<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 March 31, 1999
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.
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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 Identification No.)
Incorporation or Organization)
25101 Chagrin Boulevard, Suite 350, Beachwood, Ohio 44122
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(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (216) 765-5818
---------------
NOT APPLICABLE
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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 April 30, 1998
--------------------- --------------
Par value $1.00 per share 27,540,152
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ALLEN TELECOM INC.
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TABLE OF CONTENTS
-----------------
Page
No.
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PART I. FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS:
CONSOLIDATED CONDENSED BALANCE SHEETS -
March 31, 1999 and December 31, 1998 3
CONSOLIDATED STATEMENTS OF INCOME -
Three Months Ended
March 31, 1999 and 1998 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
Three Months Ended
March 31, 1999 and 1998 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY - Three Months Ended
March 31, 1999 and 1998 6
NOTES TO CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS 7 - 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 9 - 13
ITEM 3 - QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK 14
PART II. OTHER INFORMATION:
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
EXHIBIT INDEX 16
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
ALLEN TELECOM INC.
------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(Amounts in Thousands)
----------------------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 11,596 $ 19,900
Accounts receivable (less allowance for doubtful
accounts of $3,158 and $3,189, respectively) 81,508 83,739
Inventories: Raw materials 43,047 45,936
Work in process 20,663 19,634
Finished goods 25,050 19,165
--------- ---------
Total inventories (net of reserves) 88,760 84,735
--------- ---------
Assets of discontinued emissions testing business - 848
Deferred income taxes 7,963 7,989
Other current assets (Note 4) 4,085 5,752
--------- ---------
Total current assets 193,912 202,963
Property, plant and equipment, net 58,314 61,582
Excess of cost over net assets of businesses acquired 131,335 131,939
Assets of discontinued emissions testing business (Note 4) - 24,950
Deferred income taxes 14,854 16,186
Other assets 32,134 27,965
--------- ---------
TOTAL ASSETS $ 430,549 $ 465,585
========= =========
LIABILITIES
Current Liabilities:
Notes payable and current maturities of long-term
obligations $ 1,636 $ 11,556
Accounts payable 27,075 25,501
Accrued expenses 29,295 29,998
Income taxes payable 470 837
Deferred income taxes 1,870 1,606
--------- ---------
Total current liabilities 60,346 69,498
Long-term debt 104,477 128,677
Deferred income taxes 145 429
Other liabilities 17,218 16,900
--------- ---------
TOTAL LIABILITIES 182,186 215,504
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 29,759 29,759
Paid-in capital 180,490 180,604
Retained earnings 60,796 59,869
Accumulated other comprehensive loss (5,254) (2,255)
Less: Treasury stock (at cost) (15,614) (15,985)
Unearned compensation (1,814) (1,911)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 248,363 250,081
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 430,549 $ 465,585
========= =========
</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
---------------------------------
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
SALES $ 75,913 $ 113,369
--------- ---------
Costs and expenses:
Cost of sales (53,683) (77,621)
Selling, general and
administrative expenses (14,076) (16,307)
Research and development and
product engineering costs (7,664) (7,625)
Other income (loss), net (Note 2) (165) 1,164
Interest expense (2,356) (1,564)
Interest income 292 376
--------- ---------
Income (loss) before taxes and
minority interests (1,739) 11,792
Benefit (provision) for income taxes 607 (4,718)
--------- ---------
Income (loss) before minority
interests (1,132) 7,074
Minority interests (304) (736)
--------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (1,436) 6,338
Discontinued emissions testing
operation: Gain on sale (net of
income taxes) (Note 4) 2,363 -
--------- ---------
NET INCOME $ 927 $ 6,338
========= =========
EARNINGS (LOSS) PER COMMON
SHARE, BASIC AND DILUTED:
Continuing operations ($ .05) $ .23
Discontinued operations .08 -
========= ---------
Net income $ .03 $ .23
========= =========
Weighted average common
shares outstanding:
Basic 27,350 27,160
Assumed exercise of stock options 60 250
--------- ---------
Diluted 27,410 27,410
========= =========
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
4
<PAGE> 5
ALLEN TELECOM INC.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
--------- --------
<S> <C> <C>
INCOME (LOSS) FROM CONTINUING OPERATIONS $ (1,436) $ 6,336
Adjustments to reconcile income to net cash flow:
Depreciation 3,973 3,912
Amortization of goodwill 1,727 1,546
Amortization of capitalized software 650 400
Other amortization 133 174
Non-cash loss on write-down of assets - 10,373
(Gain) loss on investments 158 (11,588)
Changes in operating assets and liabilities:
Receivables (5,150) (9,396)
Inventories (5,660) (6,241)
Accounts payable and accrued expenses 2,698 6,495
Income tax payable (768) (1,300)
Other, net 1,521 (471)
-------- --------
CASH (USED) PROVIDED BY OPERATING ACTIVITIES (2,154) 240
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of discontinued emissions testing business 9,387 -
Collection of sale of common stock investment 6,671 -
Investments in telecommunications companies - (27,583)
Capital expenditures (1,731) (3,475)
Capitalized software product costs (332) (1,200)
-------- --------
CASH (USED) PROVIDED BY INVESTING ACTIVITIES 13,995 (32,258)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) borrowings (21,117) 26,454
Treasury stock sold to employee benefit plan 258 424
Exercise of stock options - 80
-------- --------
CASH (USED) PROVIDED BY FINANCING ACTIVITIES (20,859) 26,958
-------- --------
Net Cash (Used) Provided By Discontinued
Emissions Testing Business 1,810 (1,441)
-------- --------
NET CASH USED (7,208) (6,501)
Effect of foreign currency exchange rate changes on cash (1,096) (656)
Cash and equivalents at beginning of year 19,900 30,775
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 11,596 $ 23,618
======== ========
Supplemental cash flow data: Cash paid during the period for:
Interest $ 831 $ 657
Income taxes 709 6,248
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
5
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ALLEN TELECOM INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Common Paid-In Comprehensive Retained
Total Stock Capital Income (Loss) Earnings
-------- ------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Beginning Balance, January 1, 1999 $250,081 $29,759 $180,604 $59,869
Comprehensive Income (loss):
Net income 927 $ 927 927
-------
Other comprehensive loss:
Foreign currency translation adjustments (2,999) (2,999)
-------
Comprehensive loss $(2,072)
=======
Treasury stock reissued 257 (114)
Amortization of unearned compensation 97
-------- ------- -------- -------
Ending Balance, March 31, 1999 $248,363 $29,759 $180,490 $60,796
======== ======= ======== =======
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
Beginning Balance, January 1, 1998 $260,822 $29,746 $180,538 $70,091
Comprehensive Income (loss):
Net income 6,338 $ 6,338 6,338
-------
Other comprehensive income (loss):
Unrealized gain on securities arising during period (9,588) (9,588)
Less: Tax on unrealized gain on securities 4,027 4,027
-------- -------
Net: Unrealized gain on securities (5,561) (5,561)
Foreign currency translation adjustments (3,266) (3,266)
-------
Other Comprehensive loss (8,827)
-------
Comprehensive loss $(2,489)
=======
Exercise of stock options 80 14 66
Treasury stock reissued 424 226
Restricted stock, net (345) (38) (572)
Amortization of unearned compensation 114
-------- ------- -------- -------
Ending Balance, March 31, 1998 $258,606 $29,722 $180,258 $76,429
======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Treasury Unearned
Income (Loss) Stock Compensation
------------- -------- ------------
<S> <C> <C> <C>
FOR THE THREE MONTHS ENDED MARCH 31, 1999:
Beginning Balance, January 1, 1999 $(2,255) $(15,985) $(1,911)
Comprehensive Income (loss):
Net income
Other comprehensive loss:
Foreign currency translation adjustments (2,999)
Comprehensive loss
Treasury stock reissued 371
Amortization of unearned compensation 97
------- -------- -------
Ending Balance, March 31, 1999 $(5,254) $(15,614) $(1,814)
======= ======== =======
FOR THE THREE MONTHS ENDED MARCH 31, 1998:
Beginning Balance, January 1, 1998 $ 207 $(16,992) $(2,768)
Comprehensive Income (loss):
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 (8,827)
Comprehensive loss
Exercise of stock options
Treasury stock reissued 198
Restricted stock, net (237) 502
Amortization of unearned compensation 114
------- -------- -------
Ending Balance, March 31, 1998 ($8,620) $(17,031) $(2,152)
======= ======== =======
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
6
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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 March 31, 1999 and the
consolidated results of its operations, cash flows and changes in
stockholders' equity for the periods ended March 31, 1999 and 1998. The
results of operations for such interim periods are not necessarily
indicative of the results for the full year. The year-end 1998
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,
1998.
2. Other Income (loss):
--------------------
In 1999 and 1998, the Company sold its investment in RF Micro Devices,
Inc. ("RFMD""), which was accounted for pursuant to Statement of
Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." "Other Income (loss), net"
in the first quarter of 1999 relates to final costs incurred to
complete the sale transaction. In the first quarter of 1998, the
Company decided to sell its RFMD holdings, and accordingly transferred
unrealized appreciation in the pretax amount of $11,500,000 (previously
recorded in stockholders' equity) to "Other income, net" in the
Consolidated Condensed Statements of Income. "Other income, net" in the
first quarter of 1998 also includes the recognition of an impairment of
investments in two telecommunications companies in the amount of
$10,300,000. The net income effect of these actions for first quarter
1998 was $.02 per common share after related tax effects.
3. Segment Disclosures:
--------------------
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which redefines the way publicly held companies
report information in its annual and interim period financial
statements. The following table shows sales to external customers and
results of operations for the Company's two operating segments:
7
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ALLEN TELECOM INC.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Sales to external customers:
Telecommunications equipment
manufacturing $ 70,045 $ 105,997
Wireless engineering services 5,868 7,372
--------- ---------
Total sales $ 75,913 $ 113,369
========= =========
Results of Operations:
Segment Results:
Telecommunications equipment manufacturing $ 3,223 $ 15,814
Wireless engineering services 236 (1,075)
--------- ---------
3,459 14,739
Other income (loss), net (165) 1,164
Goodwill amortization (1,727) (1,546)
General corporate expenses (1,242) (1,377)
Net financing costs (2,064) (1,188)
--------- ---------
Income (loss) before taxes and minority interests $ (1,739) $ 11,792
========= =========
</TABLE>
4. Discontinued Operations:
------------------------
On March 1, 1999, the Company sold its Marta Technologies, Inc.
subsidiary ("Marta"), which operated its discontinued centralized
automotive emissions testing business. Pursuant to the terms of the
purchase agreement, the Company recorded cash receipts of $9,387,000
and received a three-year $3,000,000, 12% installment note in exchange
for all of the outstanding capital stock of Marta. Additional purchase
price consideration in the amount of $2,000,000 may be earned and is
contingent on future events. The gain on sale of this discontinued
operation is net of related income taxes in the amount of approximately
$1,400,000.
5. 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
foreign currency exchange rate risk. The Company has not yet determined
the effect, if any, of the adoption of this Statement of results of
operations and financial position.
8
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
ALLEN TELECOM INC.
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RESULTS OF OPERATIONS
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Summary:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------
Allen Telecom Inc. reported a loss from continuing operations of $1.4 million
($.05 loss per common share) for the first quarter 1999, as compared with
income of $6.3 million ($.23 income per common share) for the first quarter
1998. Included in the results of operations for the first quarter 1998 is a
net gain of $1.2 million ($.02 per common share), with respect to certain
telecom investments. See Note 2 of Notes to Consolidated Condensed Financial
Statements for information concerning such items.
Telecommunications Equipment Manufacturing:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------------------------------------------
Telecommunications Equipment Manufacturing sales were down $36 million, or 34%,
from $106 million in first quarter 1998 to $70 million in the first quarter
1999. The sales decline was driven by a continued unsettled climate in the
global wireless telecommunications market with all geographic regions showing a
sales decline from first quarter 1998. Sales were also down 13% from fourth
quarter of 1998 due primarily to a decrease of domestic demand for Site and
other Non-Antenna products.
<TABLE>
<CAPTION>
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SALES BY PRODUCT LINE
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
($ MILLIONS) 1Q 1999 1Q 1998 4Q 1998
------------------------------
<S> <C> <C> <C>
Systems Products 23.1 31.1 21.8
Site Management and Other Non-Antenna
Products 32.2 54.0 40.4
Mobile and Base Station Antennas 14.7 20.9 18.1
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total Telecommunications Equipment
Manufacturing 70.0 106.0 80.3
------------------------------
</TABLE>
Backlog for the Telecommunications Equipment Manufacturing Segment at March 31,
1999 increased 27% from December 31, 1998, from $50.3 million to $63.8 million.
This increase is due to incoming orders of approximately $85 million, which are
the highest since the first quarter 1998.
Gross profit margins were 29.6% in the first quarter of 1999, as compared with
32.5% in the first quarter of 1998. The lower gross profit margins in 1999 were
due to lower sales volume, increased pricing pressure and a greater sales mix of
lower margin products. Margins in the first quarter of 1999 are significantly
higher than the 23.5% margins of the fourth quarter of 1998, primarily due to
the benefit of several restructuring actions taken by the Company during 1998.
9
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
ALLEN TELECOM INC.
------------------
(Continued)
Selling, general and administrative expenses were $11.5 million, or 16.4% of
sales, and $12.6 million, or 11.9% of sales, for the first quarters of 1999 and
1998, respectively. These lower costs were related to the restructuring efforts
in 1998; however, the ratio of expenses to sales increased from the first
quarter of 1998 to the first quarter of 1999 due to the spreading of costs on
lower sales.
Wireless Engineering Services:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ------------------------------
Wireless Engineering Services sales were down $1.5 million, or 20%, from $7.4
million in first quarter 1998 to $5.9 million in first quarter 1999. This
downturn was due primarily to lower software sales.
Gross profit margins for Wireless Engineering Services were 25.7% in the first
quarter of 1999, as compared with 17.9% in the first quarter of 1998. This
margin increase is primarily attributable to the restructuring during the fourth
quarter of 1998 which improved margins in both software and engineering
products. In addition, deployment of engineers was at a higher rate in the first
quarter of 1999 than in the first quarter of 1998.
The selling, general and administrative expenses for the Wireless Engineering
Services were 24.2% and 31.2% of sales for the first quarters of 1999 and 1998,
respectively. This decrease is attributable to the aforementioned restructuring
efforts.
Wireless Engineering Services backlog was unchanged at $0.9 million from
year-end 1998.
Research and Development:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------------------------
Research and development and new product engineering costs were 10.1% and 6.7%
of sales in the first quarter of 1999 and 1998, respectively. The increased rate
is attributable to the decrease in sales, as the actual dollar spending remained
consistent quarter to quarter. The Company has chosen not to reduce spending in
this area as it believes it is vital to develop new and enhanced products in
this fast changing technological environment.
Interest and Financing Expenses:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------------------------------
Net interest and financing costs increased to $2.1 million from $1.2 million in
the three months ended March 31, 1999 and 1998, respectively. The principal
reason for the increase is a higher level of outstanding borrowings through most
of the first quarter of 1999 primarily due to expending $42.1 million in 1998 on
investments in telecommunications companies, as well as higher average interest
rates on outstanding borrowings.
10
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
ALLEN TELECOM INC.
------------------
(Continued)
Provision for Income Taxes:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ---------------------------
The Company's effective tax rate was 35% and 40% for the quarters ended March
31, 1999 and 1998, respectively. The principal reason for the decline is due to
lower expected tax rates of the Company's foreign operations. The 1999
percentage is in line with the Company's current expectation for the full year,
taking into consideration state taxes and available tax credits.
Minority Interests:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -------------------
Minority interest expense decreased from $.7 million to $.3 million in the
quarters ended March 31, 1998 and 1999, respectively. This decrease is primarily
due to the acquisition in late 1998 of a portion of the remaining minority
interest in one of the Company's foreign subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------------------------------
As set forth in the Consolidated Condensed Statement of Cash Flows, the Company
used $2.2 million of cash in operations for the three months ended March 31,
1999 as compared to generating $.2 million for the comparable 1998 period. The
decline in cash flow from operations is principally due to lower income from
continuing operations in 1999. The Company generated $14.0 million from
investing activities in the first quarter of 1999, primarily from the sale of
its discontinued emissions testing business (as more fully described in Note 4
of the Notes to Consolidated Condensed Financial Statements), and cash collected
from the sale of a common stock investment. This cash was used primarily to
repay long term borrowings, which along with the transfer of a $12.4 million
capital lease obligation in connection with the sale of the aforementioned
discontinued operation, is the principal reason for the decline in debt levels
in the Consolidated Condensed Balance Sheet at March 31, 1999. At March 31,1999,
the Company had available unused worldwide lines of credit in the amount of
$109.7 million.
In the first quarter of 1998, the Company expended $27.6 million for investments
in telecommunications companies, relating primarily to the final purchase price
for the outstanding minority interest in its Italian subsidiary, Forem S.r.l.
11
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
ALLEN TELECOM INC.
------------------
(Continued)
YEAR 2000:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ----------
Subsequent to the filing by the Company of its Annual Report on Form 10-K, there
have been no significant changes in outlook or timing with respect to the Year
2000 (Y2K) issue. The Company is still substantially on target to meet its
objectives for the Y2K remediation plan, as follows.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The identification of computer hardware and netware systems, computer
software and related systems and test equipment that may be susceptible to
Y2K failures is scheduled to be completed early in the second quarter of
1999. Some of the Company's smaller offices, notably its international
sales offices, have not yet completed their Y2K assessments of various
equipment and systems.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - The actual remediation and replacement of internal business systems and
embedded chips is scheduled to be essentially completed by June 30, 1999.
Some remediation efforts at one division regarding an internal data base
are scheduled to be completed early in the third quarter 1999. Remediation
efforts with respect to miscellaneous office/building systems has been
slower to develop, particularly in some international locations. For
example, two phone systems that are not Y2K compliant are scheduled to be
replaced early in the third quarter.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Final testing of business systems, hardware, software and embedded chips
for Y2K compliance is scheduled to be completed by September 30, 1999.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Independent verification of Y2K compliance of internal software systems is
scheduled to be completed September 30, 1999.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Identification of significant vendors and key service providers are
scheduled to be completed by early second quarter 1999, and potential
changes in suppliers is scheduled by June 30, 1999.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Contingency plans will be developed, as necessary, during the second half
of 1999 as the Company's Y2K readiness plan develops further.
Notwithstanding all of the Company's efforts, there are still many uncertainties
regarding the Y2K issue. For example, if the Company is unsuccessful in
identifying or finding all Y2K problems in its critical operations or if
critical customers or suppliers are unsuccessful in resolving Y2K issues, the
Company's results of operations or financial condition could be materially
impacted.
The total costs associated with required Y2K remediation efforts is
approximately $2.0 million, of which approximately $1.0 million was spent
through March 31, 1999.
12
<PAGE> 13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
ALLEN TELECOM INC.
------------------
(Continued)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
LEGAL DISCLAIMER:
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -----------------
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 and Quarterly Reports on Form 10-Q contain
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 successful discovery and correction of potential "Year 2000" computer
sensitive problems by both the Company and its key suppliers and customers, and
other transactions.
13
<PAGE> 14
PART II - OTHER INFORMATION
---------------------------
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------------------------------------------------------------------
As set forth and discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under Item 7 of its Annual Report on Form
10-K for the year ended December 31, 1998, with the introduction of the European
Economic and Monetary Union common currency, the "Euro," the Company's exposure
to foreign currency contracts risk has diminished significantly in the first
quarter of 1999. In this connection, the Company has significantly reduced its
usage of currency rate contracts.
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
-------------------
On March 15, 1999, the Company filed a current Report on Form 8-K dated
March 1, 1999, reporting that the Company had sold all of the outstanding
stock of Marta Technologies, Inc., a wholly owned subsidiary of the
Company, to Environmental Systems Products, Inc.
14
<PAGE> 15
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: May 12, 1999 By: /s/ Robert A. Youdelman
------------ --------------------------------
Robert A. Youdelman
Executive Vice President
(Chief Financial Officer)
Date: May 12, 1999 By: /s/ James L. LePorte, III
------------ --------------------------------
James L. LePorte, III
Vice President Finance
(Principal Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
-------------
ALLEN TELECOM INC.
------------------
Exhibit Number
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(27) Financial Data Schedule.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEN
TELECOM'S MARCH 31, 1999 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 11,596
<SECURITIES> 0
<RECEIVABLES> 84,666
<ALLOWANCES> (3,158)
<INVENTORY> 88,760
<CURRENT-ASSETS> 193,912
<PP&E> 120,096
<DEPRECIATION> (61,781)
<TOTAL-ASSETS> 430,549
<CURRENT-LIABILITIES> 60,346
<BONDS> 104,477
0
0
<COMMON> 29,759
<OTHER-SE> 218,604
<TOTAL-LIABILITY-AND-EQUITY> 430,549
<SALES> 75,913
<TOTAL-REVENUES> 75,913
<CGS> (53,683)
<TOTAL-COSTS> (53,683)
<OTHER-EXPENSES> (21,637)
<LOSS-PROVISION> (103)
<INTEREST-EXPENSE> (2,064)
<INCOME-PRETAX> (1,739)
<INCOME-TAX> 607
<INCOME-CONTINUING> (1,436)
<DISCONTINUED> 2,363
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 927
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
