<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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, 1999
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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 __________________
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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
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(Address of Principal Executive Offices) (Zip Code)
(Registrant's Telephone Number, Including Area Code) (216) 765-5818
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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 July 30, 1999
--------------------- -------------
Par value $1.00 per share 27,614,612
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ALLEN TELECOM INC.
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TABLE OF CONTENTS
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Page
No.
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PART I. FINANCIAL INFORMATION:
ITEM 1 - FINANCIAL STATEMENTS:
CONSOLIDATED CONDENSED BALANCE SHEETS -
June 30, 1999 and December 31, 1998 3
CONSOLIDATED STATEMENTS OF INCOME -
Three and Six Months Ended June 30, 1999 and 1998 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -
Six Months Ended June 30, 1999 and 1998 5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -
Six Months Ended June 30, 1999 and 1998 6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 7 - 9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 - 15
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 16
PART II. OTHER INFORMATION:
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16 - 17
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
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ALLEN TELECOM INC.
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PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1 - FINANCIAL STATEMENTS
------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(Amounts in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 14,592 $ 19,900
Accounts receivable (less allowance for doubtful
accounts of $3,315 and $3,189, respectively) 83,949 83,739
Inventories: Raw materials 44,405 45,936
Work in process 20,286 19,634
Finished goods 25,003 19,165
-------- --------
Total inventories (net of reserves) 89,694 84,735
-------- --------
Assets of discontinued emissions testing
business (Note 4) - 848
Deferred income taxes 7,566 7,989
Other current assets 8,615 5,752
-------- --------
Total current assets 204,416 202,963
Property, plant and equipment, net 54,801 61,582
Excess of cost over net assets of businesses acquired 129,612 131,939
Assets of discontinued emissions testing business
(Note 4) - 24,950
Deferred income taxes 18,051 16,186
Other assets 32,724 27,965
-------- --------
TOTAL ASSETS $439,604 $465,585
======== ========
LIABILITIES
Current Liabilities:
Notes payable and current maturities of
long-term obligations $ 2,284 $ 11,556
Accounts payable 28,291 25,501
Accrued expenses 25,437 29,998
Income taxes payable 980 837
Deferred income taxes 2,146 1,606
-------- --------
Total current liabilities 59,138 69,498
Long-term debt 117,740 128,677
Deferred income taxes 2,422 429
Other liabilities 16,810 16,900
-------- --------
TOTAL LIABILITIES 196,110 215,504
-------- --------
STOCKHOLDERS' EQUITY
Common stock 29,751 29,759
Paid-in capital 180,254 180,604
Retained earnings 60,813 59,869
Accumulated other comprehensive loss (10,357) (2,255)
Less: Treasury stock (at cost) (15,385) (15,985)
Unearned compensation (1,582) (1,911)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 243,494 250,081
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $439,604 $465,585
======== ========
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
SALES $ 77,501 $ 98,013 $ 153,414 $ 211,382
-------- -------- --------- ---------
Costs and expenses:
Cost of sales (Note 6) (54,144) (80,351) (107,827) (157,972)
Selling, general and
administrative expenses (Note 6) (13,467) (20,601) (27,543) (36,908)
Research and development and
product engineering costs (7,710) (8,221) (15,374) (15,846)
Other income (loss), net (Note 2) 390 (3,505) 225 (2,341)
Interest expense (2,343) (2,087) (4,699) (3,651)
Interest income 415 288 707 664
-------- -------- --------- ---------
Income (loss) before taxes and
minority interests 642 (16,464) (1,097) (4,672)
(Provision) benefit for income taxes (222) 5,876 385 1,158
-------- -------- --------- ---------
Income (loss) before minority
interests 420 (10,588) (712) (3,514)
Minority interests (403) (546) (707) (1,282)
-------- -------- --------- ---------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 17 (11,134) (1,419) (4,796)
Discontinued emissions testing
operation: Gain on sale
(net of income taxes) (Note 4) - - 2,363 -
-------- -------- --------- ---------
NET INCOME (LOSS) $ 17 $(11,134) $ 944 $ (4,796)
======== ======== ========= =========
EARNINGS (LOSS) PER COMMON
SHARE, BASIC AND DILUTED:
Continuing operations $ - $ (.41) $ (.05) $ (.18)
Discontinued operations - - .08 -
-------- -------- --------- ---------
Net income (loss) $ - $ (.41) $ .03 $ (.18)
======== ======== ========= =========
Weighted average common shares outstanding:
Basic 27,440 27,180 27,410 27,160
Assumed exercise of stock options 230 180 150 220
-------- -------- --------- ---------
Diluted 27,670 27,360 27,560 27,380
======== ======== ========= =========
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
LOSS FROM CONTINUING OPERATIONS $ (1,419) $ (4,796)
Adjustments to reconcile loss to net cash flow:
Depreciation 7,733 7,464
Amortization of goodwill 3,462 3,144
Amortization of capitalized software 1,307 843
Other amortization 501 332
Non-cash loss on write-down of assets - 17,010
Gain on investments (225) (8,083)
Changes in operating assets and liabilities:
Receivables (10,035) 514
Inventories (9,483) (2,263)
Accounts payable and accrued expenses 1,838 (3,253)
Income tax payable (5,226) (10,203)
Other, net (1,480) (2,764)
-------- --------
CASH USED BY OPERATING ACTIVITIES (13,027) (2,055)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of discontinued emissions testing business 9,387 -
Collection on sale of investments 7,434 664
Investments in telecommunications companies - (28,271)
Capital expenditures, net (3,315) (7,616)
Capitalized software product costs (637) (2,488)
-------- --------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES 12,869 (37,711)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments of) proceeds from borrowings (6,623) 32,935
Treasury stock sold to employee benefit plan 498 894
Exercise of stock options 52 123
-------- --------
CASH (USED) PROVIDED BY FINANCING ACTIVITIES (6,073) 33,952
-------- --------
Net Cash Provided (Used) By Discontinued
Emissions Testing Business 1,810 (1,308)
-------- --------
NET CASH USED (4,421) (7,122)
Effect of foreign currency exchange rate changes
on cash (887) (1,584)
Cash and equivalents at beginning of year 19,900 30,775
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 14,592 $ 22,069
======== ========
Supplemental cash flow data:
Cash paid during the period for:
Interest $ 4,286 $ 3,775
Income taxes 4,523 8,487
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
5
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
(Amounts in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid-In Comprehensive Retained Comprehensive Treasury Unearned
Total Stock Capital Income (Loss) Earnings Income (Loss) Stock Compensation
------- ------- ------- ------------- -------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
JUNE 30, 1999:
Beginning Balance, January 1, 1999 $250,081 $29,759 $180,604 $59,869 $ (2,255) $(15,985) $(1,911)
Comprehensive Income (loss):
Net income 944 $ 944 944
Other comprehensive loss:
Foreign currency translation
adjustments (8,102) (8,102) (8,102)
--------
Comprehensive loss $ (7,158)
========
Treasury stock reissued 497 (103) 600
Exercise of stock options 52 10 42
Restricted stock, net (307) (18) (289)
Amortization of unearned
compensation 329 329
-------- ------- -------- ------- -------- -------- -------
Ending Balance, June 30, 1999 $243,494 $29,751 $180,254 $60,813 $(10,357) $(15,385) $(1,582)
======== ======= ======== ======= ======== ======== =======
FOR THE SIX MONTHS ENDED
JUNE 30, 1998:
Beginning Balance, January 1, 1998 $260,822 $29,746 $180,538 $70,091 $ 207 $(16,992) $(2,768)
Comprehensive Income (loss):
Net loss (4,796) $ (4,796) (4,796)
--------
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 (2,972) (2,972)
--------
Other Comprehensive loss (8,533) (8,533)
--------
Comprehensive loss $(13,329)
========
Exercise of stock options 124 25 99
Treasury stock reissued 869 408 461
Restricted stock, net (372) (20) (262) (237) 147
Amortization of unearned
compensation 259 259
-------- ------- -------- ------- ------- -------- -------
Ending Balance, June 30, 1998 $248,373 $29,751 $180,783 $65,295 ($8,326) $(16,768) $(2,362)
======== ======= ======== ======= ======= ======== =======
</TABLE>
See accompanying notes to the Consolidated Condensed Financial Statements.
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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, 1999 and the consolidated results of its
operations, cash flows and changes in stockholders' equity for the periods
ended June 30, 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):
Other income, net, in the second quarter of 1999 pertains to the sale of the
Company's remaining interest in a telecommunications company. For the first
six months of 1999, other income, net, also includes the final costs incurred
to complete the sale of its investment in RF Micro Devices, Inc. during the
first quarter of 1999.
Other income (loss), in the second quarter of 1998, pertains to an unrealized
loss for the adjustment to current market value of a common stock investment
held for sale, or $.08 per basic and diluted share after related income
taxes. For the six months ended June 30, 1998, other income (loss) includes
an unrealized gain from such common stock investment of $8.1 million, and the
recognition of a loss reserve in the aggregate amount of $10.4 million
relating to investments in certain telecommunications ventures. The impact on
net income for the six months ended June 30, 1998 was $.06 per basic and
diluted share after related income taxes.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Continued)
3. SEGMENT DISCLOSURES:
The following table presents sales to external customers and results of
operations for the Company's two operating segments:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------------- --------------------
1999 1998 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Sales to external customers:
Telecommunications equipment $ 71,444 $ 90,835 $141,489 $196,832
Wireless engineering services 6,057 7,178 11,925 14,550
-------- --------- -------- --------
Total Sales $ 77,501 $ 98,013 $153,414 $211,382
======== ========= ======== ========
Results of Operations:
Telecommunications equipment $ 4,336 $ (5,828) $ 7,559 $ 9,986
Wireless engineering services 1,219 (1,303) 1,455 (2,378)
-------- --------- -------- --------
5,555 (7,131) 9,014 7,608
Other income (loss), net 390 (3,505) 225 (2,341)
Goodwill amortization (1,735) (1,597) (3,462) (3,144)
General corporate expenses (1,640) (2,432) (2,882) (3,808)
Net financing costs (1,928) (1,799) (3,992) (2,987)
-------- --------- -------- --------
Income (loss) before taxes and
minority interests $ 642 $ (16,464) $ (1,097) $ (4,672)
======== ========= ======== ========
</TABLE>
4. DISCONTINUED OPERATIONS:
On March 1, 1999, the Company sold its Marta Technologies, Inc. subsidiary
("Marta"), which operated centralized automotive emissions testing programs.
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.
8
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Continued)
5. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," in June 1998. In June 1999, the FASB
issued Statement No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133". This
latter Statement delayed the implementation of Statement No. 133 which will
now be effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Accordingly, the Company will
adopt the provisions of the standard on January 1, 2001. The Company utilizes
hedging activities primarily in its foreign subsidiaries to limit foreign
currency exchange rate risk, although utilization has been minimized with the
introduction of the Euro. The Company has not yet determined the effect, if
any, of the adoption of this Statement on results of operations and financial
position
6. OPERATIONS
In the second quarter of 1998, the Company announced the consolidation and
rationalization of certain product lines. In this connection, the Company
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 $3,600,000 in selling, general and
administrative expenses.
9
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ALLEN TELECOM INC.
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
SUMMARY:
Allen Telecom Inc. (the "Company") reported results from continuing operations
of breakeven ($.00 per common share) for the three months ended June 30, 1999,
as compared with a loss of $11.1 million ($.41 per common share) for the three
months ended June 30, 1998. For the six months ended June 30, 1999 the Company
reported a net loss of $1.4 million ($.05 per common share), as compared with a
net loss of $4.8 million ($.18) per share in 1998.
Included in the 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 of 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 6 of Notes to Consolidated Condensed Financial
Statements.)
TELECOMMUNICATIONS EQUIPMENT MANUFACTURING:
Telecommunications Equipment Manufacturing sales were down $19.4 million, or
21%, from $90.8 million in the second quarter 1998 to $71.4 million in the
second quarter 1999. Sales were down approximately 28% from $196.8 million for
the six-month period ended June 30, 1998 to $141.5 million for the six-month
period ended June 30, 1999. The sales decline for both the second quarter and
first half was driven by a continued unsettled climate in the global wireless
telecommunications market with all geographic regions showing sales declines.
Sales were, however, up 2% in the second quarter of 1999 from the first quarter
of 1999 primarily due to an increase in domestic sales of Antenna products.
Sales by product line were as follows:
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
- --------------------------------------------------------------------------------
SALES BY PRODUCT LINE
- --------------------------------------------------------------------------------
($ MILLIONS) 2Q 1999 2Q 1998
-----------------------------
Systems Products $ 22.6 $ 23.3
Site Management and Other Non-Antenna Products 31.2 43.4
Mobile and Base Station Antennas 17.6 24.1
- --------------------------------------------------------------------------------
Total Telecommunications Equipment Manufacturing $ 71.4 $ 90.8
-----------------------------
- --------------------------------------------------------------------------------
SALES BY PRODUCT LINE YEAR TO DATE YEAR TO DATE
- --------------------------------------------------------------------------------
($ MILLIONS) 2Q 1999 2Q 1998
-----------------------------
Systems Products $ 45.8 $ 54.4
Site Management and Other Non-Antenna Products 63.4 97.4
Mobile and Base Station Antennas 32.3 45.0
- --------------------------------------------------------------------------------
Total Telecommunications Equipment Manufacturing $141.5 $196.8
-----------------------------
Backlog for the Telecommunications Equipment Manufacturing Segment at June 30,
1999 increased 8% from March 31, 1999 to $69.1 million from $63.8 million.
Gross profit margins were 29.8% in the second quarter of 1999 (29.7% for the
six months ended June 30, 1999), as compared with 30.5% in the second quarter of
1998 (31.9% for the six months ended June 30, 1998), prior to the aforementioned
special charges. 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 were up slightly from the first quarter of 1999 from 29.6% to
29.8% in the second quarter of 1999. This increase in partially due to cost
reductions and higher volumes.
Selling, general and administrative expenses were $9.3 million, or 13.0% of
sales, and $11.3 million, or 12.4% of sales (excluding special charges), for the
second 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 second quarter of 1998 to the second quarter of 1999 due to
the spreading of costs on lower sales. For the six-month period ended June 30,
1999 and 1998 the ratio of selling, general and administrative expenses to sales
were 13.5% and 11.4%, respectively.
WIRELESS ENGINEERING SERVICES:
Wireless Engineering Services sales were down $1.1 million, or 16%, from
$7.2 million in second quarter 1998 to $6.1 million in second quarter 1999. This
downturn was due primarily to lower software sales. Sales were down
approximately 18% from $14.6 million for the six-month period ended June 30,
1998 to $11.9 million for the six-month period ended June 30, 1999.
11
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
Gross profit margins for Wireless Engineering Services were 33.7% in the second
quarter of 1999 (29.8% for the six months ended June 30, 1999), as compared with
21.9% in the second quarter of 1998 (19.9% for the six months ended June 30,
1999). 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, the utilization of available engineers was at
a higher rate in the second quarter of 1999 than in the second quarter of 1998.
Gross profit margins also increased from the first to second quarters of 1999
from 25.7% to 33.7%, respectively. This increase is attributable to increased
utilization of engineers and higher software sales.
The selling, general and administrative expenses for the Wireless Engineering
Services were 13.5% and 35.8% of sales for the second quarters of 1999 and 1998,
respectively. This decrease is attributable to the aforementioned restructuring
efforts.
Wireless Engineering Services backlog increased $0.1 million from $0.9 million
at first quarter 1999 to $1.0 million at the end of the second quarter 1999.
RESEARCH AND DEVELOPMENT:
Research and development and new product engineering costs were 9.9% and 8.4% of
sales in the second quarter of 1999 and 1998, respectively. The increased rate
is attributable to the decrease in sales, as the actual dollar spending
decreased from $8.2 million in second quarter 1998 to $7.7 million in second
quarter 1999. The Company expects R&D spending to increase in the third and
fourth quarters of 1999 as field trial spending for the testing of the new E-911
Geolocation product becomes more significant.
OTHER INCOME (LOSS):
See Note 2 of Notes to Consolidated Condensed Financial Statements for
information concerning other income (loss) items.
INTEREST AND FINANCING EXPENSES:
Net interest and financing costs increased to $4.0 million from $3.0 million in
the six months ended June 30, 1999 and 1998, respectively, and to $1.9 million
from $1.8 million in the second quarter of 1999 and 1998, respectively. The
principal reason for the increase is a higher level of outstanding borrowings
through most 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. This was offset in part during the second
quarter of 1999 by the impact of the receipt of $9.4 million in cash from the
sale of a discontinued operation on March 1, 1999.
12
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
PROVISION FOR INCOME TAXES:
The Company's effective tax rate was 35% for the quarter and six months
year-to-date periods ended June 30, 1999, respectively. The 1999 percentage is
in line with the Company's current expectation for the full year tax rate,
taking into consideration state taxes and available tax credits. The effective
tax rate was 36% and 25% for the quarter and six months periods ended June 30,
1998, respectively. The lower effective rate for the six month period reflects
lower proportional foreign income taxed at higher rates and a higher proportion
of available tax credits on lower income.
Through June 30, 1999, the Company has recorded a net U.S. deferred tax asset
pertaining to the recognition of net operating loss carrryforwards, related
temporary differences and tax credits in the amount of approximately $23.0
million and has not provided any valuation allowance with respect thereto. The
Company believes the realization of this asset is "more likely than not."
MINORITY INTERESTS:
Minority interest expense decreased from $1.3 million to $.7 million in the six
month period ended June 30, 1998 and 1999, respectively. Such expense decreased
from $.5 million to $.4 million in the quarter ended June 30, 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 $13.0 million of cash in operations for the six months ended June 30, 1999
as compared to a cash usage of $2.1 million for the comparable 1998 period. The
decline in cash flow from operations is principally due to a higher investment
in working capital in 1999. The Company generated $12.9 million from investing
activities in the first six months 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, in part, 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 June 30, 1999. At June 30,1999,
the Company had available unused worldwide lines of credit in the amount of
$94.7 million.
In the first six months of 1998, the Company expended $28.3 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.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(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 substantially complete.
- - The actual remediation and replacement of all critical laboratory, factory and
test equipment has been completed.
- - The remediation and replacement of internal business systems and embedded
chips is substantially complete. Remediation efforts at one division regarding
an internal data base are scheduled to be completed in the latter part of the
third quarter 1999. A number of software vendors have issued new patches
and/or service packs which are in the process of being installed to correct
Y2K problems. A few isolated issues remain with two voice mail systems, two
bar coding systems and one security system that are scheduled to be upgraded
in the early part of the third quarter.
- - Final testing of solutions to Y2K problems periodically identified in 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
also scheduled to be completed September 30, 1999.
- - Identification of significant vendors and key service providers is
substantially complete. Vendor audits of most key vendors have taken place,
and audits are scheduled to be completed in the early part of the third
quarter. Some changes in vendors have been required, and contingency plans are
in process.
- - 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 budgeted costs associated with required Y2K remediation efforts are
approximately $2.0 million, of which approximately $1.2 million was spent
through June 30, 1999.
14
<PAGE> 15
ALLEN TELECOM INC.
------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(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
Inc.'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 impact of U.S. and foreign government legislative/regulatory actions,
including, for example, with respect to the scope and timing of E-911
geolocation requirements and spectrum availability for new wireless
applications, 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.
15
<PAGE> 16
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 1999. In this
connection, the Company has significantly reduced its usage of currency rate
contracts.
PART II - OTHER INFORMATION
---------------------------
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of the Company held on April 30, 1999 two
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 8 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>
Philip Wm. Colburn 21,898,414 467,329
---------- -------
Jill K. Conway 21,875,519 490,224
---------- -------
J. Chisholm Lyons 21,818,819 546,924
---------- -------
John F. McNiff 21,867,425 498,318
---------- -------
Robert G. Paul 21,915,480 450,263
---------- -------
Charles W. Robinson 21,895,925 469,818
---------- -------
Martyn F. Roetter 21,874,473 491,270
---------- -------
Gary B. Smith 21,918,765 446,978
---------- -------
</TABLE>
16
<PAGE> 17
PART II - OTHER INFORMATION
---------------------------
(Continued)
A vote by ballot was taken at the Annual Meeting on the proposal to ratify the
appointment of PricewaterhouseCoopers LLP as auditors for the Company for the
fiscal year ending December 31, 1999. 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:
For Against Abstain
--- ------- -------
22,215,127 111,111 39,505
The foregoing proposals are described more fully in the Company's definitive
proxy statement dated March 19, 1999, 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
(27) Financial Data Schedule.
(b) REPORTS ON FORM 8-K.
None
17
<PAGE> 18
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 12, 1999 By: /s/ Robert A. Youdelman
--------------- ----------------------------------------
Robert A. Youdelman
Executive Vice President
(Chief Financial Officer)
Date: August 12, 1999 By: /s/ James L. LePorte, III
--------------- ----------------------------------------
James L. LePorte, III
Vice President - Finance
(Principal Accounting Officer)
18
<PAGE> 19
EXHIBIT INDEX
--------------
ALLEN TELECOM INC.
------------------
EXHIBIT NUMBER
(27) Financial Data Schedule.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEN
TELECOM'S JUNE 30, 1999 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-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,592
<SECURITIES> 0
<RECEIVABLES> 83,949
<ALLOWANCES> (3,315)
<INVENTORY> 89,694
<CURRENT-ASSETS> 204,416
<PP&E> 118,329
<DEPRECIATION> (63,528)
<TOTAL-ASSETS> 439,604
<CURRENT-LIABILITIES> 59,138
<BONDS> 117,740
0
0
<COMMON> 29,751
<OTHER-SE> 213,743
<TOTAL-LIABILITY-AND-EQUITY> 439,604
<SALES> 153,414
<TOTAL-REVENUES> 153,414
<CGS> (107,827)
<TOTAL-COSTS> (107,827)
<OTHER-EXPENSES> (42,705)
<LOSS-PROVISION> (212)
<INTEREST-EXPENSE> (3,992)
<INCOME-PRETAX> (1,097)
<INCOME-TAX> 385
<INCOME-CONTINUING> (1,419)
<DISCONTINUED> 2,363
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 944
<EPS-BASIC> .03<F1>
<EPS-DILUTED> .03<F1>
<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>
</TABLE>
