-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SyMlUMlTk5NlH7KqkP8EPNfLgdLnhIl9/nynbRclyyi1sHRT02BEkLy3VPGLI9WW n4y/QVv8AgRLH5+BD5o/hg== 0000950137-99-003057.txt : 19990817 0000950137-99-003057.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950137-99-003057 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANDREW CORP CENTRAL INDEX KEY: 0000317093 STANDARD INDUSTRIAL CLASSIFICATION: DRAWING AND INSULATING NONFERROUS WIRE [3357] IRS NUMBER: 362092797 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14617 FILM NUMBER: 99691330 BUSINESS ADDRESS: STREET 1: 10500 W 153RD ST CITY: ORLAND PARK STATE: IL ZIP: 60462 BUSINESS PHONE: 7083493300 MAIL ADDRESS: STREET 1: 10500 WEST 153RD ST CITY: ORLANDO PARK STATE: IL ZIP: 60462 10-Q 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark-One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999. OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________ COMMISSION FILE NUMBER 0-9514 ANDREW CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 36-2092797 (State or other jurisdiction of (IRS Employer incorporation or organization) identification No.) 10500 W. 153rd STREET, ORLAND PARK, ILLINOIS 60462 (Address of principal executive offices and zip code) (708) 349-3300 (Registrant's telephone number, including area code) NO CHANGE (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 (or for such shorter period as the Registrant was required to file such reports), 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, as of the latest practical date. Common Stock, $.01 Par Value-- 82,048,819 shares as of July 31, 1999 2 INDEX ANDREW CORPORATION PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Consolidated balance sheets--June 30, 1999 and September 30, 1998. Consolidated statements of income--Three and nine months ended June 30, 1999 and 1998. Consolidated statements of cash flows--Nine months ended June 30, 1999 and 1998. Notes to consolidated financial statements--June 30, 1999. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. Exhibit 27 Financial Data Schedule for the period ended June 30, 1999. SIGNATURES 3 ANDREW CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
JUNE 30 September 30 ASSETS 1996 1998 --------- ------------ (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $ 53,823 $ 78,395 Accounts receivable, less allowances (June $3,605; Sep. $3,026) 166,409 181,389 Inventories Finished products 52,410 56,736 Materials and work in process 110,791 111,057 --------- --------- 163,201 167,793 Miscellaneous current assets 11,221 9,229 --------- --------- TOTAL CURRENT ASSETS 394,654 436,806 --------- --------- OTHER ASSETS Cost in excess of net assets of businesses acquired, less accumulated amortization (June $4,285; Sep. $10,291) 12,218 23,177 Investments in and advances to affiliates 63,011 59,691 Investments and other assets 10,218 9,267 PROPERTY, PLANT AND EQUIPMENT Land and land improvements 16,740 15,507 Buildings 83,147 83,789 Equipment 321,999 301,757 Allowances for depreciation (264,222) (247,091) --------- --------- 157,664 153,962 --------- --------- TOTAL ASSETS $ 637,765 $ 682,903 ========= =========
The balance sheet at September 30, 1998 has been derived from the audited financial statements at that date. See Notes to Consolidated Financial Statements 4 ANDREW CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) (Continued)
JUNE 30 September 30 1996 1998 --------- ------------ (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 4,114 $ 13,897 Accounts payable 33,027 32,867 Accrued expenses and other liabilities 19,095 16,856 Compensation and related expenses 17,029 32,424 Income taxes 10,990 15,835 Restructuring reserve 13,062 242 Current portion of long-term debt 5,940 4,568 --------- --------- TOTAL CURRENT LIABILITIES 103,257 116,689 --------- --------- DEFERRED LIABILITIES 13,363 14,044 LONG-TERM DEBT, LESS CURRENT PORTION 51,101 38,031 MINORITY INTEREST 4,901 5,361 STOCKHOLDERS' EQUITY Common stock (par value, $.01 a share: 400,000,000 shares authorized; 102,718,210 Shares issued, including treasury) 1,027 1,027 Additional paid-in capital 55,349 53,309 Accumulated other comprehensive income (25,194) (7,617) Retained earnings 668,170 651,103 Treasury stock, at cost (20,669,391 shares at 6/30/99; 18,210,250 shares at 9/30/98) (234,209) (189,044) --------- --------- 465,143 508,778 --------- --------- TOTAL LIABILITIES AND EQUITY $ 637,765 $ 682,903 ========= =========
The balance sheet at September 30, 1998 has been derived from the audited financial statements at that date. See Notes to Consolidated Financial Statements 5 ANDREW CORPORATION CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) (In thousands, except per share amounts)
Three Months Ended Nine Months Ended June 30 June 30 ------------------------------------------------ 1999 1998 1999 1998 --------- --------- --------- --------- SALES $ 186,079 $ 204,220 $ 576,658 $ 632,228 Cost of Products Sold 126,948 122,905 392,829 384,206 --------- --------- --------- --------- GROSS PROFIT 59,131 81,315 183,829 248,022 OPERATING EXPENSES Research and development 7,643 6,502 20,557 19,828 Sales and administrative 34,203 37,375 105,866 110,640 Restructuring expenses 0 0 29,817 0 --------- --------- --------- --------- Total Operating Expenses 41,846 43,877 156,240 130,468 --------- --------- --------- --------- OPERATING INCOME 17,285 37,438 27,589 117,554 OTHER Interest expense 1,419 1,707 4,087 4,868 Interest income (3,327) (2,413) (7,149) (5,307) Other (income) expense (850) 887 1,211 1,219 --------- --------- --------- --------- (2,758) 181 (1,851) 780 --------- --------- --------- --------- PRETAX INCOME 20,043 37,257 29,440 116,774 Income Taxes 5,308 12,667 12,373 39,703 --------- --------- --------- --------- NET INCOME $ 14,735 $ 24,590 $ 17,067 $ 77,071 --------- --------- --------- --------- BASIC AND DILUTED EARNINGS PER SHARE $ .18 $ .28 $ .21 $ .87 --------- --------- --------- --------- AVERAGE SHARES OUTSTANDING Basic 82,187 88,227 82,876 88,630 --------- --------- --------- --------- Diluted 82,294 88,545 82,989 89,061 --------- --------- --------- ---------
See Notes to Consolidated Financial Statements 6 ANDREW CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Nine Months Ended June 30 June 30 1999 1998 ---------------------- CASH FLOW FROM OPERATIONS Net Income $ 17,067 $ 77,071 ADJUSTMENTS TO NET INCOME Restructuring costs 34,486 (243) Depreciation and amortization 27,820 26,946 Decrease in accounts receivable 6,362 23,664 (Increase) in inventories (5,286) (8,408) (Increase) in miscellaneous current and other assets (7,608) (3,814) Decrease in receivables from affiliates 3,370 605 (Decrease) / increase in accounts payable and other liabilities (11,769) 6,382 Other (305) (280) --------- --------- Net Cash From Operations 64,137 121,923 Investing Activities Capital Expenditures (38,495) (40,963) Acquisition of business, net of cash acquired (5,545) (3,000) Investments in and advances to affiliates (3,815) (752) Proceeds from sales of property, plant and equipment 719 469 --------- --------- Net Cash Used In Investing Activities (47,136) (44,246) Financing Activities Proceeds from long-term borrowings 10,921 6,112 Payments on short-term borrowings (3,587) (2,949) Purchase of treasury stock (50,512) (80,333) Stock purchase and option plans 1,356 1,754 --------- --------- Net Cash Used In Financing Activities (41,822) (75,416) Effect of exchange rate changes on cash 249 (2,821) --------- --------- Total (Decrease) increase for the period (24,572) (560) Cash and equivalents at beginning of period 78,395 93,823 --------- --------- Cash and equivalents at end of period $ 53,823 $ 93,263 --------- ---------
See Notes to Consolidated Financial Statements 7 ANDREW CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A--BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ending September 30, 1999. 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 September 30, 1998. NOTE B--EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
Three Months Ended Nine Months Ended June 30 June 30 ------------------ ----------------- (In thousands, except per share amounts) 1999 1998 1999 1998 ------- -------- ------- ------- BASIC EARNINGS PER SHARE Numerator: Numerator for net income per share $14,735 $24,590 $17,067 $77,071 Denominator: Weighted average shares outstanding 82,187 88,227 82,876 88,630 ======= ======= ======= ======= Net income per share - basic $ 0.18 $ 0.28 $ 0.21 $ 0.87 ======= ======= ======= ======= DILUTED EARNINGS PER SHARE Numerator: Numerator for net income per share $14,735 $24,590 $17,067 $77,071 Denominator: Weighted average shares outstanding 82,187 88,227 82,876 88,630 Effect of dilutive securities: Stock options 107 318 113 431 ------- ------- ------- ------- 82,294 88,545 82,989 89,061 ======= ======= ======= ======= Net income per share - diluted $ 0.18 $ 0.28 $ 0.21 $ 0.87 ======= ======= ======= =======
Options to purchase 3,143,177 shares of common stock, at prices ranging from $15.13 - $38.17 per share, were not included in the computation of diluted earnings per share for the nine months ended June 1999, because the option's exercise price was greater than the average market price of the common shares. Options to purchase 1,519,000 shares of common stock at prices ranging from $21.31 - $38.17 per share were not included in the June 1998 diluted earnings per share calculation since the option's exercise price was higher than the average market price of the common shares. NOTE C--COMPREHENSIVE INCOME In June 1997, the FASB issued Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". Statement No. 130 establishes new rules for the reporting and display of comprehensive income and its components. The adoption of this statement had no impact on the company's net income or stockholders' equity. 8 Statement No. 130 requires the company to report foreign currency translation adjustments, which were previously reported as a separate component of stockholders' equity, as a component of other comprehensive income. Prior year financial statements have been reclassified to conform with the requirements of Statement No. 130. Comprehensive income for the nine months ended June 30, 1999 and 1998 amounted to ($510,000) and $70,164,000 respectively. Comprehensive income for the three months ended June 30, 1999 and 1998 amounted to $11,130,000 and $22,998,000 respectively NOTE D--RESTRUCTURING In March 1999, the company initiated a plan to restructure the manufacturing operations of its towers and wireless accessories businesses, phase out of its AVS small aperture earth station product line and divest itself of its SciComm government electronics business. The company currently fabricates telecommunication towers at its manufacturing facility in Denton, TX. Due to space requirements at this facility and the existing capacity available at third party steel fabricators, the company plans to outsource tower production by the end of December 1999, while continuing in-house engineering design and marketing of the tower product line. The company also plans to relocate substantially all manufacturing activities associated with its wireless accessories products from its Addison, IL plant to facilities in Mexico and China, and expects to complete the relocation by December 1999. In addition, the battery product line will be narrowed considerably to focus on new battery chemistries. The company previously developed and has successfully marketed a first generation line of AVS small aperture earth station products. Competitors have recently introduced new, more cost effective and better performing products, superior to the company's first generation offering. Rather than redesign these products, the company has invested in new technology whose product was successfully demonstrated in December 1998 and which is currently in production and being offered for sale. The restructuring plan includes withdrawal from the marketplace of the first generation product and consequent write-down in related inventory. The company also plans to divest itself of its SciComm government electronics business. SciComm has provided significant technology currently utilized in several of the company's other businesses. With the recent completion of this technology transfer and the continued consolidation of the defense intelligence industry, it is no longer appropriate for the company to compete in this marketplace. The company expects to complete the divestiture by December 1999. In connection with the restructuring plans, approximately 600 employees and 280 temporary /contract workers will be terminated. Estimated employee termination costs of $5.2 million were accrued in the second quarter of 1999. In addition to termination costs, the restructuring reserve includes a goodwill write-off of $14.1 million, long-term lease commitments of $3.5 million and inventory, equipment and other asset write-downs of $13.9 million. Of the total $36.7 million employee termination and exit costs recognized in the second quarter, $6.9 million is classified as Cost of Sales and $29.8 million as Restructuring in the Operating Expense section of the income statement. On an after-tax basis, restructuring charges were $28.1 million, or $0.34 per share. The company expects that the plan will generate $6.9 million of cash flow, net of income taxes, and that annual pre-tax cost reductions of $21 million will be achieved upon completion of the restructuring actions. Actual costs charged against the restructuring liability in the second and third quarter of 1999 were $23.6 million, including termination costs of $1.6 million paid to 287 terminated employees, a $14.1 million goodwill write-off, and inventory and other asset write-downs of $7.9 million. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Sales for the quarter ended June 30, 1999 were $186.1 million, 8.9% lower than the same period last fiscal year. The decline in sales was due mainly to a decrease in wireless infrastructure sales in the U.S., due to a weak U.S. PCS market and overall price pressure. This decline was partially offset by increases in wireless infrastructure sales in Asia and Europe. Common carrier and private microwave sales increased in North America however decreased overall due to fewer large microwave projects in Latin America. Sales of wireless accessories decreased in the quarter due to continued price pressure in the U.S. Total sales for the nine months ended June 30, 1999 were $585.8 million, 8.8% lower than the same period last fiscal year. This decline can be attributed to continued weakness in the North American wireless infrastructure market. However this decline is partially offset by the continued strength in the wireless infrastructure market in Europe. U.S. sales in the Broadcast market increased, while sales of wireless accessories decreased during the period in Europe and the U.S. Gross margin as a percentage of sales was 31.8% in the third quarter compared to 39.8% in the third quarter of last fiscal year. For the first nine months of fiscal year 1999, gross margin as a percentage of sales was 33.1%, excluding the $6.8 million of the restructuring charges, compared to 39.2% for the first nine months of last fiscal year. The decrease in gross margin rates was driven by competitive market conditions and increased pricing pressure. The company estimates that in the third quarter of 1999 pricing concessions accounted for at least 80.0% of the decline in gross margin, with lower cable volumes being the other major factor. On average, prices for the first nine months of 1999 were approximately 6.0% lower than comparable periods last fiscal year. Operating expenses in the third quarter, as a percentage of sales, were 22.5% compared to 21.5% for the same period last fiscal year. For the nine months ended June 30, 1999, excluding the $29.8 million restructuring charge, operating expenses as a percentage of sales were 21.9% compared to 20.6% for the same period last fiscal year. Research and development expense has increased 17.5% and 3.7% compared to last fiscal year for the third quarter and nine months respectively. The increase in the third quarter of fiscal year 1999 is due to accelerated efforts to add additional products and move into new markets. Sales and administrative expense for the third quarter and first nine months of fiscal year 1999 declined $3.2 million and $4.7 million respectively, primarily due to lower payroll and related costs. As a percentage of sales, sales and administrative expenses were flat, 18.4% compared to 18.3% in the third quarter and from 18.4% compared to 17.5% for the first nine months of fiscal years 1999 and 1998 respectively. Interest expense for both the quarter and nine months ended June 30, 1999 remained relatively unchanged compared to the same periods last fiscal year. Interest income increased $.9 million and $1.8 million compared to last fiscal year for the third quarter and nine months respectively. The increase is due mainly to interest received on advances to the company's Russian joint ventures. Other income increased $1.7 million for the third quarter and was flat for the nine months compared to the same periods last fiscal year. This increase can be attributed to the foreign exchange gain in the third quarter of 1999, related to the company's European operations, verses the foreign currency loss that was recognized in the third quarter of 1998. The company's effective tax rate for the quarter and nine months was 26.5% and 42.0% respectively, compared to an effective tax rate of 34.0% for both periods in the prior fiscal year. The decrease in the effective tax rate in the third quarter was due to a year to date adjustment to reduce the effective tax rate from 34.0% to 32.0% to reflect the larger portion of income being taxed at lower rates outside of the U.S. The increase in the effective tax rate for the first nine months of 1999 is mainly attributed to the inclusion of non-deductible goodwill in the restructuring charges recognized during the second quarter of 1999. 10 LIQUIDITY Cash and cash equivalents decreased $24.6 million during the first nine months of fiscal year 1999 to $53.8 million at June 30, 1999. Working capital totaled $291.3 million compared to $320.1 million at September 30, 1998. Management believes the current working capital level is adequate to meet the company's normal operating needs. During the first nine months of fiscal year 1999 the company generated $64.1 million in cash from operations, principally from earnings of $17.1 million and non-cash charges of $27.8 million for depreciation and amortization and the $26.1 million after-tax restructuring charge. Accounts receivable declined $11.8 million due to lower sales volumes. Net cash used in investing activities during the first nine months of fiscal year 1999 was $47.1 million, including $38.5 million spent on capital additions. The majority of the funds were used for equipment purchases and upgrades, completion of the company's China facility and continued investments in upgrading the company's business information systems. During the second quarter of 1999, the company acquired Passive Power Products, Inc., a Maine-based supplier of RF products to broadcast markets, and completed the buyout of its joint venture in South Africa by purchasing the remaining 20% stake. The company has continued to increase its net investment in its Russian joint telecommunications ventures in the first nine months of 1999. Net cash used in financing activities totaled $41.8 million for the first nine months of the fiscal year. The company repurchased 3.0 million shares of stock for $50.5 million. As of June 30, 1999, the company has repurchased 10.0 million shares of the 15.0 million shares authorized for repurchase at a total cost of $197.5 million. In the first quarter of fiscal 1999, the company's Brazilian operation borrowed additional U.S. dollar funds. In the third quarter of 1999, the company's China operation borrowed a total of $9.6 million, $1.9 million in short term and $7.7 million due in 2002. YEAR 2000 The "Year 2000 issue" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of "19". If not corrected, many computer applications could fail or create erroneous results. In 1994, the company instituted a program to routinely review its computer hardware and software to increase operational efficiency. As an output from this effort, the company purchased a new business system in 1994 that would not only meet the company's needs but was also Year 2000 compliant. The company completed implementation of the system in all major locations in April 1999. Amounts expended or to be expended on information technology systems exclusively to ensure year 2000 compliance are not expected to be material to the company's consolidated results of operations or financial position. Management has also initiated a comprehensive program to prepare the company's manufacturing and facility systems for the year 2000. The company is actively engaged in testing and fixing applications such as security, environmental, desktop computers and production equipment to ensure they are Year 2000 ready. The company currently does not expect remediation costs to be material nor does it expect any significant interruption to its operations because of Year 2000 problems. Most of the company's products do not have Year 2000 readiness issues because they do not contain date-sensitive functions. The company is in the process of contacting all third parties with which it has significant relationships, to determine the extent to which the company could be vulnerable to failure by any of them to obtain Year 2000 compliance. Some of the company's major suppliers, customers and financial institutions have confirmed that they anticipate being Year 2000 compliant on or before December 31, 1999, although many have only indicated that they have Year 2000 readiness programs. To date, the company is not aware of any significant third parties with a Year 2000 issue that could materially impact the company's operations, liquidity or capital resources. However, the company has no means of ensuring that third parties will be Year 2000 ready and the potential effect of third-party non-compliance is currently not determinable. The company has devoted and will continue to devote the resources necessary to ensure that all Year 2000 issues are properly addressed. However, there can be no assurance that all Year 2000 problems are detected. Further, there 11 can be no assurance that the company's assessment of its third party vendors and suppliers will be accurate. Some of the potential worst-case scenarios that could occur include: (1) corruption of data in the company's internal systems; (2) failure of infrastructure services provided by government agencies; and (3) health, environmental and safety issues relating to the company's facilities. If any of these situations were to occur, the company's operations in certain areas could be temporarily interrupted. These interruptions could be more severe in countries outside the U.S. where the company does a considerable amount of its business. The company intends to develop Year 2000 contingency plans for continuing operations in the event such problems arise. The company has operations around the world and is considering shifting operations to different facilities if there are interruptions to operations in particular countries or regions. RISK FACTORS Safe Harbor for Forward-Looking Statements. We have made forward-looking statements in this Form 10-Q under "Management's Discussion and Analysis of Financial Condition and Results of Operations". In addition, other written or oral statements which constitute forward-looking statements may be made by or on behalf of the company. Although we have based these statements on the beliefs and assumptions of our management and on information currently available to them, they are subject to risks and uncertainties. We wish to ensure that such statements are accompanied by meaningful cautionary statements, so as to obtain the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. Accordingly, such statements are qualified by reference to the discussion below of certain important factors that could cause actual results to differ materially from those projected in such forward-looking statements. We caution the reader that the list of factors may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict such risk factors, nor can we assess the impact, if any, of such risk factors on our business or the extent to which any factors may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, you should not put undue reliance on any forward looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. While Andrew Corporation's management is optimistic about the company's long-term prospects, the following risks and uncertainties, among others, should be considered in evaluating its growth outlook. Share Price Volatility. In the past years, the market price of our common stock has been very volatile. We believe that the price has fluctuated in response to such things as changes in growth rates of sales, net income and cash flow; volatility in the U.S. stock market in general and in wireless equipment stocks in particular; changes in analysts' estimates; and changes in general economic conditions. We expect that the price of our common stock will fluctuate in the future, perhaps substantially. Fluctuations in Operating Results. Historically our quarterly and annual revenues and operating results have fluctuated. We expect similar fluctuations in the future. In addition to general economic and political conditions, the following factors affect our revenues: timing of significant customer orders, inability to forecast future revenue due to our just-in-time supply approach, changes in competitive pricing, and wide variations in profitability by product line. Since our quarterly and annual revenues and operating results vary, we believe that period-to-period comparisons are not necessarily meaningful and you should not rely on such comparisons as indicators of our future performance. Impact of restructuring. We believe that our current restructuring efforts will generate significant cost savings. The estimated future cash flow and costs savings due to restructuring are based on management's best judgement. These estimates are subject to fluctuations in business operating results and changes in economic conditions. Intense Competition and Pricing Pressure. We believe that to be profitable in the future we must respond effectively to increased competitive pressure. We consider our principal competitive factors to include product quality and 12 performance, service and support, pricing and proprietary technology. Over the past three years, in response to aggressive pricing practices by our competitors, we have lowered prices for most of our products by 5 to 6% per year. If we are unable to compete successfully, we may lose market share. We expect that a significant loss in market share would have a material negative effect on our business, financial condition and operating results. Rapid Technological Change and Pressure to Develop New Products. We believe that our future success depends on our ability to effectively anticipate and respond to changes in technology, customer needs and industry standards. Failure to anticipate changes, to adapt current products, to develop and introduce new products on a timely basis, or to gain market acceptance for new products would impair our competitiveness and could have a material negative impact on our business and operating results. International Risk. Nearly half of our sales are outside the United States and in recent years we have significantly increased our international manufacturing capabilities. We anticipate that international sales will continue to represent a substantial portion of our revenues and that continued growth and profitability will require further international expansion. International business risks include currency fluctuations, tariffs and other trade barriers, longer customer payment cycles, adverse taxes, restrictions on the repatriation of earnings, compliance with local laws and regulations, political and economic instability, and difficulties in managing and staffing operations. In particular, the recent deterioration of certain economies, such as Brazil, is expected to have a negative impact on the financial results of our business in these regions during 1999. We believe that international risk factors could materially impact our future sales, financial condition and operating results. Ability to Attract and Retain Qualified People. We believe that our future success significantly depends on our ability to attract and retain highly qualified personnel. We cannot be sure that we will be able to attract and retain key personnel in the future. We believe our inability to do so could negatively impact our business, financial condition and operating results. Year 2000 Compliance. We are working toward bringing our business, manufacturing and facilities systems into Year 2000 compliance. We also are contacting third parties with whom we have significant relationships to determine our vulnerability to their failure to achieve Year 2000 compliance. Our failure to detect and address our own third-party Year 2000 problems could have a significant negative impact on our business, financial condition and results of operations. Dependence on Intellectual Property Rights. Others could obtain or use our intellectual property without our permission, develop equivalent or superior technology, or claim that we have infringed on their intellectual property rights. We rely on a combination of patent, copyright, trademark and trade secret laws, and non-disclosure and non-competition agreements to protect our rights. We are dependent on our intellectual property rights as a whole; however, we do not believe that the loss of exclusivity with respect to any one right would have a significant negative impact on our business, financial condition or operating results. Impact of Governmental Regulation. We are not directly regulated in the U.S., but most of our customers and the telecommunications industry generally are subject to Federal Communications Commission regulation. We believe that regulatory changes could have a significant negative effect on our business and operating results by restricting our customers' development efforts, making current products obsolete or increasing competition. Internationally, where many of our customers are government owned and operated entities, we also are at risk of changes in economic policy and communications regulation. In addition, our joint ventures in Russia and Mexico require telecommunications licenses, which may limit or otherwise affect the operations of the ventures. 13 PART II--OTHER INFORMATION Item 6. Exhibits and reports on Form 8-K a) EXHIBIT INDEX Exhibit No. Description ----------- ------------ 27 Financial Data Schedule June 30, 1999 (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1999. 14 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. Date August 12, 1999 /s/ F. L. English --------------------- ----------------- F. L. English Chairman, President and Chief Executive Officer Date August 12, 1999 /s/ C. R. Nicholas --------------------- ------------------ C. R. Nicholas Executive Vice President and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS SEP-30-1999 JUN-30-1999 53,823 0 170,014 3,605 163,201 394,654 421,886 264,222 637,765 103,257 51,101 0 0 1,027 464,116 637,765 576,658 576,658 392,829 392,829 156,240 818 4,087 29,440 12,373 17,067 0 0 0 17,067 0.21 0.21
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