<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from Not Applicable to
-------------- --------------
Commission file number 1-6016
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ALLEN TELECOM INC.
- --------------------------------------------------------------------------------
(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 Identification No.)
Incorporation or Organization)
25101 Chagrin Boulevard, Suite 350, Beachwood, Ohio 44122
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) 216-765-5818
------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Outstanding at
Class of Common Stock October 31, 1997
--------------------- ----------------
Par value $1.00 per share 27,242,004
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Exhibit Index is on page 18 of this report.
Page 1 of 20 Pages.
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ALLEN TELECOM INC.
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TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
No.
---------------
<S> <C>
Part I. Financial Information:
Item 1 - Financial Statements:
Consolidated Condensed Balance Sheets -
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -
Three Months and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Condensed Statements of
Cash Flows - Nine Months Ended
September 30, 1997 and 1996 5
Notes to Consolidated Condensed
Financial Statements 6 - 9
Item 2 - Management's Discussion and
Analysis of Financial Condition
And Results of Operations 10 - 15
Part II. Other Information:
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
Exhibit Index 18
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM I - FINANCIAL STATEMENTS
-----------------------------
ALLEN TELECOM INC.
------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(Amounts in Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and equivalents $ 16,081 $ 23,879
Accounts receivable (less allowance for doubtful
accounts of $1,726 and $1,610, respectively) 106,889 93,409
Inventories: Raw materials 44,415 36,869
Work in process 26,123 19,256
Finished goods 14,581 15,179
--------- ---------
85,119 71,304
Assets of discontinued emissions testing business (Note 5) 1,310 3,332
Other current assets 9,500 7,256
--------- ---------
Total current assets 218,899 199,180
Property, plant and equipment, net 58,128 51,942
Excess of cost over net assets of businesses acquired (Note 4) 99,940 75,502
Assets of discontinued emissions testing business (Note 5) 34,831 42,031
Other assets (Note 3) 62,939 41,857
--------- ---------
TOTAL ASSETS $ 474,737 $ 410,512
========= =========
LIABILITIES:
Current Liabilities:
Notes payable and current maturities of long-term
obligations $ 10,466 $ 5,998
Accounts payable 48,225 36,639
Accrued expenses 33,338 37,991
Income taxes payable 14,091 19,830
Deferred income taxes 2,243 4,344
--------- ---------
Total current liabilities 108,363 104,802
Long-term debt 77,442 49,957
Other liabilities 28,102 29,802
--------- ---------
TOTAL LIABILITIES 213,907 184,561
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, par value $1.00 29,701 29,614
Paid-in capital 179,138 170,945
Retained earnings 68,433 46,742
Translation adjustments (6,549) (304)
Unrealized appreciation on investment securities (Note 3) 9,009 --
Less: Treasury stock (at cost) (16,847) (17,932)
Unearned compensation (1,849) (2,908)
Minimum pension liability adjustment (206) (206)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 260,830 225,951
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 474,737 $ 410,512
========= =========
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
3
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ALLEN TELECOM INC.
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CONSOLIDATED STATEMENTS OF INCOME (LOSS)
----------------------------------------
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 111,389 $ 95,010 $ 322,751 $ 267,938
--------- --------- --------- ---------
Costs and expenses:
Cost of sales (70,856) (62,804) (207,495) (175,245)
Selling, general and
administrative expenses (Note 3) (17,145) (14,715) (47,939) (42,468)
Research and development and
product engineering costs (7,985) (5,029) (22,282) (14,788)
Write-off of acquired in-process
research and development
costs (Note 3)
-- (2,662) -- (2,662)
Interest expense (1,138) (1,075) (2,870) (2,990)
Interest income 231 335 694 654
--------- --------- --------- ---------
Income before taxes and
minority interests 14,496 9,060 42,859 30,439
Provision for income taxes (5,450) (3,961) (16,750) (12,742)
--------- --------- --------- ---------
Income before minority
interests 9,046 5,099 26,109 17,697
Minority interests (1,116) (1,602) (4,419) (3,816)
--------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS 7,930 3,497 21,690 13,881
Discontinued Emissions Testing
Operations (net of income taxes):
Loss from operations -- (2,764) -- (3,766)
Loss for disposal -- (3,724) -- (3,724)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 7,930 ($ 2,991) $ 21,690 $ 6,391
========= ========= =========
EARNINGS PER COMMON SHARE:
(Primary and Fully Diluted (Note 2))
Income from Continuing Operations $ .29 $ .13 $ .80 $ .51
Discontinued Emissions Testing
Operations:
Loss from operations -- (.10) -- (.14)
Loss for disposal -- (.14) -- (.14)
--------- --------- --------- ---------
NET INCOME (LOSS) $ .29 ($ .11) $ .80 $ .23
========= ========= ========= =========
Average common and common
equivalent shares outstanding 27,577 26,952 27,276 27,034
========= ========= ========= =========
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
4
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ALLEN TELECOM INC.
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
CONTINUING OPERATIONS:
Cash generated by operating activities of continuing operations $ 9,168 $ 36,220
-------- --------
Cash flows from investing activities:
Investment in telecommunications companies (43,805) (11,622)
Capital expenditures (17,482) (14,305)
Sales and retirements of fixed assets 919 63
Capitalized software product costs (3,230) (3,308)
Sale of investment 1,580 --
-------- --------
Cash (used) by investing activities (62,018) (29,172)
-------- --------
Cash flows from financing activities:
Net proceeds from borrowings 35,836 57
Exercise of stock options 1,894 240
Treasury stock sold to employee benefit plans 1,273 1,195
-------- --------
Cash generated by financing activities 39,003 1,492
-------- --------
DISCONTINUED OPERATIONS:
Net cash generated (used) by discontinued centralized
Emissions testing operations 7,989 (4,669)
-------- --------
Net cash (used) generated (5,858) 3,871
Effect of exchange rate changes on cash (1,940) --
Cash and equivalents at beginning of year 23,879 15,706
-------- --------
Cash and equivalents at end of period $ 16,081 $ 19,577
======== ========
Supplemental cash flow data:
Depreciation and amortization included in "Cash generated
by operating activities of continuing operations" $ 15,846 $ 15,794
Cash paid during the period for:
Interest paid 3,150 3,780
Interest capitalized 210 --
Income taxes paid 21,730 1,115
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
5
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ALLEN TELECOM INC,
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. General:
--------
In the opinion of the management of Allen Telecom Inc. (the "Company"),
the accompanying unaudited consolidated condensed interim financial
statements reflect all adjustments necessary to present fairly the
financial position of the Company as of September 30, 1997 and the
results of its operations and its cash flows for the periods ended
September 30, 1997 and 1996. The results of operations for such interim
periods are not necessarily indicative of the results for the full
year. The year-end 1996 consolidated condensed balance sheet was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996. Certain reclassifications have
been made to the 1996 financial statements to conform to the 1997
method of presentation.
2. Earnings Per Common Share:
-------------------------
The earnings per common share calculations are based on the weighted
average number of common shares outstanding during each period. The
calculations also include, if dilutive, the incremental common shares
issuable on a pro forma basis upon assumed exercise of stock options.
Such incremental common shares assume that the proceeds are used to
purchase shares at the average market price during the period, for
primary earnings per share, or at the period-end market price, if
higher, for fully diluted earnings per share. The calculation of fully
diluted earnings per common share resulted in no reportable dilution
for the periods presented.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." This statement revises the standards for computing and
presenting earnings per share ("EPS"), and will be effective for
periods ending after December 15, 1997 (the statement prohibits earlier
adoption). The Company will implement the standard during the fourth
quarter of 1997, at which time all prior annual and interim period EPS
data will be restated. The Company has determined that, once adopted,
there will be no material impact on the three-month and nine-month
periods ended September 30, 1997 and 1996.
3. Investments in Telecommunication Companies
------------------------------------------
In the first quarter of 1997, the Company realized a before-tax gain on
the sale of the Company's partial ownership investment in Columbia
Spectrum Management, L.P., in the amount of $1,525,000, or $.03 per
common share after related tax effects. This gain is included in
selling, general, and administrative expenses.
6
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ALLEN TELECOM INC,
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Continued)
(Unaudited)
The Company owns common stock and warrants in RF Micro Devices, Inc.
("RFMD"), which completed an initial public offering of its common
stock on June 3, 1997. The Company's investment is currently subject to
certain trading restrictions. At September 30, 1997, the investment
value has been adjusted to the market value at that date of
approximately $18,795,000 (included in "Other assets"). The Company has
954,278 common shares and 36,412 warrants classified as
available-for-sale at September 30, 1997. The common shares and
warrants have an aggregate fair value of $18,310,574 and a cost basis
of $2,778,333 resulting in an unrealized holding gain of $15,532,241.
Unrealized appreciation in the amount of $9,009,000, after related
income tax effects, is included in Stockholders' Equity as "unrealized
appreciation on investment securities" as it is the Company's intent to
treat the securities classified as available-for-sale as a long-term
investment. The market value of the Company's holdings is based on
RFMD's published NASDAQ closing rate on September 30, 1997 of $18.625
($14.625 at November 6, 1997).
On September 20, 1996, the Company acquired 100% of Signal Science,
Incorporated. In connection therewith, the Company incurred a one-time
non-cash charge relating to the write-off of purchased in-process
research and development costs of $2,662,000 ($.10 per common share).
4. Purchase of Minority Interest
-----------------------------
On June 4, 1997, the Company acquired the remaining 20% minority
interest in FOR.E.M. S.p.A. ("FOREM"), and now owns 100% of FOREM.
FOREM is a leading manufacturer of filters, combiners, and tower mount
amplifiers for GSM cellular and DCS 1800 wireless communications
systems. This acquisition also increases the effective ownership of
FOREM's 62% owned subsidiary, Mikom G.m.b.H. The final purchase price
(in the form of cash and/or common stock of the Company) is contingent
upon the net income of FOREM's 1997 fiscal year. In a series of
transactions to acquire this 20% minority interest, the Company has
paid $31,297,000 in cash and 261,014 shares of the Company's common
stock with an aggregate value of approximately $6,000,000, and expects
to make a final payment in January 1998. This purchase is the principal
reason for the increase in the "Excess of cost over net assets of
businesses acquired" in the Consolidated Condensed Balance Sheet.
7
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ALLEN TELECOM INC.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Continued)
(Unaudited)
5. Discontinued Operations
-------------------------
In 1996, the Company decided to exit the centralized automotive
emissions testing business operated by its MARTA Technologies, Inc.
("MARTA") subsidiary and has presented such operations as "Discontinued
Emissions Testing Operations" in the Consolidated Statements of Income.
On May 27, 1997, the Company announced that MARTA and Envirotest
Systems Corp. ("Envirotest") had jointly decided to terminate the
agreement of sale between MARTA and Envirotest, which provided for the
transfer of MARTA's centralized emissions testing program for the
Cincinnati region of Ohio to Envirotest. Due to the uncertainty of
legislative and administrative actions in defining the future direction
and economics of the program and other contractual matters, the parties
were unable to reach agreement on the financial and other terms of the
transaction. As a result, MARTA is moving towards the reopening of the
Cincinnati operation in early 1998. Additionally, on August 1, 1997,
the State of Maryland notified MARTA that it was exercising the first
of the two one-year renewal options as contained in the original
contract. This renewal option extends the program through April 30,
1999. These developments do not change the Company's strategy of
focusing its future solely on the wireless communications industry.
MARTA will continue to operate its programs and fulfill its contractual
commitments pending any disposition.
On August 11, 1997, the Company received $11,000,000 in settlement of
its claims against the State of Texas for the discontinued El Paso,
Texas program. In addition, MARTA will retain any proceeds from the
sale of the program assets. The receipt of the settlement is the
primary reason for the reduction in "Assets of discontinued emissions
testing business" on the Consolidated Condensed Balance Sheets.
6. Subsequent Event
----------------
The Company has agreed in principle to enter into an agreement to issue
$65,000,000 of unsecured Senior Notes in a private placement
transaction. These notes will have an average life of seven and
one-half (7.5) years and a weighted average coupon interest rate of
approximately 6.65%. The notes, when issued, will rank equally in right
of repayment with the Company's other unsecured senior indebtedness. It
is expected that the agreement will be finalized and the funds
distributed prior to November 30, 1997. Proceeds of the notes will be
used for general corporate purposes, including the refinancing and
prepayment of existing indebtedness.
8
<PAGE> 9
ALLEN TELECOM INC.
------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Continued)
(Unaudited)
With regards to the aforementioned prepayment, the Company has existing
debt of $15,000,000 held by one institutional investor. The Company
intends to prepay these notes in full with a portion of the $65,000,000
proceeds. As a result of such prepayment, the difference between the
call premium and costs of reacquisition and the net carrying amount of
the debt, in the amount of approximately $.6 million of expense or $.02
per common share, after related tax effect, will be reported as an
"Extraordinary item" in the fourth quarter of 1997.
9
<PAGE> 10
ALLEN TELECOM INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND
------------------------------------
ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
- ---------------------
Summary:
- --------
For the three months ended September 30, 1997 and 1996, Allen Telecom Inc. (the
"Company") reported income from continuing operations of $7.9 million, or $.29
per common share, and $3.5 million, or $.13 per common share, respectively. For
the nine months ended September 30, 1997 and 1996, the Company reported income
from continuing operations of $21.7 million, or $.80 per common share, and $13.9
million, or $.51 per common share, respectively.
The increase in earnings for the three and nine-month periods ending September
30, 1997 is due primarily to higher sales of $111.4 million and $322.8 million,
as compared with $95.0 million and $267.9 million in the comparable 1996
periods. In the first quarter of 1997, the Company realized a before-tax gain on
the sale of the Company's partial ownership interest in Columbia Spectrum
Management, L.P., in the pre-tax amount of $1.5 million, or $.03 per common
share after related tax effects. This gain is included in selling, general and
administrative expenses. The third quarter of 1996 included a one-time write-off
of acquired in-process research and development costs in the pre-tax amount of
$2.7 million or $.10 per common share related to an acquisition.
Sales:
- ------
Sales for the third quarter and nine-month period ended September 30, 1997
increased 17% and 20%, respectively, over the comparable 1996 periods. In the
third quarter of 1997, sales in the systems and site management product lines
increased over the 1996 third quarter, with the largest increase coming from a
continued increase in GSM related site management products. This increase was
offset, in part, by a small reduction in sales in the Company's antenna and
engineering services product lines compared to the prior year quarter. For the
quarter, international sales represented 62% of total sales, as compared with
54% in the prior year third quarter.
For the nine-month period, the Company reported sales increases in each of its
four product lines. As noted above, the largest increase resulted from the
continued increase in GSM related site management products.
Operations:
- -----------
Gross profit margins were 36.4% in the third quarter of 1997 as compared with
33.9% in the comparable 1996 period. The increase is due primarily to the
increase in sales of higher margin systems products along with improved margins
in the Company's systems and antenna product lines.
10
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ALLEN TELECOM INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND
------------------------------------
ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------
RESULTS OF OPERATIONS
---------------------
(Continued)
For the nine-month periods ended September 30, 1997 and 1996, gross profit
margins were 35.7% and 34.6%, respectively. The increase in 1997 is due
primarily to the aforementioned increase in sales of system products, improved
site management product line margins and continued sales growth in the Company's
European-based businesses. This increase was offset, in part, by lower margins
in the Company's engineering services business.
Selling, general and administrative expenses (excluding the aforementioned gain
from the sale of an investment) were 15.4% and 15.5% for the third quarter 1997
and 1996, respectively, and 15.3% and 15.8% for the nine-month periods ended
September 30, 1997 and 1996, respectively. The slightly lower percentages in the
current periods reflect the spreading of fixed costs on higher sales and are
within normal operating ranges.
Research and development and product engineering costs increased $3.0 million
and $7.5 million, respectively, in the three and nine months ended September 30,
1997 as compared with the comparable 1996 periods. Such costs were 7.2% and 5.3%
of sales for the third quarter 1997 and 1996, respectively, and 6.9% and 5.5% of
sales for the nine months ended September 30, 1997 and 1996, respectively. These
increases are indicative of the ongoing trend experienced by the Company in
recent years.
Interest and Financing Expenses:
- --------------------------------
Net interest costs for the third quarter of 1997 increased slightly from the
third quarter of the prior year due primarily to higher interest costs incurred
to finance investments in telecommunications companies.
The lower net interest cost for the nine months of 1997 compared with the
comparable 1996 period reflects the lower net financing costs of the Company's
profitable European operations.
Provision For Income Taxes:
- ---------------------------
The Company's effective tax rate on continuing operations approximated 37.6% and
43.7%, respectively, for the third quarter 1997 and 1996 periods, and 39% and
41.9%, respectively, for the 1997 and 1996 year-to-date periods.
Minority Interest:
- ------------------
The decrease in minority interest expense for the three months ended September
30, 1997, as compared with the comparable 1996 period, is a result of the
acquisition of the remaining 20% minority interest in FOR.E.M S.p.A. ("FOREM")
in May 1997.
11
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ALLEN TELECOM INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND
------------------------------------
ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------
RESULTS OF OPERATIONS
---------------------
(Continued)
The increase in minority interest in the nine months of 1997, as compared with
the comparable 1996 periods, is due to the related earnings growth of the
Company's minority owned European subsidiaries. As discussed above, future
results of operations will no longer include minority interest expense relating
to FOREM. However, the Company will continue to record minority interest expense
with respect to FOREM's 62% owned subsidiary, Mikom G.m.b.H., and other
minority-owned subsidiaries.
Discontinued Operations:
- ------------------------
In 1996, the Company decided to exit the centralized automotive emissions
testing business operated by its MARTA Technologies, Inc. ("MARTA") subsidiary
and has presented such operations as "Discontinued Operations" in the
Consolidated Statements of Income. On May 27, 1997, the Company announced that
MARTA and Envirotest Systems Corp. ("Envirotest") had jointly decided to
terminate the agreement of sale between MARTA and Envirotest, providing for the
transfer of MARTA's centralized emissions testing program for the Cincinnati
region of Ohio to Envirotest. Due to the uncertainty of legislative and
administrative actions in defining the future direction and economics of the
program and other contractual matters, the parties were unable to reach
agreement on the financial and other terms of the transaction. As a result,
MARTA is moving toward the reopening of the Cincinnati, Ohio program, and
currently anticipates the restart of this program in early 1998. MARTA will
continue to operate its programs and fulfill its contractual commitments pending
any disposition. This development does not change the Company's stated strategy
of focusing the future solely on the wireless communications industry.
With respect to the Company's claim against the State of Texas for compensation
in connection with the discontinuance of the El Paso, Texas centralized
emissions test program, on August 11, 1997, the Company received $11 million in
settlement of its claims against the State. In addition, MARTA will retain any
proceeds from the sale of the program assets.
Discontinued operations include management's best estimate of the loss from the
disposal of the emissions testing business. Actual results could differ from
these estimates and are dependent upon, among other factors, the outcomes of
ongoing litigation and/or claims with the states of Ohio and Kentucky with
respect to their suspension or cancellation respectively, of MARTA's emissions
testing programs within their states.
12
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ALLEN TELECOM INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND
------------------------------------
ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------
RESULTS OF OPERATIONS
---------------------
(Continued)
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
As set forth in the Consolidated Condensed Statement of Cash Flows, the Company
generated $9.2 million in cash from the operating activities of continuing
operations for the nine months ended September 30, 1997 as compared with a cash
generation of $36.2 million for the comparable 1996 period. The decrease in cash
flow, despite increased earnings, is due principally to working capital
increases in support of higher sales and backlog, along with the payment of
estimated and actual income taxes by its European subsidiaries in the third
quarter of 1997.
As a result of a series of transactions, on June 4, 1997, the Company acquired
the outstanding 20% minority interest in FOREM, increasing its ownership
interest to 100%. In connection with these transactions, the Company paid to the
minority interest holders $37.3 million in cash and Company common stock which
is the principal reason for the increase in "Excess of cost over net assets of
businesses acquired" in the Consolidated Condensed Balance Sheet. The final
purchase price is contingent upon the final 1997 earnings of FOREM and is
payable in cash and/or Company common stock in early 1998.
To fund the FOREM acquisition, along with other investments, the Company has
borrowed approximately $30 million under its domestic credit facilities. At
September 30, 1997, the Company had available unused lines of credit in the
amount of approximately $52 million.
The increase in cash generated (used) by discontinued centralized emissions
testing operations is due primarily to the aforementioned receipt of $11 million
from the State of Texas in settlement of MARTA's claims against the State. In
addition, the receipt of the above payment is the primary reason for the
decrease in Assets of discontinued emissions testing business on the
Consolidated Condensed Balance Sheet.
At September 30, 1997, cash and equivalents totaled $16.1 million, most of which
are held by the Company's European subsidiaries.
As discussed more fully in Footnote 6 to the Consolidated Condensed Financial
Statements, the Company has agreed in principle to issue $65 million of
unsecured Senior Notes through a private placement. It is expected that the
agreement will be finalized and the funds distributed prior to November 30,
1997. As a result of the anticipated usage of a portion of these funds to repay
$15 million of existing debt, the Company will report approximately $.6 million
of expense, or $.02 per common share, after related tax effect, as an
"Extraordinary item" in the fourth quarter of 1997.
13
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ALLEN TELECOM INC.
------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND
------------------------------------
ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------
RESULTS OF OPERATIONS
---------------------
(Continued)
The increase in other assets in the Consolidated Condensed Balance Sheet is due
primarily to common shares and warrants of RF Micro Devices, Inc. ("RFMD"). RFMD
completed an initial public offering of its common stock on June 3, 1997. At
September 30, 1997, the value of these assets has been adjusted to reflect
current market value of approximately $18.8 million. Likewise, the net
unrealized appreciation in the amount of $9.0 million, after related income tax
effect, is included in Stockholders' Equity as "Unrealized appreciation on
investment securities," as it is the Company's intent to treat the securities
classified as available-for-sale as a long-term investment. The Company's
investment is currently subject to certain trading restrictions.
In 1996, the Company entered into an agreement to make an equity investment of
$5 million in Nextwave Telecom Inc. ("Nextwave"), and whereby Nextwave agreed to
purchase $50 million of equipment and services over a five-year period from the
Company. In connection with this agreement, subject to certain preconditions
that have not yet occurred, the Company has agreed to provide secured product
financing in addition to its $5.0 million investment. At September 30, 1997, the
Company had outstanding approximately $2.0 million of receivables with Nextwave.
In early 1997, the U.S. Government suspended interest payments on license fees
due from certain companies, such as Nextwave, who were awarded
telecommunications licenses under a competitive auction bid process.
Subsequently, the Federal Communications Commission ("FCC") provided
alternatives for the capital constrained C Block licensees, which may enable
these carriers to obtain the financing needed to build-out their systems or to
return some, or all, of their licenses to the FCC for re-auction. While it is
not clear which alternative, or alternatives, will be chosen by NextWave, a
decision is anticipated by early 1998. At this time, the Company believes that
there has been no impairment in the aggregate carrying value of its investment
in Nextwave.
----------------------------------
Statements included in this Form 10-Q 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. Certain factors could cause
the Company's actual results to materially differ from forward-looking
statements made by the Company, including, among others, the uncertain level of
purchases by current and prospective customers of the Company's products and
services, the impact of competitive products and pricing, the pace of the
development of worldwide telecommunications systems and the ultimate market
value of the Company's investments in other telecom ventures. In addition, the
amount of the charges to discontinued operations with respect to MARTA will
depend on a number of factors, including the outcome of any divestiture,
negotiations or litigation with certain states and the final determination of
the net realizable values of assets to be
14
<PAGE> 15
ALLEN TELECOM INC.
------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND
------------------------------------
ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------
RESULTS OF OPERATIONS
---------------------
(Continued)
sold or otherwise realized. Also, the recovery of the Company's investment in
and receivables from Nextwave may be dependent upon Nextwave securing adequate
additional financing and the subsequent implementation of its telecommunications
systems. The Company's Annual Report on Form 10-K contains certain other
detailed factors that could cause the Company's actual results to materially
differ from forward-looking statements made by the Company.
15
<PAGE> 16
PART II- OTHER INFORMATION
--------------------------
Item 6 - Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
(11) Statement re computation of per share earnings
(27) Financial data schedule
(b) Reports on Form 8-K
-------------------
None
16
<PAGE> 17
SIGNATURES
----------
Pursuant to the requirements 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)
Date: November 10, 1997 By: /s/ Robert A. Youdelman
------------------ -------------------------------------
Robert A. Youdelman
Executive Vice President
(Chief Financial Officer)
Date: November 10, 1997 By: /s/ James L. LePorte, III
------------------ -------------------------------------
James L. LePorte, III
Vice President, Treasurer
and Controller
(Principal Accounting Officer)
17
<PAGE> 18
ALLEN TELECOM INC.
------------------
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Number Page
- -------------- ----
<S> <C> <C>
(11) Statement re computation of per share earnings 19
(27) Financial Data Schedule 20
</TABLE>
18
<PAGE> 1
EXHIBIT 11
----------
ALLEN TELECOM INC.
------------------
EARNINGS PER COMMON SHARE DATA
------------------------------
(Amounts in Thousands)
Net income and common shares used in the calculations of earnings per common
share were computed as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income:
- -------
Net income (loss) applicable to
Common stock - primary $ 7,930 $ (2,991) $ 21,690 $ 6,391
======== ======== ======== ========
Common Shares:
- --------------
Weighted average outstanding
Common shares 27,071 26,483 26,850 26,429
Dilutive common stock options 506 469 426 605
-------- -------- -------- --------
Common shares - primary 27,577 26,952 27,276 27,034
Additional common shares issuable
for stock options 122 50 51 18
-------- -------- -------- --------
Common shares - fully diluted 27,699 27,002 27,327 27,052
======== ======== ======== ========
</TABLE>
This calculation of fully diluted earnings per common share is submitted in
accordance with Regulation S-K Item 601 (b) (11), although it is not required
for income statement presentation because it results in dilution of less than 3
percent.
19
<TABLE> <S> <C>
<ARTICLE>5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1997
<CASH> 16,081
<SECURITIES> 0
<RECEIVABLES> 108,615
<ALLOWANCES> (1,726)
<INVENTORY> 85,119
<CURRENT-ASSETS> 218,899
<PP&E> 102,695
<DEPRECIATION> (44,567)
<TOTAL-ASSETS> 474,737
<CURRENT-LIABILITIES> 108,363
<BONDS> 77,442
0
0
<COMMON> 29,701
<OTHER-SE> 231,129
<TOTAL-LIABILITY-AND-EQUITY> 474,737
<SALES> 322,751
<TOTAL-REVENUES> 322,751
<CGS> (207,495)
<TOTAL-COSTS> (207,495)
<OTHER-EXPENSES> (70,002)
<LOSS-PROVISION> (219)
<INTEREST-EXPENSE> (2,176)
<INCOME-PRETAX> 42,859
<INCOME-TAX> (16,750)
<INCOME-CONTINUING> 21,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,690
<EPS-PRIMARY> .80
<EPS-DILUTED> .80
</TABLE>
