SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2001
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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.
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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) 765-5855
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Outstanding at
Class of Common Stock November 1, 2001
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Par value $1.00 per share 28,130,311
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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:
Condensed Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Income -
Three and Nine Months Ended September 30, 2001 4
and 2000
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2001 and 2000 5
Condensed Consolidated Statements of Stockholders'
Equity - Nine Months Ended September 30, 2001 and 2000 6
Notes to the Condensed Consolidated Financial Statements 7-11
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-18
ITEM 3 - Quantitative and Qualitative Disclosures About
Market Risks 19
PART II. OTHER INFORMATION:
ITEM 6 - Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibit Index 21
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ALLEN TELECOM INC.
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Amounts in Thousands)
September 30, December 31,
2001 2000
---------------------- --------------------
(Unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 6,446 $ 10,539
Accounts receivable (less allowance for doubtful
accounts of $3,160 and $4,739, respectively) 97,274 93,815
Inventories: Raw materials 70,255 56,366
Work in process 28,772 25,674
Finished goods 37,654 19,600
-------- ---------
Total inventories (net of reserves) 136,681 101,640
------- --------
Deferred income taxes 18,310 3,820
Other current assets 6,590 7,311
----------- ---------
Total current assets 265,301 217,125
Property, plant and equipment, net 42,527 41,279
Goodwill 122,876 129,190
Deferred income taxes 34,966 44,295
Other assets 33,223 41,133
-------- --------
TOTAL ASSETS $498,893 $473,022
======= =======
LIABILITIES
Current Liabilities:
Notes payable and current maturities of long-term
obligations $ 11,229 $ 3,796
Accounts payable 39,262 45,181
Accrued expenses 25,039 26,305
Income taxes payable 2,821 3,922
Deferred income taxes 9,040 5,290
--------- ---------
Total current liabilities 87,391 84,494
Long-term debt 149,166 134,639
Deferred income taxes 4,862 9,168
Other liabilities 10,864 9,740
--------- ---------
TOTAL LIABILITIES 252,283 238,041
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 30,216 30,092
Paid-in capital 185,066 184,066
Retained earnings 73,120 69,067
Accumulated other comprehensive loss (24,978) (31,948)
Less: Treasury stock (at cost) (15,480) (14,730)
Unearned compensation (1,334) (1,566)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 246,610 234,981
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $498,893 $473,022
========= =========
See accompanying Notes to the Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- --------------------------------
2001 2000 2001 2000
---- ---- ---- ----
SALES (Note 5) $ 91,319 $107,690 $304,956 $285,724
Cost of sales (Notes 2 and 5) (69,877) (75,760) (226,499) (200,828)
----------- ----------- ----------- ----------
Gross profit 21,442 31,930 78,457 84,896
Operating expenses:
Selling, general and
administrative expenses (Note 2) (13,864) (13,373) (42,217) (40,853)
Research and development and product
engineering costs (5,908) (6,924) (19,978) (19,491)
Amortization of goodwill (1,968) (1,980) (5,935) (5,841)
----------- ----------- ----------- ----------
Operating income (loss) (298) 9,653 10,327 18,711
Interest expense (2,590) (2,899) (8,208) (7,995)
Interest income 215 530 728 1,457
----------- ----------- ----------- ----------
Income (loss) before taxes and minority
interest (2,673) 7,284 2,847 12,173
Benefit (provision) for income taxes 1,040 (2,966) (1,110) (4,991)
----------- ----------- ----------- ----------
Income (loss) before minority interest (1,633) 4,318 1,737 7,182
Minority interest (29) (33) (116) (85)
----------- ----------- ----------- ----------
INCOME (LOSS) FROM CONTINUING
OPERATIONS (1,662) 4,285 1,621 7,097
Discontinued emissions testing operations -
gain on sale (Note 3) - 1,300
----------- ----------- ----------- ----------
- -
NET INCOME (LOSS) $ (1,662) $ 4,285 $ 1,621 $ 8,397
=========== =========== =========== ==========
EARNINGS (LOSS) PER COMMON SHARE,
basic and diluted:
Continuing operations $(.06) $ .15 $ .06 $ .25
Discontinued operations - gain on sale - - - .05
----------- ----------- ----------- ----------
Net income (loss) $(.06) $ .15 $ .06 $ .30
===== ===== ===== =====
Weighted average common shares outstanding:
Basic 28,000 27,820 27,970 27,800
Assumed exercise of stock options 300 560 320 430
----------- ----------- ----------- ----------
Diluted 28,300 28,380 28,290 28,230
=========== =========== =========== ==========
See accompanying Notes to the Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Amounts in Thousands)
(Unaudited)
Nine Months Ended
September 30,
------------------------------------------
2001 2000
-------------------- -------------------
CASH FLOW FROM OPERATIONS:
Income from continuing operations $ 1,621 $ 7,097
Adjustments to reconcile income to operating cash flow:
Depreciation 9,719 10,086
Amortization of goodwill 5,935 5,841
Amortization of capitalized software 2,156 1,984
Other amortization 232 232
Non-cash loss on write-down of assets - 393
Non-cash pension gain - (1,160)
Changes in operating assets and liabilities:
Receivables (2,252) (13,211)
Inventories (21,801) (24,706)
Accounts payable and accrued expenses (23,437) 14,981
Income tax payable 1,715 (1,642)
Other, net (124) (2,179)
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CASH USED BY OPERATING ACTIVITIES (26,236) (2,284)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in telecommunications subsidiaries - (8,512)
Capital expenditures (8,538) (7,644)
Capitalized software product costs (1,935) (2,755)
Sales and retirements of fixed assets 5,146 511
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CASH USED BY INVESTING ACTIVITIES (5,327) (18,400)
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CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) proceeds from borrowings (677) 18,851
Proceeds from sale and leaseback transaction 4,884 -
Acquisition of treasury shares (1,156) -
Collection on installment note receivable 1,000 1,000
Treasury stock sold to employee benefit plan 678 576
Exercise of stock options 852 297
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CASH PROVIDED BY FINANCING ACTIVITIES 5,581 20,724
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NET CASH (USED) PROVIDED (25,982) 40
Effect of foreign currency exchange rate changes on cash 1,458 (943)
Net cash flow from change in year-end of subsidiaries (Note 1) 20,431 -
Cash and equivalents at beginning of year 10,539 22,085
---------- ----------
CASH AND EQUIVALENTS AT END OF PERIOD $ 6,446 $ 21,182
========== ==========
Supplemental cash flow data: Cash paid during the period for:
Interest $ 6,649 $ 6,677
Income taxes 2,749 6,127
See accompanying Notes to the Condensed Consolidated Financial Statements.
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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
---------------------------------------------------------
(Amounts in Thousands)
(Unaudited)
Common Paid-In Comprehensive Retained
Total Stock Capital Income (Loss) Earnings
----------- ----------- ----------- ---------------- ----------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001:
Beginning Balance, January 1, 2001 $234,981 $30,092 $184,066 $69,067
Net income from change in fiscal year-end of
subsidiaries (Note 1) 2,432 2,432
Comprehensive income:
Net income 1,621 $ 1,621 1,621
Other comprehensive income:
Foreign currency translation adjustments 6,970 6,970
--------
Comprehensive income $ 8,591
========
Treasury stock reissued 678 272
Acquisition of treasury shares (1,156)
Exercise of stock options 852 124 728
Amortization of unearned compensation 232
-------- -------- -------- -------
Ending Balance, September 30, 2001 $246,610 $30,216 $185,066 $73,120
======== ======== ======== =======
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
Beginning Balance, January 1, 2000 $240,912 $30,010 $181,335 $57,014
Comprehensive Income (loss):
Net income 8,397 $ 8,397 8,397
Other comprehensive loss:
Foreign currency translation adjustments (12,147) (12,147)
---------
Comprehensive loss $ (3,750)
=========
Treasury stock reissued 576 263
Exercise of stock options 297 33 264
Employee stock plan tax benefits 1,331 1,331
Restricted stock cancellation (98) (7) (117)
Amortization of unearned compensation 232
-------- -------- -------- -------
Ending Balance, September 30, 2000 $239,500 $ 30,036 $183,076 $65,411
======== ======== ======== =======
Accumulated
Other
Comprehensive Treasury Unearned
Income (Loss) Stock Compensation
----------------- ------------ ------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001:
Beginning Balance, January 1, 2001 $(31,948) $(14,730) $ (1,566)
Net income from change in fiscal year-end of
subsidiaries (Note 1)
Comprehensive income:
Net income
Other comprehensive income:
Foreign currency translation adjustments 6,970
Comprehensive income
Treasury stock reissued 406
Acquisition of treasury shares (1,156)
Exercise of stock options
Amortization of unearned compensation 232
-------- -------- --------
Ending Balance, September 30, 2001 $(24,978) $(15,480) $ (1,334)
======== ======== ========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000:
Beginning Balance, January 1, 2000 $(10,685) $(14,978) $ (1,784)
Comprehensive Income (loss):
Net income
Other comprehensive loss:
Foreign currency translation adjustments (12,147)
Comprehensive loss
Treasury stock reissued 313
Exercise of stock options
Employee stock plan tax benefits
Restricted stock cancellation (88) 114
Amortization of unearned compensation 232
-------- -------- --------
Ending Balance, September 30, 2000 $(22,832) $(14,753) $ (1,438)
======== ======== ========
See accompanying Notes to the Condensed Consolidated Financial Statements.
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ALLEN TELECOM INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
In the opinion of the management of Allen Telecom Inc. (the "Company"),
the accompanying unaudited condensed consolidated interim financial
statements reflect all adjustments necessary to present fairly the
financial position of the Company as of September 30, 2001 and the
consolidated results of its operations, cash flows and changes in
stockholders' equity for the periods ended September 30, 2001 and 2000.
The results of operations for such interim periods are not necessarily
indicative of the results for the full year. The year-end 2000
condensed consolidated balance sheet was derived from audited financial
statements, but does not include all disclosures required by accounting
principles generally accepted in the United States of America. 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, 2000.
CONSOLIDATION POLICY
The Company's consolidated financial statements include the accounts of
all wholly owned and majority owned subsidiaries. Intercompany accounts
and transactions have been eliminated. To facilitate preparation of
financial statements, the Company's principal European operations, for
periods on or prior to December 31, 2000, were included in the
consolidated financial statements on a two-month delayed basis.
Effective January 1, 2001, such European operations changed their
fiscal year-end from October 31 to December 31, consistent with the
balance of the Company's operations. The results of operations (net
income of $2,432,000) for these European subsidiaries for the period
November and December 2000, were recorded directly to retained earnings
in the first quarter of 2001 and the results of operations for the
period January 1, 2001 through September 30, 2001 were included in the
2001 reported results of operations.
The cash flow of such European operations for the two month period
November and December 2000 is summarized as follows (amounts in
millions):
Net income from operations $ 2.4
Increase in inventories (8.7)
Decrease in receivables 3.2
Increase in accounts payable 14.1
Decrease in taxes payable (6.1)
Net increase in fixed assets (1.2)
Borrowings 16.1
Other .6
------
Increase in cash and equivalents $20.4
======
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ALLEN TELECOM INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Continued)
2. SPECIAL CHARGES:
----------------
In the fourth quarter 1999, the Company announced the restructuring of
certain operations. In the first quarter 2000, the Company incurred
incremental pretax charges of $1,678,000, or $.04 per basic and diluted
common share after related income tax effect in connection with such
restructuring. These charges were not accruable at December 31, 1999.
Of this pretax charge, $960,000 was recorded in cost of sales and
$718,000 in selling, general and administrative expenses. Of the
charge, $393,000 relates to a non-cash write-off of capital assets and
$1,285,000 were cash related charges.
In the third quarter of 2000, the Company recognized a non-cash pretax
gain of $1,160,000, or $.03 per basic and diluted common share after
related income tax effect, with respect to a pension curtailment gain
as a result of a reduction in workforce in connection with the
aforementioned restructuring. Of the third quarter pretax gain,
$406,000 was recorded in cost of sales and $754,000 in selling, general
and administrative expenses. For the nine months ended September 30,
2000, the Company has incurred net pretax charges (related to the two
items discussed above) of $518,000, or $.01 per basic and diluted
common share, after related income tax effect. Of the nine months
charge, $554,000 was recorded in cost of sales and a gain of $36,000 in
selling, general and administrative expense.
The following is a summary of the activity for exit costs incurred
(amounts in thousands).
Sale of
Severance Building and
Accrual Equipment Other
------- --------- -----
Accrual balance at December 31, 2000 $ 219 $ 1,549 $ 317
Charged against accrual (207) (1,373) (119)
Accrual adjustment credited to income - (77) -
----------- ----------- ---------
Balance September 30, 2001 $ 12 $ 99 $ 198
----------- ----------- ---------
The term of severance is based on years of service or determined by
contractual obligation, and is payable over a period of time. Severance
will be paid out in its entirety by October 31, 2001.
3. DISCONTINUED OPERATIONS:
The gain on sale from discontinued operations in the first quarter of
2000 represents income from previously contingent purchase price
consideration earned on the sale of the Company's former automotive
emissions testing business sold in the first quarter of 1999. This gain
is net of related income taxes in the amount of $700,000.
8
ALLEN TELECOM INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Continued)
4. SEGMENT DISCLOSURES:
The following table shows sales to external customers, results of
operations and asset positions for the Company's two operating segments
(amounts in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------------------------------------------------------------------------------
2001 2000 2001 2000
----------------------------------------------------------------------------------------------------------------
Sales to external customers:
Wireless communications equipment:
Base station subsystems and components $ 38,132 $ 52,650 $ 152,165 $ 137,936
Repeater and in-building coverage products 23,295 20,131 66,750 58,300
Base station and mobile antennas 23,116 28,395 66,805 70,096
Geolocation products 2,355 - 2,355 -
---------------------------------------------------------
Total wireless communications equipment 86,898 101,176 288,075 266,332
Wireless engineering and consulting services 4,421 6,514 16,881 19,392
----------------------------------------------------------------------------------------------------------------
Total sales $ 91,319 $ 107,690 $ 304,956 $ 285,724
----------------------------------------------------------------------------------------------------------------
Results of operations:
Wireless communications equipment $ 3,436 $ 12,675 $ 20,231 $ 26,145
Wireless engineering and consulting services (279) 1,005 1,215 3,902
---------------------------------------------------------
3,157 13,680 21,446 30,047
Goodwill amortization (1,968) (1,980) (5,935) (5,841)
General corporate expenses (1,487) (2,047) (5,184) (5,495)
----------------------------------------------------------------------------------------------------------------
Operating income (loss) $ (298) $ 9,653 $ 10,327 $ 18,711
----------------------------------------------------------------------------------------------------------------
As of
---------------------------------------------------------
September 30, 2001 December 31, 2000
----------------------- -----------------------
Segment Assets:
Wireless communications equipment $ 282,575 $ 261,227
Wireless engineering and consulting services 14,856 13,676
---------------------------------------------------------
297,431 274,903
Goodwill 122,876 129,190
Deferred income taxes 53,276 48,115
Other general corporate assets 25,310 20,814
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Total Assets $ 498,893 $ 473,022
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Continued)
5. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS:
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," in June 1998 which is
now effective. Accordingly, the Company has adopted 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 on receivables and to offset the impact of
currency rate changes with regard to certain intercompany payables and
foreign denominated purchase obligations. The adoption of SFAS No. 133
as of January 1, 2001 did not have a material impact on the Company's
results of operations or financial position for the periods ended
September 30, 2001.
In the fourth quarter of 2000, the Company adopted the provisions of
Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping
and Handling Fees and Costs". Accordingly, prior year amounts have been
reclassified to conform to the 2001 presentation. The previously
reported amounts for each of sales and cost of sales for the three and
nine months ended September 30, 2000 have been increased $925,000 and
$2,563,000, respectively, to conform with the current presentation.
These reclassifications had no net impact on previously reported
results of operations or stockholders' equity.
In June 2001, the FASB issued SFAS No. 141, "Business Combinations".
SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. As
specified therein, goodwill and certain intangible assets acquired will
remain on the balance sheet and not be amortized. On an annual basis,
and when there is reason to suspect that their values have been
diminished or impaired, these assets must be tested for impairment,
with appropriate write-downs, if necessary. The Company will implement
SFAS No. 141 for all acquisitions subsequent to June 30, 2001.
In June 2001, the FASB also issued SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 142 changes the accounting for goodwill
from an amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of this statement. The company
is required to implement SFAS No. 142 on January 1, 2002 and it has not
determined, in all cases, the impact that this statement will have on
its consolidated financial position or results of operations. Earnings
per common share for each of the first, second and third
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ALLEN TELECOM INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
(Continued)
5. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED):
quarters of 2001 and 2000 would have increased by approximately $.07
per share, (or approximately $.28 per share annually based on
approximately 28,000,000 common shares outstanding), excluding the
amortization of goodwill, which will be eliminated in 2002 when the new
Standards go into effect.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes
FASB No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," and the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions", for the disposal of a
segment of a business (as previously defined in that opinion). SFAS No.
144 requires that one accounting model be used for long-lived assets to
be disposed of by sale, whether previously held and used or newly
acquired, and broadens the presentation of discontinued operations to
include more disposal transactions than were included under the
previous standards. The Company will adopt SFAS No. 144 on January 1,
2002, as required; however, adoption of the statement is not expected
to have a material impact, if any.
6. SALE AND LEASEBACK TRANSACTION:
In the second quarter of 2001, the company entered into a sale and
leaseback agreement for one of its European facilities. In connection
with the sale, the Company received net proceeds of $4,884,000, after a
lease deposit payment of $512,000. This transaction was accounted for
as a financing, wherein the land and building (which will continue to
be depreciated) remain on the books. A financing obligation was
recorded in the amount of $5,125,000 representing gross proceeds
received (included in "Notes payable and current maturities of
long-term obligations" and "Long-term debt"). The terms of the lease
call for thirty-one equal quarterly payments (including the related
interest portion) of $169,000 from September 1, 2001 through June 2009
with a purchase option of $512,000 at the termination of the lease.
7. RECLASSIFICATIONS:
Certain prior year balances have been reclassified to conform to the
current year presentation.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
OVERVIEW
- --------
We design, manufacture, and market wireless communications infrastructure
equipment and provide wireless engineering and consulting services for the
global wireless communications markets. Our products and services improve the
capacity, coverage and performance of wireless networks, including emerging 3G
networks. As part of our commitment to our customers' evolving needs, we have
also developed new products for E 911 geolocation and other emerging wireless
equipment markets such as next generation power amplifiers. Our products and
services serve all major wireless standards and frequencies.
RESULTS OF OPERATIONS
- ---------------------
SUMMARY:
We reported a net loss from continuing operations of $1.7 million ($.06 per
common share) for the third quarter 2001, as compared with net income of $3.5
million ($.12 per common share) (all per share amounts herein refer to both
basic and diluted earnings per common share) for the third quarter 2000
excluding a onetime pension curtailment gain of $1.2 million pretax or $.03 per
common share after related income tax effect. This $1.2 million non-cash pretax
pension curtailment gain was a result of a reduction in workforce associated
with a fourth quarter 1999 restructuring. Net income from continuing operations
for the nine-month period ended September 30, 2001 was $1.6 million ($.06 per
common share) as compared to $7.3 million ($.26 per common share) in the
comparable period of 2000, excluding a $0.5 million pretax charge or ($.01 per
common share) after related income tax effect resulting from the aforementioned
third quarter 2000 pension curtailment gain and a first quarter of 2000
restructuring charge of $.04 per common share. The charge in the first quarter
of 2000 was related to the restructuring of certain operations, the closing of a
manufacturing facility and other items.
Our total sales decreased 15% from $107.7 million in the third quarter 2000 to
$91.3 million in the third quarter 2001. Sales for the nine-month period ended
September 30, 2001 increased 7% to $305.0 million as compared to $285.7 million
in the same nine-month period of 2000.
While the Company was not "directly" affected by the terrorist attack of
September 11, 2001, we did experience (as did many other companies) a general
short-term decline in sales order volume immediately after the attack. However,
it is very difficult at this time to assess whether the attack has had any
long-term deleterious impact on the Company's sales volume.
12
ALLEN TELECOM INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
The fluctuation in the foreign currency translation exchange rate of the Euro
was not a major factor on reported sales or results of operations for the three
months ended September 30, 2001 as compared with the prior year. The strong U.S.
dollar relative to the Euro for the nine-month period ended September 30, 2001
negatively impacted reported sales and pretax income of our European operations
by $7.7 million and $1.0 million, respectively, relative to the comparable 2000
period.
WIRELESS COMMUNICATIONS EQUIPMENT:
Wireless Communications Equipment sales decreased 14%, from $101.2 million in
third quarter 2000 to $86.9 million in the third quarter 2001. Geolocation sales
were $2.4 million in third quarter 2001. This was the first sales for this
product line. Sales of repeaters and in-building coverage products increased 16%
from $20.1 million in the third quarter 2000 to $23.3 million in the third
quarter 2001. These increases were due to strong sales of booster and repeater
products. Sales of base station subsystems and components and base station and
mobile antenna products decreased 28% and 19%, respectively, in the third
quarter 2001 as compared to the third quarter 2000. These sales declines are due
to capital spending constraints by the carriers and reduced demand from some OEM
customers. Geographically, sales decreased from the third quarter 2000 to the
third quarter of 2001 in most parts of the world with the exception of the Asian
region which had large sales of base station subsystems and components and base
station and mobile antenna products in China. Third quarter 2001 sales in
Europe, Latin America and North America decreased year over year 11%, 64% and
21%, respectively, primarily due to weaker demand for wireless communications
equipment in these regions.
Sales increased 8% from $266.3 million for the nine months ended September 30,
2000 to $288.1 million for the nine months ended September 30, 2001. Sales
increased 14% and 10% for repeater and in-building coverage products and base
station subsystem and components products, respectively. Sales decreased 5% for
base station and mobile antenna products during the same time period.
Geographically, sales increased in the European, Asian and Latin American
regions with a decline in North America.
Sales by product line were as follows:
- ------------------------------------------------------------------------------------------------------------------------
SALES BY PRODUCT LINE THIRD QUARTER NINE MONTHS
- ------------------------------------------------------------------------------------------------------------------------
($ MILLIONS) 2001 2000 2001 2000
-------------------------------------------------------------
Base station subsystems and components $ 38.1 $ 52.7 $ 152.2 $ 137.9
Repeater and in-building coverage products 23.3 20.1 66.7 58.3
Base station and mobile antennas 23.1 28.4 66.8 70.1
Geolocation products 2.4 - 2.4 -
- ------------------------------------------------------------------------------------------------------------------------
Total Wireless Communications Equipment $ 86.9 $ 101.2 $ 288.1 $266.3
-------------------------------------------------------------
13
ALLEN TELECOM INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
Backlog for this Segment decreased 18% from $107.9 million at June 30, 2001 to
$88.8 million at September 30, 2001 due to a reduction in orders for all product
lines.
Gross profit margins were 24.0% in the third quarter of 2001 and 25.5% for the
nine months ended September 30, 2001, as compared with 28.7% in the third
quarter of 2000 and 29.1% for the nine months ended September 30, 2000,
excluding the aforementioned restructuring costs and pension curtailment gain
for the year 2000 ratios. The lower gross profit margins in 2001 were due, in
part, to the spreading of fixed costs on lower sales and increased sales
discounts offered to customers.
Selling, general and administrative expenses were $11.5 million, or 13.3% of
sales, and $10.6 million, or 10.5% of sales, for the third quarters of 2001 and
2000, respectively. Such expenses are slightly higher in the third quarter of
2001 due primarily to higher selling costs. Selling, general and administrative
expenses for the nine-month periods ended September 30, 2001 and 2000 (excluding
restructuring charges in 2000) were $33.3 million or 11.6% and $31.4 million or
11.8%, respectively. These expenses were slightly higher primarily due to an
increase in selling costs.
Total assets for the wireless communications equipment segment increased 8% from
$261.2 million at December 31, 2000 to $282.6 million at September 30, 2001.
This increase is primarily due to an increase in inventory for the base station
subsystems and components product line, due to the significant planned increase
in production based on preliminary discussions with OEM customers and their
anticipated orders. The OEMs dramatically changed their outlook from early 2001.
We have initiated plans to reduce inventory to amounts more in line with revised
near term sales projections. While we have initiated plans to reduce the level
of inventory, there are certain risks inherent in such inventory including the
potential for increased obsolescence. We believe our inventory is properly
valued; however, such factors as technological obsolescence, dependency on
customer orders and the effectiveness of our action plans may require a
reassessment in the future. We will continue to monitor this aspect closely.
14
ALLEN TELECOM INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
WIRELESS ENGINEERING AND CONSULTING SERVICES:
Wireless Engineering and Consulting Services sales were down from $6.5 million
in the third quarter 2000 to $4.4 million in third quarter 2001. Sales also
declined from $19.4 million for the nine months ended September 30, 2000 to
$16.9 million for the nine months ended September 30, 2001. Sales declined
primarily due to lower sales of software products and engineering services.
Gross profit margins for this segment were 12.9% in the third quarter 2001 and
29.3% for the nine months ended September 30, 2001, as compared with 37.9% in
the third quarter 2000 and 40.9% for the nine months ended September 30, 2000.
This decrease in margins is primarily attributable to lower sales of higher
margin software products and lower deployment of consulting engineers. Selling,
general and administrative expenses decreased from $1.5 million in third quarter
2000 to $0.8 million in third quarter 2001. Selling, general and administrative
expenses were lower primarily due to lower compensation expenses and lower bad
debt reserves. Selling, general and administrative expensive were 22.1% for the
nine months ended September 30, 2001 compared to 20.5% for the nine months ended
September 30, 2000. Expenses as a percentage of sales were higher for the nine
months ended September 30, 2001 primarily due to the lower sales levels.
RESEARCH AND DEVELOPMENT:
Research and development and product engineering costs were 6.5% and 6.4% of
sales in the third quarter of 2001 and 2000, respectively. While the absolute
dollar amounts of research and development costs decreased modestly year over
year, the increased rate of spending as a percentage of sales is attributable to
the decrease in sales in the current quarter. The Company believes that product
development costs as a percentage of sales will remain fairly consistent
throughout the current year.
NEW ACCOUNTING STANDARDS:
As more fully described in Note 5 of the Notes to Condensed Consolidated
Financial Statements, in 2001 the Financial Accounting Standards Board issued
three new Standards, which impact the Company. In connection with one of these
standards, amortization of goodwill, including goodwill reported in past
business combinations, will cease upon adoption of the new Standard on January
1, 2002. While we have not fully analyzed the implications of this Standard,
earnings per common share for each of the first, second and third quarters of
2001 and 2000 would have increased by approximately $.07 per common share (or
approximately $.28 per share on an annualized basis, based on approximately
28,000,000 common shares outstanding), excluding the amortization of goodwill,
which will be eliminated in 2002 when the new Standard goes into effect.
15
ALLEN TELECOM INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
INTEREST AND FINANCING EXPENSES:
Net interest and financing costs were approximately $2.4 million in each of the
three-month periods ended September 30, 2001 and 2000. Such net interest expense
increased to $7.4 million from $6.5 million for the nine months ended September
30, 2001 and 2000, respectively. The higher interest expense for the year to
date period is due principally to higher borrowings and lower cash investments
utilized to support higher working capital requirements, offset, in part, by
lower interest rates.
PROVISION FOR INCOME TAXES:
Our effective income tax rate was 39.0% and 41.0% for the quarter and nine
months ended September 30, 2001 and 2000, respectively. The principal reason for
the decrease is due to lower statutory tax rates for our German subsidiary and
the forecasted increase in income in other lower tax jurisdictions. The 2001 tax
rate is in line with our current expectation for the full year.
Through September 30, 2001, we have recorded a net U.S. deferred tax asset
pertaining to recognition of net operating loss carryforwards, net deductible
temporary differences and tax credits in the amount of approximately $38.1
million, as compared with $32.6 million at December 31, 2000. We have not
provided a valuation allowance relating to this asset, as we believe it is more
likely than not that we will realize the value of this asset. This determination
is based upon anticipated future U.S. taxable income and available tax and
business planning strategies. We cannot assure that we will realize this asset
or that future valuation allowances will not be required.
LIQUIDITY AND CAPITAL RESOURCES:
As set forth in the Condensed Consolidated Statements of Cash Flows, $26.2
million of cash was used by operations for the nine months ended September 30,
2001 as compared to $2.3 million of cash used in the comparable 2000 period.
This decline in cash flow is due primarily to the payment of accounts payable
(incurred as a result of the aforementioned increase in inventories) and a
decrease in income from continuing operations offset, in part, by the collection
of accounts receivable. We used $5.3 million in investing activities in 2001,
due primarily to capital expenditures offset, in part, by proceeds from the sale
of an unused facility. For the nine months ended September 30, 2000, $18.4
million of cash was used for investing activities, including $8.5 million for
the purchase of minority interest in subsidiaries. Cash generated by financing
activities for the nine months ended September 30, 2001 and September 30, 2000
was $5.6 million and $20.7 million, respectively. The funds generated in 2001
include $4.9
16
ALLEN TELECOM INC.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
million from a sale and leaseback transaction, as more fully described in Note 6
of the Notes to Condensed Consolidated Financial Statements. The financing
requirements for the 2000 period were met principally through increased
borrowings. At September 30, 2001, we had available unused worldwide lines of
credit of $59.3 million, as compared with $46.2 million at June 30, 2001.
We have entered into a program to lease some of our test equipment and computer
workstation equipment. This program is expected to improve our economics and
cash flow when compared to purchasing this equipment directly. We expect to
lease approximately $5.0 million of equipment in 2001 under these agreements, of
which approximately $.8 million has been leased as of September 30, 2001. These
lease transactions are being recorded as operating leases in our consolidated
financial statements.
The Company examines, from time to time, various strategic acquisitions in order
to accelerate growth in our product lines. In addition, the Company's
geolocation product line has the potential for significant sales growth if
certain carriers choose us for network-based geolocation systems. Were we to
invest in strategic acquisitions or require a significant investment resulting
from the rapid expansion of our E911 geolocation products business, we may need
to consider the need for additional financing. Such financing could take the
form of equity, debt or a combination thereof. Such additional financing needs
would be tempered by our success in reducing working capital levels, which would
result in improved cash generation.
As described in Note 1, we changed the fiscal year-end of certain of our foreign
subsidiaries effective January 1, 2001. The Condensed Consolidated Statements of
Cash Flows for 2001 now includes these operations for the nine month period
ended September 30, 2001. The net cash flow for the two month period ended
December 31, 2000 is shown separately in the Statements of Cash Flows. Note 1 of
the Notes to Condensed Consolidated Financial Statements includes summarized
information for the components of this $20.4 million increase in cash.
17
ALLEN TELECOM INC.
------------------
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
(Continued)
LEGAL DISCLAIMER:
Statements included in this Quarterly Report on 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 a number of risks and uncertainties that could
cause actual results to differ materially from those set forth in the
forward-looking statements. Factors that could cause the Company's actual
results to materially differ from forward-looking statements made by the
Company, include, among others, the cost, success and timetable for new product
development, including specifically products for 3G, E 911 and power
amplification, the health and economic stability of the world and national
markets, the cost and availability of capital and financing to the wireless
carriers, the uncertain timing and level of purchases of both current products
and those under development for current and prospective customers of the
Company's products and services, the effective realization of inventory and
other working capital assets to cash, the collectability of receivables, the
impact of competitive products and pricing in the Company's markets, the future
utilization of the Company's tax loss carry forwards and the impact of U.S. and
foreign government legislative/regulatory actions, including, for example, the
scope and timing of E 911 geolocation requirements in the U.S. markets and
spectrum availability and licensing for new wireless applications. Allen Telecom
Inc.'s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q contain
additional details concerning these factors.
18
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
See "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, 2000.
PART II - OTHER INFORMATION
---------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
(4)INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
(b) REPORTS ON FORM 8-K
Not Applicable.
19
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALLEN TELECOM INC.
------------------
(Registrant)
Date: NOVEMBER 14, 2001 By: /s/ Robert A. Youdelman
-----------------
---------------------------------------
Robert A. Youdelman
Executive Vice President
(Chief Financial Officer)
Date: NOVEMBER 14, 2001 By: /s/ James L. LePorte, III
-----------------
---------------------------------------
James L. LePorte, III
Vice President Finance
(Principal Accounting Officer)
20
EXHIBIT INDEX
-------------
ALLEN TELECOM INC.
------------------
Exhibit Number
4.1 Amendment No. 5 To Credit Agreement
21