<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 June 30, 1998
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
- --------------------------------------------------------------------------------
(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:
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock July 31, 1998
--------------------- -------------
<S> <C> <C>
Par value $1.00 per share 27,396,179
----------
</TABLE>
<PAGE> 2
ALLEN TELECOM INC.
------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
No.
-----------------
PART I. FINANCIAL INFORMATION:
<S> <C>
ITEM 1 - FINANCIAL STATEMENTS:
CONSOLIDATED CONDENSED BALANCE SHEETS -
June 30, 1998 and December 31, 1997 3
CONSOLIDATED CONDENSED STATEMENTS OF
INCOME - Six and Three Months Ended
June 30, 1998 and 1997 4
CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS - Six Months Ended
June 30, 1998 and 1997 5
CONSOLIDATED CONDENSED STATEMENTS OF
STOCKHOLDERS' EQUITY - Six Months Ended
June 30, 1998 and 1997 6
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS 7 - 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10 - 13
ITEM 3 - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK 14
PART OTHER INFORMATION:
II.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 14 - 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
ALLEN TELECOM INC.
------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(Amounts in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and equivalents $ 22,069 $ 30,775
Accounts receivable (less allowance for doubtful
accounts of $2,129 and $1,934, respectively) 102,950 105,714
Inventories: Raw materials 47,067 49,583
Work in process 23,387 24,505
Finished goods 23,694 19,680
--------- ---------
Total inventories (net of reserves) 94,148 93,768
--------- ---------
Assets of discontinued emissions testing business 881 1,034
Other current assets (Note 2) 21,163 10,745
--------- ---------
Total current assets 241,211 242,036
--------- ---------
Property, plant and equipment, net 58,671 60,543
Excess of cost over net assets of businesses acquired 125,240 126,923
Assets of discontinued emissions testing business 32,645 32,329
Other assets (Note 2) 35,703 52,602
--------- ---------
TOTAL ASSETS $ 493,470 $ 514,433
========= =========
LIABILITIES:
Current Liabilities:
Notes payable and current maturities of long-term
obligations $ 4,175 $ 6,119
Accounts payable 42,782 75,195
Accrued expenses 33,901 35,261
Income taxes payable 10,283 13,197
Deferred income taxes 1,232 1,249
--------- ---------
Total current liabilities 92,373 131,021
--------- ---------
Long-term debt 131,777 97,915
Deferred Income Taxes 2,315 6,818
Other liabilities 18,632 17,857
--------- ---------
TOTAL LIABILITIES 245,097 253,611
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 29,751 29,746
Paid-in capital 180,783 180,538
Retained earnings 65,295 70,091
Accumulated other comprehensive income (loss) (8,326) 207
Less: Treasury stock (at cost) (16,768) (16,992)
Unearned compensation (2,362) (2,768)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 248,373 260,822
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 493,470 $ 514,433
========= =========
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
3
<PAGE> 4
ALLEN TELECOM INC.
------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES $ 98,013 $ 108,859 $ 211,382 $ 211,362
--------- --------- --------- ---------
Costs and expenses:
Cost of sales (Note 4) (80,351) (70,677) (157,972) (136,639)
Selling, general and
administrative expenses (Note 4) (20,601) (16,866) (36,908) (33,019)
Research and development and
product engineering costs (8,221) (7,611) (15,846) (14,297)
Other income (loss), net (Note 2) (3,505) 700 (2,341) 2,225
Interest expense (2,087) (926) (3,651) (1,732)
Interest income 288 177 664 463
--------- --------- --------- ---------
Income (loss) before taxes and
minority interests (16,464) 13,656 (4,672) 28,363
(Provision) Benefit for income taxes 5,876 (5,120) 1,158 (11,300)
--------- --------- --------- ---------
Income (loss) before minority
interests (10,588) 8,536 (3,514) 17,063
Minority interests (546) (1,802) (1,282) (3,303)
--------- --------- --------- ---------
NET INCOME (LOSS) $ (11,134) $ 6,734 $ (4,796) $ 13,760
========= ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE, BASIC AND DILUTED
($ .41) $ .25 ($ .18) $ .51
========= ========= ========= =========
Weighted average common shares outstanding:
Basic 27,180 26,830 27,160 26,740
Assumed exercise of stock options 180 390 220 390
--------- --------- --------- ---------
Diluted 27,360 27,220 27,380 27,130
========= ========= ========= =========
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
4
<PAGE> 5
ALLEN TELECOM INC.
------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Cash (used) provided by operating activities $ (2,055) $ 13,192
------------ ------------
Cash flows from investing activities:
Investments in telecommunications companies (28,271) (30,989)
Capital expenditures (7,634) (11,465)
Sales and retirements of fixed assets 18 919
Capitalized software product costs (2,488) (2,867)
Sale of investment 664 505
------------ ------------
Cash used by investing activities (37,711) (43,897)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings 32,935 30,828
Treasury stock sold to employee benefit plans 894 897
Exercise of stock options 123 243
------------ ------------
Cash provided by financing activities 33,952 31,968
------------ ------------
Net cash used by discontinued
centralized emissions testing business (1,308) (700)
------------ ------------
Net cash (used) provided (7,122) 563
Effect of exchange rate changes on cash (1,584) (1,856)
Cash and equivalents at beginning of year 30,775 23,879
------------ ------------
Cash and equivalents at end of period $ 22,069 $ 22,586
============ ============
Supplemental cash flow data:
Depreciation and amortization included in "Cash (used)
provided by operating activities" $ 11,707 $ 10,154
Interest capitalized 286 110
Cash paid during the period for:
Interest 3,775 1,412
Income taxes 8,487 3,813
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
5
<PAGE> 6
ALLEN TELECOM INC.
------------------
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Retained Comprehensive Common
Total Income (Loss) Earnings Income (Loss) Stock
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30, 1998:
Beginning Balance, January 1, 1998 $ 260,822 $ 70,091 $ 207 $ 29,746
Comprehensive Income (loss):
Net loss (4,796) $ (4,796) (4,796)
---------
Other comprehensive loss:
Unrealized gain on securities recorded to income (9,588) (9,588)
Less: Tax on unrealized loss on securities 4,027 4,027
--------- ---------
Net: Unrealized loss on securities (5,561) (5,561)
Foreign currency translation adjustments (2,972) (2,972)
---------
Other comprehensive loss (8,533) (8,533)
---------
Comprehensive loss $ (13,329)
=========
Exercise of stock options 124 25
Treasury stock reissued 869
Restricted stock, net (372) (20)
Amortization of unearned compensation 259 - - -
--------- --------- --------- ---------
Ending Balance, June 30, 1998 $ 248,373 $ 65,295 $ (8,326) $ 29,751
========= ========= ========= =========
FOR THE SIX MONTHS ENDED JUNE 30, 1997:
Beginning Balance, January 1, 1997 $ 225,951 $ 46,742 $ (510) $ 29,614
Comprehensive Income:
Net income 13,760 $ 13,760 13,760
---------
Other comprehensive income (loss):
Unrealized gain on securities arising during period 16,028 16,028
Less: Tax on unrealized gain on securities (6,732) (6,732)
--------- ---------
Net: Unrealized gain on securities 9,296 9,296
Foreign currency translation adjustments (3,951) (3,951)
---------
Other Comprehensive loss 5,345 5,345
---------
Comprehensive Income $ 19,105
=========
Exercise of stock options 706 49
Treasury stock reissued 898
Restricted stock, net
Amortization of unearned compensation 408
Common stock issued in acquisitions 6,515 - - -
--------- --------- --------- ---------
Ending Balance, June 30, 1997 $ 253,583 $ 60,502 $ 4,835 $ 29,663
========= ========= ========= =========
<CAPTION>
Unearned Treasury Paid-In
Compensation Stock Capital
----------------------------------------
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30, 1998:
Beginning Balance, January 1, 1998 $ (2,768) $ (16,992) $ 180,538
Comprehensive Income (loss):
Net loss
Other comprehensive loss:
Unrealized gain on securities recorded to income
Less: Tax on unrealized loss on securities
Net: Unrealized loss on securities
Foreign currency translation adjustments
Other comprehensive loss
Comprehensive loss
Exercise of stock options 99
Treasury stock reissued 461 408
Restricted stock, net 147 (237) (262)
Amortization of unearned compensation 259 - -
--------- --------- ---------
Ending Balance, June 30, 1998 $ (2,362) $ (16,768) $ 180,783
========= ========= =========
FOR THE SIX MONTHS ENDED JUNE 30, 1997:
Beginning Balance, January 1, 1997 $ (2,908) $ (17,932) $ 170,945
Comprehensive Income:
Net income
Other comprehensive income (loss):
Unrealized gain on securities arising during period
Less: Tax on unrealized gain on securities
Net: Unrealized gain on securities
Foreign currency translation adjustments
Other Comprehensive loss
Comprehensive Income
Exercise of stock options (250) 907
Treasury stock reissued 392 506
Restricted stock, net
Amortization of unearned compensation 408
Common stock issued in acquisitions - 798 5,717
--------- --------- ---------
Ending Balance, June 30, 1997 $ (2,500) $ (16,992) $ 178,075
========= ========= =========
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
6
<PAGE> 7
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 June 30, 1998 and the
consolidated results of its operations, cash flows and changes in
stockholders' equity for the periods ended June 30, 1998 and 1997. The
results of operations for such interim periods are not necessarily
indicative of the results for the full year. The year-end 1997
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,
1997. Certain reclassifications have been made to the 1997 financial
statements to conform to the 1998 method of presentation.
2. Other Income (loss):
-------------------
The components of "Other Income (loss), net" pertain to various
telecommunication investments and are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
RF Micro Devices Inc. $(3,505) $ 500 $ 8,033 $ 500
NextWave Telecom Inc. - - (6,640) -
Windata Inc. - - (3,734) -
Columbia Spectrum
Management, L.P. - 200 - 1,725
------- ------- ------- -------
$(3,505) $ 700 $(2,341) $ 2,225
======= ======= ======= =======
</TABLE>
The Company owns stock of RF Micro Devices Inc. ("RFMD"), which
completed an initial public offering of its common stock on June 3,
1997. The composition of the Company's holdings at December 31, 1997
(included in "Other assets") and at June 30, 1998 (included in "Other
current assets") are as follows (amounts in thousands):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
Unrealized Market
Shares Cost Gains Value
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1997 1,021 $ 2,778 $ 9,890 $12,668
June 30, 1998 965 $ 3,003 $ 7,497 $10,500
-----------------------------------------------------------------------------
</TABLE>
7
<PAGE> 8
ALLEN TELECOM INC,
------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Continued)
The Company's investment in RFMD was subject to certain trading
restrictions, which were substantially eliminated in the first quarter
of 1998, at which time the Company decided to sell its holdings. As a
result, the Company transferred unrealized appreciation, previously
recorded in stockholders' equity, in the pretax amount of $11,590,000
to "Other income (loss), net" in the first quarter. During the second
quarter of 1998, the Company realized a before-tax gain of $860,000
after selling 56,000 shares, using specific identification to allocate
the cost basis. "Other income (loss), net", in the second quarter of
1998 includes a loss ($.05 per basic and diluted share after related
income taxes) related to adjusting such investment to market value at
June 30, 1998. Approximately 900,000 shares were sold in July 1998 at a
pre-tax gain of approximately $5,000,000 (selling price in excess of
carrying value at June 30, 1998), which will be recognized in the third
quarter of 1998. Future changes in unrealized holding gains related to
the remaining 65,000 shares will be reflected in current earnings until
the date of sale.
The Company has an investment in and a receivable from NextWave Telecom
Inc. ("NextWave"), which was previously awarded telecommunications
licenses under a competitive auction bid process. In 1998, the Federal
Communication Commission issued guidelines with respect to alternatives
for certain C Block licensees in regard to the payment or return of
licenses previously awarded. These guidelines were less favorable than
had been requested by certain licensees. In the first quarter of 1998,
the Company recognized impairment in the entire value of its investment
in and receivable from NextWave as a result of that action. On June 8,
1998, NextWave filed for relief under Chapter 11 of the United States
bankruptcy code. Additionally, in the first quarter of 1998, the
Company fully reserved its investment in Windata Inc. as a result of
that company's decision to liquidate and sell its assets and product
lines.
The net impact on earnings per share for such Other Income (loss) for
the three and six months ended June 30, 1998 was $.08 and $.06 per
basic and diluted share, respectively, after related tax effects.
3. Impact of New Accounting Pronouncements:
----------------------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", in June 1998. This statement is effective for
financial statements issued for all fiscal quarters of fiscal years
beginning after June 15, 1999. Accordingly, the Company will adopt the
provisions of the standard on January 1, 2000. The Company utilizes
hedging activities primarily in its foreign subsidiaries to limit
exchange rate risk. The Company has not yet determined the effect, if
any, of the adoption of this Statement on results of operations,
financial position or liquidity.
8
<PAGE> 9
ALLEN TELECOM INC,
------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Continued)
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". This statement provides guidance on the
accounting treatment for certain costs incurred in developing or
purchasing software for the internal use of the Company. The Company
will adopt the standard on January 1, 1999, requiring the Company to
expense certain costs incurred on a prospective basis. The Company has
determined that once adopted, the statement will not have a material
impact on results of operations.
4. Operations
----------
In the second quarter of 1998, the Company announced the consolidation
and rationalization of certain product lines. In this connection, the
Company has recorded a $15,800,000 before-tax special charge to
earnings (or $.38 per basic and diluted share after related income
taxes) related to inventory, other asset write-offs and employee
terminations. Of this amount, $12,200,000 is recorded in cost of sales,
and $3,600,000 in selling, general and administrative expenses.
5. Discontinued Operations Litigation:
-----------------------------------
In early 1998, the Company's Marta Technologies Inc. ("Marta")
subsidiary, which operates its discontinued vehicle emissions testing
business, reopened the Cincinnati, Ohio program for testing. In
connection with the initial suspension of that contract by the Ohio
Environmental Protection Agency ("Ohio EPA"), Marta was granted a
preliminary injunction on September 23, 1996 and a permanent injunction
on November 19, 1997 against Ohio EPA and its Director, enjoining them
from (i) conducting a hearing regarding termination of the contract,
(ii) terminating the Ohio contract, or (iii) prohibiting Marta from
performing its obligations under the Ohio contract. On December 31,
1997, Marta filed a lawsuit against Ohio EPA and its Director in an
amount not less than $40 million claiming damages for Ohio EPA's
unilateral and illegal suspension of the program and numerous other
actions which will, in the future, increase costs to operate the
program and/or reduce the amount of revenues the State was
contractually obligated to provide. Subsequent thereto, the State
counterclaimed, denied Marta's allegations and demanded $10 million in
liquidated damages, contract damages and/or civil penalties as a result
of Marta's alleged failure to meet the terms of the contract. In the
opinion of management, based on the advice of counsel, it cannot
predict the outcome of these lawsuits and the Company has not recorded
any asset or liability with respect thereto.
9
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
ALLEN TELECOM INC.
------------------
RESULTS OF OPERATIONS
- ---------------------
Summary:
- --------
Allen Telecom Inc. (the "Company") reported a net loss of $11.1 million ($.41
per common share) for the three months ended June 30, 1998, as compared with net
income of $6.7 million ($.25 per common share) for the three months ended June
30, 1997. For the six months ended June 30, 1998, the Company reported a net
loss of $4.8 million ($.18 per share), compared to net income of $13.8 million
($.51 per share) in 1997.
Included in results of operations for the second quarter of 1998 are special
charges related to the consolidation and rationalization of certain product
lines. These actions include, among others, the discontinuance of product
development and marketing efforts on the SmartCell wireless local loop product,
which did not achieve adequate market acceptance, the consolidation of two
manufacturing operations of the Systems product line, the formation of a
worldwide systems business, and the reorganization of the Company's North
American-based sales force. As a result of asset write-offs, severance and other
costs associated with such actions, the Company incurred a special charge in the
amount of $15.8 million before-tax, or $.38 per share after related income
taxes. (See also Note 4 of Notes To Consolidated Condensed Financial
Statements.)
Sales:
- ------
Sales for the second quarter 1998 of $98.0 million decreased approximately 10.0%
from the comparable 1997 period, while sales for the six-month period ended June
30, 1998 of $211.4 million were essentially equal to 1997 sales. The decrease in
sales in the second quarter of 1998 is due principally to lower sales of
international site and domestic systems products. Sales of foreign operations
were negatively impacted by the weakening U.S. dollar relative to certain
European currencies since 1997. As a result, reported sales in the first half of
1998 were $8.0 million lower as compared with the first half of 1997, assuming
the exchange rates stayed the same.
The Company continues to see weakness in certain Asian economies, which have
been and are expected to continue to be important markets for wireless equipment
products. In addition, the U.S. wireless telecommunications market continues to
be soft, particularly with respect to the developing PCS markets. Other
international markets remain strong for the Company's equipment business,
although the Company has been advised by certain European original equipment
manufacturers ("OEM's") that their large inventory buildup will continue to
negatively impact near term orders.
10
<PAGE> 11
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
ALLEN TELECOM INC.
------------------
(Continued)
Operations:
- -----------
Gross profit margins were 30.5% in the second quarter of 1998, prior to the
aforementioned special charges, as compared with 35.1% in the second quarter of
1997. For the six-month period ended June 30, 1998 and 1997, profit margins were
31.0%, prior to special charges, and 35.4%, respectively. The lower gross profit
margins in 1998 were due to lower sales levels, increased pricing pressure and a
greater sales mix of lower margin products.
Selling, general and administrative expenses were 17.3% (excluding special
charges) and 15.4% for the second quarters of 1998 and 1997, and 15.7% and 15.6%
for the six-month periods ended June 30, 1998 and 1997, respectively. The
increase in this ratio for the second quarter reflects the spreading of fixed
costs on lower sales, while the ratio is essentially the same for the six-month
period versus the prior year due to flat sales. Selling, general and
administrative expenses for the quarter and year-to-date period were impacted by
lower staffing and operating expenses as a result of actions instituted in late
1997 to lower costs. Offsetting this decline, in part, is higher amortization of
goodwill ($3.1 million compared with $1.4 million in the 1998 and 1997 six-month
periods, respectively) due primarily to the acquisition of the outstanding 20%
ownership interest in the Company's FOREM S.r.l subsidiary ("Forem") in 1997.
Research and development and new product engineering costs were 8.4% and 7.0% of
sales in the second quarter of 1998 and 1997, and 7.5% and 6.8% for the
six-month periods ended June 30, 1998 and 1997, respectively. The increase in
this ratio for the second quarter reflects the spreading of higher costs on
lower sales. The increase in costs for the 1998 three and six-month periods over
the comparable 1997 periods is due to increased spending for the development of
the Company's geolocation product (ability to locate subscribers who dial 911
from a wireless telephone) and other R&D projects.
Other Income (Loss):
- --------------------
See Note 2 of Notes to Consolidated Condensed Financial Statements for
information concerning other income (loss) items.
11
<PAGE> 12
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
ALLEN TELECOM INC.
------------------
(Continued)
Interest and Financing Expenses:
- --------------------------------
Net interest and financing costs increased to $1.8 million and $3.0 million in
the three and six months ended June 30, 1998, respectively, from $.7 million and
$1.3 million for the comparable 1997 periods. The principal reason for the
increase is higher outstanding borrowings incurred for investments in
telecommunication companies and lower cash flow from operations.
Provision for Income Taxes:
- ---------------------------
The Company's effective tax rate was 36% and 37% for the quarters ended June 30,
1998 and 1997, respectively, while such rates were 25% and 40%, respectively,
for the six-month periods then ended. The reduction in effective tax rate for
the six months ended June 30, 1998 reflects lower proportional foreign income
taxed at higher rates and a higher proportion of available tax credits on lower
income. The second quarter tax rate of 36% is in line with the Company's current
expectation of a 38% effective tax rate for the full year.
Minority Interests:
- -------------------
Minority interest expense decreased from $1.8 million and $3.3 million in the
second quarter and six months ended June 30, 1997, respectively, to $.5 million
and $1.2 million for the comparable 1998 periods. This decrease is primarily due
to the exclusion of the 20% minority interest in Forem which was purchased in
late 1997.
Discontinued Operations:
- ------------------------
The Company is continuing the process of attempting to sell its centralized
automotive emissions testing business. In early 1998, Marta Technologies, Inc.
("Marta"), the subsidiary which operates this business, re-started the
Cincinnati, Ohio program which had been shut down since August 1996. Marta
instituted litigation (as described in Note 5 of Notes To Consolidated Condensed
Financial Statements) against the State of Ohio for damages with respect to both
the shut down of the program and other actions which would increase costs or
reduce revenues. Based on the Cincinnati program's operations to date, the
inability to resolve operational and legal issues with respect to this program
could negatively impact the carrying value and ultimate recovery value of this
program upon sale or other disposition.
12
<PAGE> 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
ALLEN TELECOM INC.
------------------
(Continued)
LIQUIDITY AND CAPITAL RESOURCES:
- --------------------------------
As set forth in the Consolidated Condensed Statement of Cash Flows, the Company
used $2.1 million in cash from operations for the six months ended June 30, 1998
as compared with cash generation of $13.2 million for the comparable 1997
period. The decline in cash flow from operations is principally due to lower net
income in 1998, combined with higher income tax payments by the Company's
foreign subsidiaries in the first half of 1998 offset, in part, by a lower
investment in working capital. Further, the Company expended $28.3 million for
investments in telecommunications companies, relating primarily to the final
purchase price for the outstanding minority interest in Forem. This payment was
financed through long-term borrowings. This payment is the principal reason for
the decline in Accounts payable and the corresponding increase in Long-term debt
in the Consolidated Condensed Balance Sheet at June 30, 1998. At June 30, 1998,
the Company had available unused lines of credit in the amount of $47 million.
- --------------------------------------------------------------------------------
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. 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. Allen
Telecom's Annual Report on Form 10-K contains certain detailed factors that
could cause the Company's actual results to materially differ from
forward-looking statements made by the Company, including, among others, the
costs and timetable for new product development, the health and economic
stability of the world and national markets, 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 potential impact of the
Company's attempts to sell it discontinued operations in the vehicle emissions
testing business, and the ultimate market value of the Company's investments in
telecom ventures.
13
<PAGE> 14
PART II - OTHER INFORMATION
---------------------------
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- --------------------------------------------------------------------
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
At the Annual Meeting of Stockholders of the Company held on May 1, 1998 three
proposals were voted upon by the Company's stockholders. A brief description of
each proposal voted upon at the Annual Meeting and the number of votes cast for,
against and withheld are set forth below.
A vote by ballot was taken at the Annual Meeting for the election of 9 Directors
of the Company to hold office until the next Annual Meeting of Stockholders of
the company and until their respective successors shall have been duly elected
and qualified. The aggregate numbers of shares of Common Stock (a) voted in
person or by proxy for each nominee, or (b) with respect to which proxies were
withheld for each nominee, were as follows:
<TABLE>
<CAPTION>
Nominee For Withheld
------- --- --------
<S> <C> <C>
Phillip Wm. Colburn 24,302,130 466,111
---------- -------
Jill K. Conway 24,302,385 465,856
---------- -------
Albert H. Gordon 24,149,683 618,558
---------- -------
William O. Hunt 24,309,343 458,898
---------- -------
J. Chisholm Lyons 24,241,150 527,091
---------- -------
John F. McNiff 24,307,743 460,498
---------- -------
Robert G. Paul 24,317,052 451,189
---------- -------
Charles W. Robinson 24,157,767 610,474
---------- -------
William M. Weaver, Jr. 24,153,535 614,706
---------- -------
</TABLE>
A vote by ballot was taken at the meeting on the proposal to approve the
adoption of the amendment to increase the number of shares available under the
Company's 1992 Stock Plan, as amended. The aggregate numbers of shares of Common
Stock in person or by proxy which: (a) voted for, (b) voted against or (c)
abstained from the vote on such proposal were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
20,374,074 4,350,389 43,778
</TABLE>
14
<PAGE> 15
PART II - OTHER INFORMATION
---------------------------
(Continued)
A vote by ballot was taken at the Annual Meeting on the proposal to ratify the
appointment of Coopers & Lybrand L.L.P. (now known as PricewaterhouseCoopers
LLP) as auditors for the Company for the fiscal year ending December 31, 1998.
The aggregate numbers of shares of Common Stock in person or by proxy which: (a)
voted for, (b) voted against or (c) abstained from the vote on such proposal
were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
24,698,289 34,075 35,877
</TABLE>
The foregoing proposals are described more fully in the Company's definitive
proxy statement dated March 19, 1998, filed with the Securities and Exchange
Commission pursuant to Section 14(a) of the Securities Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
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.
15
<PAGE> 16
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: August 13, 1998 By: /s/ Robert A. Youdelman
--------------- --------------------------------------
Robert A. Youdelman
Executive Vice President
(Chief Financial Officer)
Date: August 13, 1998 By: /s/ James L. LePorte, III
--------------- --------------------------------------
James L. LePorte, III
Vice President, Treasurer
and Controller
(Principal Accounting Officer)
16
<PAGE> 17
EXHIBIT INDEX
-------------
ALLEN TELECOM INC.
------------------
Exhibit Number
- --------------
(11) Statement re computation of per share earnings.
(27) Financial Data Schedule.
17
<PAGE> 1
EXHIBIT 11
COMPUTATION OF PER SHARE EARNINGS
ALLEN TELECOM INC.
(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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
- -------
Net income (loss) applicable to
Common stock - Basic and Diluted $(11,134) $ 6,734 $ (4,796) $ 13,760
======== ======== ======== ========
Common Shares:
- --------------
Weighted average common shares outstanding- Basic
27,180 26,830 27,160 26,740
Assumed exercise of stock options 180 390 220 390
-------- -------- -------- --------
Common shares - Diluted 27,360 27,220 27,380 27,130
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEN
TELECOM'S JUNE 30, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 22,069
<SECURITIES> 0
<RECEIVABLES> 105,079
<ALLOWANCES> (2,129)
<INVENTORY> 94,148
<CURRENT-ASSETS> 241,211
<PP&E> 110,766
<DEPRECIATION> (52,095)
<TOTAL-ASSETS> 493,470
<CURRENT-LIABILITIES> 92,373
<BONDS> 131,777
0
0
<COMMON> 29,751
<OTHER-SE> 218,622
<TOTAL-LIABILITY-AND-EQUITY> 493,470
<SALES> 211,382
<TOTAL-REVENUES> 211,382
<CGS> (157,908)
<TOTAL-COSTS> (157,908)
<OTHER-EXPENSES> (54,952)
<LOSS-PROVISION> (143)
<INTEREST-EXPENSE> (2,987)
<INCOME-PRETAX> (4,672)
<INCOME-TAX> 1,158
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,796)
<EPS-PRIMARY> (.18)<F1>
<EPS-DILUTED> (.18)<F1>
<FN>
<FN>
<F1> THE EARNINGS PER SHARE AMOUNTS HAVE BEEN CALCULATED IN ACCORDANCE WITH THE
PROVISIONS OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128, "EARNINGS PER
SHARE." THE ABOVE CAPTIONS FOR PRIMARY AND FULLY DILUTED INCLUDE THE BASIC AND
DILUTED EPS AMOUNTS, RESPECTIVELY.
</FN>
</FN>
</TABLE>
