892,000. MARTA is incurring certain additional costs (in
particular, interest on the carrying value of its investment) which, for
financial reporting purposes, are being expensed as incurred and have been
included in the claim. At this time, it is not possible to predict the ultimate
outcome of the settlement process, or the timing of receipt of funds related
thereto, which is subject to appropriation by the State of Texas.
-23-
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allen Telecom Inc.
MARTA is also currently in discussions with the State of Kentucky in
connection with its contract to operate the centralized automotive emissions
testing program in Northern Kentucky. This program was previously suspended by
the State prior to implementation of an emissions testing program. MARTA has
filed a lawsuit in connection with its claim for compensation from the State.
The Company's contract provides for the payment of reasonable compensation on
early termination of the contract, which the Company contends has effectively
occurred. The recorded carrying amount of the investment in the Kentucky
program is approximately $900,000. Similar to the aforementioned Texas
program, MARTA is incurring certain costs which have been expensed for
financial reporting purposes and which were included in the claim filed with
the State.
The Company has presented the centralized automotive emissions testing
business as a discontinued operation in the Consolidated Statements of Income. A
summary of the non-current assets of the business is as follows (amounts in
thousands):
<TABLE>
<S> <C>
Cincinnati, Ohio program:
Land and buildings under capital lease $15,283
Testing equipment and other costs 14,100
Carrying value of El Paso, Texas assets 7,892
Other 4,756
- --------------------------------------------------------------
$42,031
==============================================================
</TABLE>
Discontinued operations include managements best estimate, based on the
aforementioned proposed sale transaction, of the loss from the disposal of the
emissions testing business in the amount of $5,643,000, or $3,724,000 after
related tax benefit ($.14 per common share). Actual results could differ from
these estimates and are dependent upon final determination of the contract terms
of the sale of the Cincinnati, Ohio program to Envirotest, the continuing
efforts to sell or operate existing programs, and resolution of claims against
a number of States. In addition, the proposed claims and settlements with the
States of Texas and Kentucky could differ in the near term from the recorded
net asset values. In this regard, MARTA's claims are for amounts in excess of
the carrying value of the assets (representing costs incurred and expensed both
prior to and subsequent to termination of the programs) but remain subject to
continuing negotiations and the appropriation of funds by the States.
On September 8, 1995, the Company's Board of Directors declared a
spin-off distribution of 100% of the common shares of a newly formed wholly
owned subsidiary, TransPro, Inc. ("TransPro") to the Company's common
shareholders of record at the close of business on September 29, 1995 (the
"Spin-off"). Common shares were distributed on the basis of one share of
TransPro common stock for every four shares of the Company's common stock.
Prior to the Spin-off, the Company contributed to TransPro cash, the ownership
interests in the net assets and liabilities of its Crown and G&O Manufacturing
Company divisions and the stock of AHTP II, Inc. and Allen Heat Transfer
Products, Inc., which owned the Companys partnership joint venture interest in
GO/DAN Industries ("GDI"). These entities comprised the Company's Truck
Products Business. Following the distribution, TransPro became an independent,
publicly traded corporation.
In connection with the Spin-off, the Company has presented the Truck
Products Business as a discontinued operation in the Consolidated Statements of
Income. The Company charged the net assets transferred to TransPro against its
retained earnings.
Summarized income statement information relating to the results of
discontinued operations is as follows (amounts in thousands, except per share
data):
<TABLE>
<CAPTION>
Years Ended December 31
1996 1995 1994
Marta Marta TransPro Marta TransPro
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $14,914 $8,821 $92,933 $2,796 $115,039
Operating income
(loss) (5,627) (2,624) 9,726 (748) 16,113
Equity in earnings
of joint venture -- -- 2,219 -- 1,368
Net income (loss) (3,766) (1,756) 7,852 (530) 9,983
Earnings (loss) per
common share (.14) (.07) .30 (.02) .38
<FN>
The fiscal year 1995 results of operations for TransPro are for the
nine-month period ended September 30, 1995 and excludes transaction costs
of $733,000 (after related income taxes of $467,000) related to the
distribution of the Truck Products Business. Further, results of operations
for TransPro are net of allocated interest of $205,000 and $402,000 in 1996
and 1995, respectively. Results of operations for MARTA are net of
allocated interest (income) of $1,243,000, $(277,000) and $(491,000) in
1996, 1995 and 1994, respectively.
</TABLE>
In September 1996, the Company acquired, in exchange for 83,964 shares of
its common stock, 100% of Signal Science, Incorporated ("SSI"). In addition, the
selling shareholders may receive future contingent cash consideration based on
sales over an eight-year period. The Company accounted for the acquisition under
the purchase method; accordingly, the consolidated financial statements reflect
the inclusion of SSI as of the acquisition date. In addition, the Company
incurred a one-time non-cash charge relating to the write-off of purchased
in-process research and development costs of $2,662,000. SSI's primary business
is research and development projects involving special purpose radio signal
equipment for telecommunications applications. In May 1996, the Company acquired
a 64.3% interest in Tekmar Sistemi S.r.l. ("Tekmar"), an Italian company that
produces fiber optic modules used predominately in the wireless
telecommunications and cable television markets for cash and 9,783 shares of
common stock. Senior management of Tekmar owns the remaining 35.7% ownership
interest. The Company has the right, pursuant to
24
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
certain put and call options, to acquire the remaining minority interest of
Tekmar over a five-year period. This acquisition resulted in $3,000,000 of
excess of cost over net assets acquired (goodwill). Further, in May 1996, the
Company acquired the remaining 20% minority interest of its Grayson Electronics
Company subsidiary for cash. Proforma results of operations for these
acquisitions have not been presented because the impact is not significant to
results of operations.
On March 17, 1995, the Company acquired an additional 40% interest in
FOR.E.M. S.p.A. ("FOREM"), a manufacturer of wireless telecommunications
products located in Italy. FOREM owns 62% of Mikom G.m.b.H., located in Germany.
The Company had previously acquired an initial 40% of FOREM in December 1994.
The total consideration paid for the Companys 80% ownership interest in FOREM
has aggregated approximately $25,352,000 which includes certain costs of
acquisition. The remaining 20% of FOREM's outstanding stock is subject to
certain put and call arrangements between the Company and the sellers. The
purchase price for this remaining 20% ownership interest is based upon a
formula relative to future earnings.
Pro forma combined sales from continuing operations of the Company and
FOREM for 1995 and 1994 (assuming the acquisition was effected on November 1,
1993) would have been approximately $330,000,000 and $256,000,000, respectively.
Pro forma combined income from continuing operations for 1995 and 1994 would
have been approximately $26,100,000 ($1.04 per share) and $18,900,000 ($.74 per
share), respectively. However, in management's opinion, the pro forma financial
information is not necessarily indicative of the results of operations that
would have occurred had the acquisition of FOREM taken place on such date or of
future results of operations of the combined businesses under the ownership of
the Company.
Note 10: Fair Values of Financial Instruments
Financial Accounting Standards Board ("FASB") Statements No. 107,
"Disclosure about Fair Value of Financial Instruments", and No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments", are part of a continuing process by the FASB to improve
information regarding financial instruments. The following methods and
assumptions were used by the Company in estimating its fair value disclosures
for such financial instruments as defined by the Statements.
Cash and Short-Term Investments: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
Long-Term Investments: One of the Company's investments in
telecommunication companies has a fair market value, based on a definitive
purchase agreement with a third party, in excess of the Company's cost basis.
It is not practicable to estimate the fair value of the Company's 8%
investment in the common stock of its former specialty rubber products business
or its other investments in telecommunications companies because of the lack of
quoted market prices and the inability to estimate fair value without incurring
excessive costs. However, management believes that the carrying amounts
recorded at December 31, 1996 were not impaired and reflect the corresponding
fair values. Dividends aggregating $215,000 were paid on one investment in
1996.
Long-Term Debt: The fair values of the Companys long-term debt either
approximate fair value or are estimated using discounted cash flow analyses
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Off-balance-sheet instruments: The Company utilizes letters of credit to
back certain financing instruments and insurance policies. The letters of credit
reflect fair value as a condition of their underlying purpose and are subject to
fees competitively determined in the market place. The Company entered into a
foreign currency contract in November 1996 to offset the impact of currency rate
changes against certain assets and liabilities of a German subsidiary. In
addition, the Company's Italian subsidiary enters into foreign currency
contracts to offset the impact of currency rate changes against certain assets
related to accounts receivable. The fair value of such contracts are based on
quoted market prices of comparable contracts. The carrying amounts and fair
values of the Company's financial instruments at December 31, 1996 and 1995 are
as follows (amounts in thousands):
<TABLE>
<CAPTION>
Carrying Amount Fair Value
--------------- ----------
1996
<S> <C> <C>
Cash and cash equivalents $23,879 $23,879
Non-current investments 12,171 14,054
Long-term debt 53,345 54,294
Off balance sheet financial instruments:
Letters of credit 1,881 1,881
Foreign currency net sales contracts 15,682 15,798
- ----------------------------------------------------------------------
1995
Cash and cash equivalents $15,706 $15,706
Non-current investments 7,122 7,122
Long-term debt 50,177 51,733
Off balance sheet financial instruments:
Letters of credit 1,982 1,982
Foreign currency net sales contracts 4,469 4,472
======================================================================
</TABLE>
25
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Allen Telecom Inc.
Note 11: Unaudited Quarterly Financial Data
Quarterly financial data are summarized as follows (amounts in thousands, except
per share amounts):
<TABLE>
<CAPTION>
March 31 June 30 Sept. 30 Dec. 31
- -------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C>
Sales $84,469 $88,459 $95,010 $101,560
Gross profit 28,928 31,559 32,206 38,404
Income from continuing
operations 4,682 5,702 3,497 6,675
Income (loss) from
discontinued operations (437) (565) (6,488) --
Net income 4,245 5,137 (2,991) 6,675
Earnings per common share:
Primary and Fully Diluted:
Continuing operations .18 .21 .13 .25
Discontinued operations (.02) (.02) (.24) --
Net Income .16 .19 (.11) .25
<CAPTION>
1995
- -------------------------------------------------------------------------------
Sales $58,592 $81,538 $85,369 $81,057
Gross profit 22,585 32,469 32,770 29,629
Income from continuing
operations 5,728 7,085 7,631 6,832
Income (loss) from
discontinued operations 1,328 2,305 1,841 (111)
Net income 7,056 9,390 9,472 6,721
Earnings per common share:
Primary and Fully Diluted:
Continuing operations .22 .26 .28 .25
Discontinued operations .05 .09 .07 --
Net Income .27 .35 .35 .25
</TABLE>
Note 12: Supplemental Cash Flow Disclosure
During 1996, the following non-cash transaction was effected and is not
reflected in the Consolidated Statement of Cash Flows:
As described in Note 9, in 1996 the Company acquired, in exchange for, in
part, 93,747 shares of its common stock, 100% of Signal Science, Incorporated
and 64.3% of Tekmar Sistemi S.r.l.
During 1995, the following non-cash transactions were effected and are not
reflected in the Consolidated Statement of Cash Flows:
The Company recorded fixed assets and a related capital lease obligation in
the amount of $16,375,000 in connection with leasing land and facilities for one
of its discontinued emissions inspection programs.
On September 29, 1995, the Company completed the largely non-cash spin-off
distribution of 100% of the common shares of TransPro.
In May, 1995, the Company called for redemption the outstanding $4,917,000
of its Convertible Subordinated Debentures issued in 1992 in connection with the
acquisition of Alliance Telecommunications Corporation. Subsequent thereto,
holders of these debentures converted such debentures into 351,834 shares of the
Companys common stock.
The Company had no significant non-cash transactions in 1994.
Information with respect to cash paid during the year for interest and
taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Interest paid $ 4,907,000 $ 3,840,000 $3,600,000
Interest capitalized -- 440,000 970,000
Income taxes paid, net 1,778,000 18,890,000 240,000
</TABLE>
26
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Allen Telecom Inc.
We have audited the accompanying consolidated balance sheets of Allen Telecom
Inc. as of December 31, 1996 and 1995, and the related consolidated statements
of income, stockholders equity, and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Companys 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 require 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 Allen Telecom
Inc. as of December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Cleveland, Ohio
February 17, 1997
REPORT OF MANAGEMENT
To the Board of Directors and Stockholders of Allen Telecom Inc.
The Company maintains accounting and related internal control systems which are
intended to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and to produce records necessary for the preparation of
financial information. There are limits inherent in all systems of internal
control, and the cost of the systems should not exceed the expected benefits.
Through the use of a program of internal audits and discussions with and
recommendations from its independent accounts, the Company periodically reviews
these systems and controls and compliance therewith.
The Audit Committee of the Board of Directors, comprised entirely of
non-employee directors, meets regularly with management, the internal auditors
and the independent accountants to review the results of their work and to
satisfy itself that their responsibilities are being properly discharged. The
internal auditors and independent accountants have full and free access to the
Audit Committee and may have discussions regarding appropriate matters, with and
without the presence of management.
The primary responsibility for the integrity of financial information rests
with management. Certain valuations contained herein result, of necessity, from
estimates and judgments of management, actual results could differ from these
estimates. The accompanying consolidated financial statements, notes thereto and
other related information were prepared in conformity with generally accepted
accounting principles applied on a consistent basis.
/s/ Robert G. Paul
Robert G. Paul
President and Chief Executive Officer
/s/ Robert A. Youdelman
Robert A. Youdelman
Executive Vice President, Chief Financial Officer
/s/ James L. LePorte, III
James L. LePorte, III
Vice President, Treasurer & Controller, Chief Accounting Officer
27
<PAGE> 30
MANAGEMENTS DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
Results of Operations
Overview
<TABLE>
<CAPTION>
($ millions) 1996 1995 1994
- ------------ ---- ---- ----
<S> <C> <C> <C>
Sales $369.5 $306.6 $213.5
Operating income 57.6 55.9 39.9
Income before taxes and
minority interests 46.5 50.4 31.5
Income from continuing operations 20.6 27.3 19.7
Net income 13.1 32.6 29.2
Total assets 410.5 363.6 357.7
Capital expenditures 17.5 16.8 6.4
Depreciation 11.7 8.3 3.7
</TABLE>
The increase in sales in 1996 of $62.9 million, or 21% over 1995, was due to the
significant growth of international sales, which increased $54 million, or 35%,
compared to prior year levels. European sourced sales increased to $120 million
this year from $55 million in 1995. The increase in sales in 1995 of $93.1
million, or 44%, was due in large measure to the 80% acquisition of FOR.E.M.
S.p.A. and its majority owned subsidiary Mikom G.m.b.H. (collectively referred
to herein as "FOREM") which contributed $55 million in sales for the nine-month
period they were included in the Companys consolidated financial statements in
1995. The balance of the growth was due to sales growth within existing product
lines.
Operating income (representing income before financing costs, general
corporate expenses and the one time non-cash write-off of acquired in-process
research and development) increased $1.7 million, or 3%, in 1996, as the
significantly increased earnings relating to sales of the Companys international
systems and site management products were largely offset by earnings declines in
the domestic Systems and Site Management product lines. Lower profitability in
these product lines was attributable to lower product margins, lower
requirements for domestic cellular applications and increased spending on
research and development costs by the Company to accommodate sales to Personal
Communications Systems ("PCS") markets which were slow to materialize in 1996.
Income from continuing operations declined $6.7 million in 1996, as
compared with 1995, due to the write-off of acquired in-process research and
development costs incurred in connection with an acquisition in the amount of
$2.7 million or $.10 per common share (see Note 9 of Notes to Consolidated
Financial Statements), a $3.3 million increase in minority interest expense
relating to the outstanding 20% minority interest in FOREM and its 38% minority
interest in Mikom G.m.b.H., as well as higher financing and general corporate
expenses. Income from continuing operations was also adversely affected by a
higher effective tax rate due to the proportion of European earnings taxed at
rates substantially higher than in the U.S.
The decline in net income from $32.6 million in 1995 to $13.1 million in
1996 reflects both the $7.5 million of losses for the discontinued centralized
automotive emissions test business (as discussed below) and the impact of the
elimination of the spun-off automotive and truck products business, which earned
$7.1 million in profits in 1995 through the September 30, 1995 spin-off date.
Operating income increased by $16.0 million, or 40%, in 1995 over 1994.
This increase was due primarily to the acquisition of FOREM and increased sales
from existing product lines. Operating income and income from continuing
operations increased due to such higher sales levels; however, net income was
adversely impacted by the higher tax rates in Europe and the minority interest
expense attributable to FOREM.
Sales
Sales of the Companys Systems products (which generally are comprised of booster
and repeater products for cellular and PCS systems, as well as the Companys
SmartCell(TM), Extend-A-Cell(R) and system test and measurement products) were
down slightly at $94.1 million in 1996 compared with $95.1 million in the
preceding year. Sales in this product line have been impacted primarily by
significantly lower shipments of the Company's Extend-A-Cell(R) frequency
translating repeater, principally in domestic cellular markets. Offsetting this
decline, in part, has been the Company's success with non-frequency translating
repeaters particularly in European and other export markets. The most successful
of these repeater products utilize GSM technology, which has gained worldwide
acceptance as a cellular standard. Repeaters have also been developed for CDMA
systems deployed in Asia and North America. Sales of system test and measurement
products increased significantly in 1996 over 1995 as they have obtained higher
market share with domestic PCS carriers. Sales growth expectations of the
Systems products for the Company in 1997 are dependent on the development of new
Systems products, maintaining market share and competitive pricing pressures.
Sales of Systems products increased $19 million in 1995, or 25% from 1994.
This increase in sales was largely attributable to the addition of GSM repeater
products (due to the acquisition of
<TABLE>
<CAPTION>
Sales of Systems Products
amounts in millions of dollars
92 93 94 95 96
-- -- -- -- --
<C> <C> <C> <C> <C>
$51.3 $62.4 $76.1 $95.1 $94.1
<CAPTION>
Sales of Site Management and Other Non-antenna Products
amounts in millions of dollars
92 93 94 95 96
-- -- -- -- --
<C> <C> <C> <C> <C>
$29.3 $49.1 $53.0 $112.9 $159.3
</TABLE>
28
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
FOREM), which added $16 million of sales in 1995. Demand for the Companys
Extend-A-Cell(R) and microcell products was strong; however, the emphasis in
sales shifted from domestic to international markets. Increased sales in the
international markets in 1995 more than offset a decline in domestic sales.
Sales of Site Management and Other Non-antenna products (which include
tower mounted amplifiers, filters, combiners and duplexers) increased to $159.3
million, or 41%, over 1995. This large increase in sales reflects the Companys
strong market presence in Europe and the worldwide acceptance of GSM, where we
have strong market share with GSM original equipment manufacturers ("OEMs") for
our Site Management products.
Site Management and Other Non-antenna products sales increased $59.9
million in 1995 over the 1994 level of $53.0 million. The FOREM acquisition in
1995 accounted for $39 million of this sales increase. In December 1994, the
Company acquired a 40% interest in FOREM and subsequently increased its
ownership to 80% in early 1995. Beginning on February 1, 1995, the Company
consolidated the results of operations of FOREM; accordingly, results of
operations included those of FOREM for the nine months ended October 31, 1995.
(FOREMs results of operations are included on a two-month lag basis in order to
facilitate the timely preparation of financial statements.) The acquisition of
FOREM has expanded the overall international market share of the Companys
products.
Sales of Mobile and Base Antennas increased to $80.6 million in 1996, or
9.2%, over 1995. The increase in sales of this product line primarily resulted
from sales of base station antennas in new PCS markets. The Company has sold PCS
base station antennas to nearly all PCS carriers. However, this sales increase
was partially offset by a decline in mobile antenna sales, as consumers shift
from "mobile" cellular telephones, where the Company has significant market
share, to portable cellular phones. The Company does not manufacture portable
antennas.
Sales in the Mobile and Base Antennas product line increased $5.1 million,
or 7%, to $73.8 million in 1995 over the 1994 period. The base station antenna
business performed well in 1995 as a result of the upgrading of base stations
from analog to digital technology, which was often accompanied by upgraded new
antennas, and penetration of new export markets, China in particular. Sales of
the Companys Frequency Planning, Systems Design and Related Services product
line increased in 1996 to $35.5 million, or 43%, over 1995, while in 1995 sales
increased to $24.8 million, or 58%, over 1994. This product line continued to
see strong demand for engineering services to domestic PCS carriers in 1996,
paralleling the growth in sales in 1995. This business, operated by the Companys
Comsearch division, does consulting work with nearly all major PCS operators.
The Company anticipates that sales in this business will continue to grow as PCS
systems are rolled out and optimized.
In 1996, international sales constituted more than 56% of total sales,
while in 1995, they comprised approximately 50% of sales. The Companys export
sales from the U.S. are primarily to major wireless telephony companies, and are
typically payable in U.S. dollars. European sales are primarily to major OEMs
and cellular or PCS operators in local currencies. The Company sees no
significantly greater risk in the operation of its business as a result of this
proportion of international business. In late 1996, the Company entered into an
agreement with a wireless telecommunications company whereby such company agreed
to purchase $50 million of the Companys equipment and services through December
31, 2001. (See also Liquidity and Capital Resources below.) This arrangement
should benefit all of the Companys product lines and, in the near term,
particularly its base station antenna business. At December 31, 1996, the
Company had its largest order backlog ever at nearly $100 million, excluding the
aforementioned $50 million purchase commitment.
<TABLE>
<CAPTION>
Sales of
Mobile and Base Antennas
amounts in millions of dollars
92 93 94 95 96
-- -- -- -- --
<C> <C> <C> <C> <C>
$42.4 $57.2 $68.7 $73.8 $80.6
<CAPTION>
Sales of Frequency
Planning, Systems Design
and Related Services
amounts in millions of dollars
92 93 94 95 96
-- -- -- -- --
<C> <C> <C> <C> <C>
$5.7 $14.9 $15.7 $24.8 $35.5
</TABLE>
Operations
<TABLE>
<CAPTION>
($ millions) 1996 1995 1994
- ------------ ---- ---- ----
<S> <C> <C> <C>
Gross profit margin, as a percent of sales 35.5% 38.3% 40.4%
Operating expenses, as a percent of sales 13.5% 13.8% 16.8%
Research and development and
new product engineering costs:
Amount $21.0 $17.0 $8.9
As a percent of sales 5.7% 5.5% 4.2%
</TABLE>
Gross profit margins have declined in each of the years 1996 and 1995 as
compared with the immediately preceding year. The decline in gross profit margin
in 1996 was due primarily to changes in product mix, as well as continuing
competitive pricing pressures, particularly in the Companys domestic Systems and
Site Management product lines. The pattern of decline in gross margin
experienced in 1995 was similar to that of 1996. The Company has embarked on a
program to emphasize cost containment and improve margins, particularly in the
Systems and Site Management product lines, and has seen improved margins during
the latter half of 1996.
29
<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
Operating expenses (which consist of selling, general and administrative
expenses, but exclude general corporate expenses and amortization of goodwill)
are within normal operating ranges for the Company for both 1996 and 1995. The
decline in percentage of such expenses in 1995 from 1994 represents the
spreading of fixed costs on the significantly higher sales in 1995 relative to
1994 and the consolidation of FOREM which operates at a lower cost level.
In the past few years, the Company has significantly increased its research
and development and new product engineering costs in order to keep pace with the
technological advances in the industry. The Company anticipates that this trend
will continue as PCS and cellular systems are implemented and expanded and the
Company strives to develop ancillary products, including software products, for
the wireless telephony industry.
General Corporate
<TABLE>
<CAPTION>
($ millions) 1996 1995 1994
- ------------ ---- ---- ----
<S> <C> <C> <C>
General corporate expenses, net $ 5.6 $ 3.4 $ 6.7
Corporate assets 44.4 38.4 73.5
</TABLE>
The increase in general corporate expenses in 1996, as compared with 1995, is
due in large part to the cessation of royalty payments made under a
noncompetition agreement. The agreement pursuant to which these payments were
made expired in June 1996, and royalty income amounted to $.7, $1.6 and $1.8
million in 1996, 1995 and 1994, respectively. Lower general corporate expenses
in 1995, compared with 1994, reflect significantly lower amortization of
unearned compensation relating to restricted stock plans which amounted to $.4
million in 1995 (and a similar amount in 1996) as compared with $3.1 million in
1994, as well as lower general corporate insurance costs.
Corporate assets consist of cash and other general corporate assets. The
net change in such assets primarily reflects the net change in the Companys cash
balances for each year presented.
Financing Costs
<TABLE>
<CAPTION>
($ millions) 1996 1995 1994
- ------------ ---- ---- ----
<S> <C> <C> <C>
Interest and financing expense:
Interest expense $(3.8) $(3.5) $(2.9)
Interest income 1.0 1.4 1.2
</TABLE>
The increase in interest expense in both 1996 and 1995, both as compared with
the immediately preceding year, was due primarily to the acquisition and
inclusion of FOREM. Lower interest income in 1996 when compared with 1995
reflects lower domestic investment income as a result of lower average cash
levels. Higher investment income in 1995 as compared with 1994 related to the
investment of funds generated late in 1994, and invested throughout 1995, and
interest income of FOREM offset, in part, by the elimination of interest income
on a note received from the sale of the Companys automotive diagnostic business
in 1993.
During the years presented, a majority of the Companys domestic cash was
invested in tax exempt securities, which has the impact of lowering the net
interest yield as compared with pre-tax instruments.
Income Taxes
<TABLE>
<CAPTION>
($ millions) 1996 1995 1994
- ------------ ---- ---- ----
<S> <C> <C> <C>
Provision for income taxes $19.7 $20.1 $11.2
Effective tax rate 42.3% 39.9% 35.6%
</TABLE>
The higher effective tax rate in 1996, as compared with 1995 and 1994, is due to
the higher proportion of European earnings, which carry a tax burden of
approximately 55%, as compared with the U.S. statutory rate of 35%. These higher
tax rates have been offset, in part, by the tax benefits attributable to the
Companys foreign sales corporation, which has reduced U.S. income taxes payable
through favorable tax treatment accorded certain export sales.
With the continued success of the Companys European operations, which carry
the significantly higher tax burden, it is possible that the effective tax rate
in 1997 could exceed that of 1996. (See Note 7 of Notes to Consolidated
Financial Statements for additional information.)
Discontinued Operations
As more fully discussed in Note 9 of the Notes to Consolidated Financial
Statements, the Company has decided to exit the Centralized Automotive
Emissions Inspection business operated by its MARTA Technologies Inc. ("MARTA")
subsidiary. The Company has determined that its decision to discontinue future
efforts with respect to this business will allow it to fully devote management
and financial resources to its expanding wireless telecommunications product
lines. In this connection, the Company has entered into an agreement to sell
the Cincinnati, Ohio program, which is currently not operating pending the
sale. The Jacksonville, Florida program is also subject to ongoing contract
provisions pursuant to which it may be sold at some future date. In the event
the agreement for sale is not consummated, the Company will endeavor to sell
MARTAs operating programs and will not bid upon or seek new emissions testing
programs. The Company will continue to operate its programs pursuant to its
contractual commitments pending any disposition.
The Company has proposed to finance the disposition of the Cincinnati, Ohio
program by entering into long-term leases whereby the purchaser will sub-lease
from MARTA the land and buildings as well as lease from MARTA the test equipment
and other assets used in the program. The term of these leases will run through
the remaining initial term of the program, ending December 31, 2005. The Company
will account for these leases as operating leases, resulting in rental income in
future years, offset by depreciation expense on the leased assets.
30
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
Discontinued operations include managements best estimate, based, in part,
on the aforementioned proposed sale transaction, of the loss from the disposal
of the MARTA business in the amount of $5,643,000, or $3,724,000 ($.14 per
common share) after related tax benefit. Actual results could differ from these
estimates and are dependent on, among other things, the final determination and
consummation of the contract for sale. In addition, it is not possible to
predict the outcome of the settlement processes with respect to the claims with
the States of Texas and Kentucky, which could differ in the near term from the
recorded net asset values of these programs. In this regard, MARTA's claims are
for amounts in excess of the carrying value of the assets but remain subject to
continuing negotiations and the appropriation of funds by the States.
Inflation
The overall impact of the low rate of inflation in recent years has had no
significant impact on the Company.
Environmental
The Company is subject to federal, state and local laws designed to protect the
environment and believes that, as a general matter, its policies, practices and
procedures are properly designed to prevent unreasonable risk of environmental
damage and financial liability to the Company. (See Note 5 of Notes to
Consolidated Financial Statements for additional information.)
Liquidity and Capital Resources
<TABLE>
<CAPTION>
($ millions) 1996 1995 1994
- ------------ ---- ---- ----
<S> <C> <C> <C>
Total debt $ 56.0 $ 55.8 $ 45.1
Stockholders equity 226.0 210.4 224.2
Debt to equity ratio .2:1 .3:1 .2:1
</TABLE>
In 1996, the Company generated cash of $53.6 million from continuing operations
as compared with $6.9 million in 1995. The significant increase in cash
generation in 1996 as compared with 1995, despite lower income from continuing
operations, was due in large measure to a lower level of investment in working
capital in 1996 (despite significantly higher sales) than experienced in 1995,
resulting in a cash generation of $29.0 million. In addition, the Company
received in 1996 a refund of income taxes previously paid in 1995 in the amount
of $8.0 million. In 1996, the Company also invested approximately $22.2 million
in capital expenditures and software development products and $16.9 million in
wireless telecommunications company investments.
In 1995, the Company had a net cash generation from continuing operations
of $6.9 million as compared with cash generation of $44.3 million in 1994. This
decline in cash generation, despite an increase in income from continuing
operations to $27.3 million in 1995 from $19.7 million in 1994, reflects a $34.6
million investment in working capital to support sales growth, particularly in
Europe and international markets, as well as $18.9 million in income tax
payments. In 1995, the Company also invested $21.2 million in capital
expenditures and software development costs for new products, particularly for
PCS markets. All of these investments were financed through the use of
internally generated funds and available cash investments.
The discontinued Centralized Automotive Emissions Testing business
typically used cash due to the large, initial capital expenditure requirements
as well as the need to fund current operating losses. The sale and disposal of
this product line will not initially have a significant impact on the financial
position or liquidity of the Company, although the sale will generate cash over
the nine-year period of the operating leases. As a result of the decision to
discontinue this business, the Company has terminated the $60 million of credit
lines which were available for MARTA under the Companys revolving credit
agreement, thereby reducing the Companys overall credit line under this
agreement to $100 million. At December 31, 1996, no amounts were borrowed under
this agreement and, after exclusion for amounts designated for letters of
credit, approximately $82 million of credit was available for use. The revolving
credit agreement expires in December 1999 and provides for financial flexibility
to fund growth and expansion.
During 1996, the Company entered into an agreement and made an equity
investment in a wireless telecommunications company in the amount of $5.0
million. This company has agreed to purchase from the Company $50 million of
equipment and services through December 31, 2001. In connection with this
purchase commitment, the Company will make available up to $50 million of
product financing in the form of secured, interest bearing loans to be used
solely to finance the purchase price of the equipment and services supplied by
the Company. The Company believes that existing credit lines and continued cash
flow from operations provide sufficient flexibility for this arrangement.
The future capital needs of the Company will be directed toward continued
penetration and expansion in the wireless communications industry, both
internally and through strategic alliances and acquisitions. Capital
expenditures in 1997 are estimated to approximate $24 million, of which $4.3
million was committed at December 31, 1996. These proposed capital expenditures
reflect the increase in productive capacity necessitated by the increase in the
Companys sales volume, both domestically and in Europe.
The Company believes that continued profitability and available unused
credit lines provide sufficient liquidity to fund future growth, expansion and
acquisitions.
31
<PAGE> 34
FIVE-YEAR SUMMARY OF OPERATIONS
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Five Years Ended December 31, 1996 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS:
<S> <C> <C> <C> <C> <C>
Sales $ 369,498 $ 306,556 $ 213,517 $ 183,638 $ 126,405
Cost of sales 238,401 189,103 127,160 109,040 64,788
Selling, general and administrative expenses 58,101 47,908 44,252 40,452 30,871
Research & development and new product engineering 21,023 17,006 8,865 7,886 4,487
Writeoff of inprocess research and development 2,662 -- -- -- --
Interest and financing expense 2,785 2,098 1,785 1,805 1,092
- ---------------------------------------------------------------------------------------------------------------------------
Income before income taxes and minority interests 46,526 50,441 31,455 24,455 25,167
Provision for income taxes 19,665 20,138 11,191 671 1,279
- ---------------------------------------------------------------------------------------------------------------------------
Income before minority interests 26,861 30,303 20,264 23,784 23,888
Minority interests (6,305) (3,027) (523) (518) (608)
- ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 20,556 27,276 19,741 23,266 23,280
Discontinued operations:
Income (loss) from discontinued operations (3,766) 5,363 9,453 1,695 (5,173)
Gain (loss) on sale of discontinued businesses (3,724) -- -- (2,936) --
Cumulative effect of accounting changes -- -- -- 2,102 (2,767)
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 13,066 $ 32,639 $ 29,194 $ 24,127 $ 15,340
===========================================================================================================================
Net income applicable to common stock $ 13,066 $ 32,639 $ 29,194 $ 21,947 $ 11,315
===========================================================================================================================
Earnings (loss) per common share
(Primary and fully diluted):
Income from continuing operations $ .76 $ 1.02 $ .76 $ .92 $ .98
Discontinued operations:
Income (loss) from discontinued operations (.14) .20 .36 .07 (.27)
Loss on sale of discontinued businesses (.14) -- -- (.13) --
Cumulative effect of accounting changes -- -- -- .10 (.14)
- ---------------------------------------------------------------------------------------------------------------------------
Net income per common share $ .48 $ 1.22 $ 1.12 $ .96 $ .57
===========================================================================================================================
FINANCIAL CONDITION
Total assets: Manufacturing $ 410,512 $ 363,565 $ 357,716 $ 324,638 $ 304,111
Lease financing -- -- -- -- 83,811
- ---------------------------------------------------------------------------------------------------------------------------
Total company 410,512 363,565 357,716 324,638 387,922
Working capital 94,378 93,371 107,940 71,808 67,013
Current ratio 1.90 2.11 2.54 2.22 1.96
Total debt: Manufacturing 55,955 55,799 45,064 52,597 68,083
Lease financing -- -- -- -- 63,151
- ---------------------------------------------------------------------------------------------------------------------------
Total company 55,955 55,799 45,064 52,597 128,177
Stockholder equity 225,951 210,377 224,181 195,161 159,339
Debt to equity ratio: Manufacturing .25 .27 .20 .27 .47
Lease financing -- -- -- -- 4.90
- ---------------------------------------------------------------------------------------------------------------------------
Total company .25 .27 .20 .27 .81
Book value per common share 8.44 7.92 8.59 7.52 5.08
Shares outstanding at year end 26,763 26,570 26,107 25,964 20,058
Return on stockholders equity 6.0% 14.7% 14.1% 12.6% 13.5%
Capital expenditures 20,992 24,498 14,833 11,360 6,653
Depreciation 12,231 8,896 7,477 6,611 6,701
Number of employees 2,900 2,800 2,700 2,500 3,000
===========================================================================================================================
</TABLE>
All per share data have been restated to reflect stock dividends and stock
splits.
32
<PAGE> 35
Shareholder Information
Exchange Listings
Common Stock
(Ticker Symbol -- ALN)
New York Stock Exchange
Pacific Stock Exchange
Transfer Agent and Registrar
Harris Trust Company of New York
P.O. Box A3504
Chicago, Illinois 60690
<TABLE>
<CAPTION>
Stock Price Range
dollars per share
92 93 94 95 96
<C> <C> <C> <C> <C>
$15.00 $29.19 $25.63 $39.38 $28.75
$ 9.44 $12.94 $13.50 $21.25 $14.00
</TABLE>
<TABLE>
<CAPTION>
Market Price Range of Common Stock
1996 1995 1994
High Low High Low High Low
- --------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1st Quarter 23 1/4 16 7/8 25 1/2 21 1/4 18 3/4 13 1/2
2nd Quarter 28 3/4 18 7/8 29 5/8 22 18 3/8 14
3rd Quarter 22 1/2 14 39 3/8 29 1/8 22 1/4 15 3/4
4th Quarter 23 3/4 14 3/4 35 21 7/8 25 5/8 19 3/8
</TABLE>
<TABLE>
<CAPTION>
Dividends Declared On Common Stock
1996 1995 1994 1993 1992
<C> <C> <C> <C> <C> <C>
1st Quarter -- $.05 $.04 $.03 $.025
2nd Quarter -- $.05 $.04 $.03 $.025
3rd Quarter -- $.05 $.04 $.03 $.023
4th Quarter -- -- $.05 $.04 $ .03
</TABLE>
Auditors
Coopers & Lybrand L.L.P.
Cleveland, Ohio
Form 10-K or Additional Information About the Company
Stockholders and others interested in obtaining additional information about the
Company may do so by writing or calling Allen Telecom Inc., 25101 Chagrin Blvd.,
Beachwood, Ohio, 44122-5619, (216) 765-5822. The Form 10-K Annual Report,
including financial statements and schedules, will be furnished without charge.
Information concerning the Company can also be found on the Internet at
http://www.allentelecom.com.
Affirmative Action Policy
It is the policy of Allen Telecom Inc. that all employees will be judged on the
basis of qualifications and ability, without regard to age, sex, race, creed,
color or national origin, in all personnel actions. No employee or applicant for
employment will receive discriminatory treatment because of physical or mental
handicap in regard to any position for which the employee or applicant for
employment is qualified.
Stockholders
As of March 3, 1997, Allen Telecom Inc. had outstanding 26,832,305 shares of
Common Stock owned by 1,926 holders of record.
Annual Stockholders Meeting
The Annual Meeting of Stockholders will be held at the Cleveland Marriott at Key
Center, 127 Public Square, Cleveland, Ohio on Friday, April 25, 1997 at 9:30
a.m.
Mountain High Maps(R) Copyright(C) 1993 Digital Wisdom, Inc.
<PAGE> 36
Allen Telecom [Logo]
Allen Telecom Inc.
25101 Chagrin Boulevard
Beachwood, Ohio 44122-5619
www.allentelecom.com
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE ALLEN TELECOM INC.
--------------------------------------
The following is a list of the subsidiaries of Allen Telecom Inc. (Delaware,
02-03-69), and indented, subsidiaries of such subsidiaries, including in each
case the state or other jurisdiction in which each subsidiary was incorporated
or organized, and indicating in each case the percentage of voting securities
owned by the immediate parent.
<TABLE>
<CAPTION>
STATE/COUNTRY OF
NAME OF CORPORATION INCORPORATION DATE %
- ------------------- ------------- ---- -
<S> <C> <C> <C>
The Allen Group Canada Limited Ontario, Canada 04-19-72 100
The Allen Group International, Inc. Delaware 07-19-73 100
The Allen Group GmbH Germany 09-29-70 100
The Allen Group Internat'l Sales Corp. Barbados 09-15-94 100
Allen Telecom Canada, Inc. (2) Ontario 04-14-93 80
Antenna Specialists Co., Inc. Delaware 10-07-88 100
Antespec, S.A. de C.V. Mexico 11-14-88 100
Decibel Mobilcom GmbH (1) Germany 07-28-90 100
Decibel Mobilcom Limited (1) England 01-31-91 100
RF Micro Devices, Inc. North Carolina 02-27-92 12.4
Orion Far East Management Inc. (1) Delaware 07-16-81 100
Orion Industries, Inc., Limited (1) Hong Kong 06-01-71 100
Orion Imports & Exports Limited (1) Hong Kong 09-07-73 100
Orion Industries, Inc. Japan (1) Japan 09-73 100
Orion Industries Taiwan Limited (1) Taiwan 10-73 100
Allen Telecom Group (Italia) S.r.l. Italy 11-14-94 100
FOR.E.M. S.p.A. (3) Italy 10-10-72 80
FOREM France S.a.r.l. (4) France 1993 96
FOREM (UK) Limited U.K. 1988 100
MIKOM G.m.b.H. (5) Germany 05-07-85 62
Mitras Ltd. (6) Hungary 1992 60
Mikom Vertriebs and Service GmbH (7) Austria 10-18-96 60
Teamwork ATG Party Ltd. Australia 07-23-96 19.8
Tekmar Sistemi S.r.l. (8) Italy 1996 64.3
Allen Telecomunicadoes do Brasil Ltda (9) Brazil 11-95 100
MARTA Technologies, Inc. Delaware 10-14-92 100
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE/COUNTRY OF
NAME OF CORPORATION INCORPORATION DATE %
- ------------------- ------------- ---- -
<S> <C> <C> <C>
Allen Telecom Group Limited (1) U.K. 05-08-72 100
Signal Science, Incorporated California 09-25-74 100
Telecom Wireless Solutions, Inc. Delaware 10-31-94 19
<FN>
(1) These subsidiaries are not significant in the aggregate and are no longer active.
(2) 80% of the outstanding capital stock of this subsidiary is owned by Allen Telecom
Inc. and the remaining 20% is owned by senior management of Allen Telecom Canada,
Inc.
(3) 80% of the outstanding capital stock of this subsidiary is owned by Allen Telecom
Group (Italia) S.r.l., which also owns options to acquire the remaining 20%.
(4) 96% of the outstanding capital stock of this subsidiary is owned by FOR.E.M.
S.p.A. and the remaining 4% is owned by senior management of FOREM France
S.a.r.l.
(5) 62% of the outstanding capital stock of this subsidiary is owned by FOR.E.M.
S.p.A. and the remaining 38% is owned by the managing director of MIKOM G.m.b.H.
(6) 60% of the outstanding capital stock of this subsidiary is owned by MIKOM
G.m.b.H. and the remaining 40% is owned by senior management of Mitras Ltd.
(7) 60% of the outstanding capital stock is owned by MIKOM G.m.b.H. and the remaining
40% is owned by the partners of MIKOM G.m.b.H. in the venture.
(8) 64.3% of the outstanding capital stock of this subsidiary is owned by Allen
Telecom Group, Inc. which also owns options to acquire the remaining 35.7%.
(9) 99% of the outstanding capital stock of this subsidiary is owned by Allen Telecom
Inc. and the remaining 1% is owned by The Allen Group International, Inc.
</TABLE>
<PAGE> 1
Exhibit 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
on Form S-3 (File No. 333-13467) and on the Registration Statements on Form S-8
(File Nos. 33-58951, 33-53499, 33-53487, 33-52420, 33-8658 and 2-99919) and the
related Prospectuses of Allen Telecom Inc. of (a) our report dated February 17,
1997 on our audits of the consolidated financial statements of Allen Telecom
Inc. as of December 31, 1996 and 1995 and for the years ended December 31, 1996,
1995, 1994, which report has been incorporated by reference in this Annual
Report on Form 10-K from the 1996 Annual Report to Stockholders of Allen Telecom
Inc. (a copy of which is filed as Exhibit 13 to this Report) and appears on page
27 therein, and (b) our report dated February 17, 1997 on our audits of the
financial statement schedule for the years ended December 31, 1996, 1995 and
1994 of Allen Telecom Inc., which report appears on page 14 in this Annual
Report on Form 10-K. We also consent to the references to our firm in the
above-mentioned Prospectuses under the caption "EXPERTS".
COOPERS & LYBRAND L.L.P.
Cleveland, Ohio
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 23,879
<SECURITIES> 0
<RECEIVABLES> 95,019
<ALLOWANCES> (1,610)
<INVENTORY> 71,304
<CURRENT-ASSETS> 199,180
<PP&E> 81,662
<DEPRECIATION> (29,720)
<TOTAL-ASSETS> 410,512
<CURRENT-LIABILITIES> 104,802
<BONDS> 49,957
<COMMON> 29,614
0
0
<OTHER-SE> 196,337
<TOTAL-LIABILITY-AND-EQUITY> 410,512
<SALES> 369,498
<TOTAL-REVENUES> 369,498
<CGS> (238,401)
<TOTAL-COSTS> (238,401)
<OTHER-EXPENSES> (81,786)
<LOSS-PROVISION> (825)
<INTEREST-EXPENSE> (2,785)
<INCOME-PRETAX> 46,526
<INCOME-TAX> (19,665)
<INCOME-CONTINUING> 20,556
<DISCONTINUED> (7,550)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,066
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
</TABLE>
