-----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, IDHe13vQ6Qqwtzzc9lcy2MhNESRbqXf6O8Iov8cw97McalhxPswHb7I1PmFk/XqE QAar1QPAA9n7bwF/6S9Cnw== 0000950152-98-006689.txt : 19980814 0000950152-98-006689.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950152-98-006689 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEN TELECOM INC CENTRAL INDEX KEY: 0000003721 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 380290950 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06016 FILM NUMBER: 98684930 BUSINESS ADDRESS: STREET 1: 25101 CHAGRIN BLVD # 350 CITY: BEACHWOOD STATE: OH ZIP: 44122-5619 BUSINESS PHONE: 2167655818 FORMER COMPANY: FORMER CONFORMED NAME: ALLEN GROUP INC DATE OF NAME CHANGE: 19920703 10-Q 1 ALLEN TELECOM INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from Not Applicable to -------------- ------------------ Commission file number 1-6016 ------ ALLEN TELECOM INC. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 38-0290950 - -------------------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 25101 Chagrin Boulevard, Suite 350, Beachwood, Ohio 44122 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (Registrant's Telephone Number, Including Area Code) (216) 765-5818 -------------- NOT APPLICABLE - -------------------------------------------------------------------------------- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate the number of shares outstanding of each of the issuer's classes of common stock:
Outstanding at Class of Common Stock July 31, 1998 --------------------- ------------- Par value $1.00 per share 27,396,179 ----------
2 ALLEN TELECOM INC. ------------------ TABLE OF CONTENTS -----------------
Page No. ----------------- PART I. FINANCIAL INFORMATION: ITEM 1 - FINANCIAL STATEMENTS: CONSOLIDATED CONDENSED BALANCE SHEETS - June 30, 1998 and December 31, 1997 3 CONSOLIDATED CONDENSED STATEMENTS OF INCOME - Six and Three Months Ended June 30, 1998 and 1997 4 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - Six Months Ended June 30, 1998 and 1997 5 CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY - Six Months Ended June 30, 1998 and 1997 6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 7 - 9 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 - 13 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 14 PART OTHER INFORMATION: II. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14 - 15 ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 15 SIGNATURES 16 EXHIBIT INDEX 17
2 3 PART I - FINANCIAL INFORMATION ------------------------------ ITEM 1 - FINANCIAL STATEMENTS ----------------------------- ALLEN TELECOM INC. ------------------ CONSOLIDATED CONDENSED BALANCE SHEETS ------------------------------------- (Amounts in Thousands)
June 30, December 31, 1998 1997 --------- --------- (Unaudited) ASSETS: Current Assets: Cash and equivalents $ 22,069 $ 30,775 Accounts receivable (less allowance for doubtful accounts of $2,129 and $1,934, respectively) 102,950 105,714 Inventories: Raw materials 47,067 49,583 Work in process 23,387 24,505 Finished goods 23,694 19,680 --------- --------- Total inventories (net of reserves) 94,148 93,768 --------- --------- Assets of discontinued emissions testing business 881 1,034 Other current assets (Note 2) 21,163 10,745 --------- --------- Total current assets 241,211 242,036 --------- --------- Property, plant and equipment, net 58,671 60,543 Excess of cost over net assets of businesses acquired 125,240 126,923 Assets of discontinued emissions testing business 32,645 32,329 Other assets (Note 2) 35,703 52,602 --------- --------- TOTAL ASSETS $ 493,470 $ 514,433 ========= ========= LIABILITIES: Current Liabilities: Notes payable and current maturities of long-term obligations $ 4,175 $ 6,119 Accounts payable 42,782 75,195 Accrued expenses 33,901 35,261 Income taxes payable 10,283 13,197 Deferred income taxes 1,232 1,249 --------- --------- Total current liabilities 92,373 131,021 --------- --------- Long-term debt 131,777 97,915 Deferred Income Taxes 2,315 6,818 Other liabilities 18,632 17,857 --------- --------- TOTAL LIABILITIES 245,097 253,611 --------- --------- STOCKHOLDERS' EQUITY Common stock 29,751 29,746 Paid-in capital 180,783 180,538 Retained earnings 65,295 70,091 Accumulated other comprehensive income (loss) (8,326) 207 Less: Treasury stock (at cost) (16,768) (16,992) Unearned compensation (2,362) (2,768) --------- --------- TOTAL STOCKHOLDERS' EQUITY 248,373 260,822 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 493,470 $ 514,433 ========= =========
See accompanying notes to the Consolidated Condensed Financial Statements. 3 4 ALLEN TELECOM INC. ------------------ CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (Amounts in Thousands, Except Per Share Data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ------------------------ ------------------------ 1998 1997 1998 1997 --------- --------- --------- --------- SALES $ 98,013 $ 108,859 $ 211,382 $ 211,362 --------- --------- --------- --------- Costs and expenses: Cost of sales (Note 4) (80,351) (70,677) (157,972) (136,639) Selling, general and administrative expenses (Note 4) (20,601) (16,866) (36,908) (33,019) Research and development and product engineering costs (8,221) (7,611) (15,846) (14,297) Other income (loss), net (Note 2) (3,505) 700 (2,341) 2,225 Interest expense (2,087) (926) (3,651) (1,732) Interest income 288 177 664 463 --------- --------- --------- --------- Income (loss) before taxes and minority interests (16,464) 13,656 (4,672) 28,363 (Provision) Benefit for income taxes 5,876 (5,120) 1,158 (11,300) --------- --------- --------- --------- Income (loss) before minority interests (10,588) 8,536 (3,514) 17,063 Minority interests (546) (1,802) (1,282) (3,303) --------- --------- --------- --------- NET INCOME (LOSS) $ (11,134) $ 6,734 $ (4,796) $ 13,760 ========= ========= ========= ========= EARNINGS (LOSS) PER COMMON SHARE, BASIC AND DILUTED ($ .41) $ .25 ($ .18) $ .51 ========= ========= ========= ========= Weighted average common shares outstanding: Basic 27,180 26,830 27,160 26,740 Assumed exercise of stock options 180 390 220 390 --------- --------- --------- --------- Diluted 27,360 27,220 27,380 27,130 ========= ========= ========= =========
See accompanying notes to the Consolidated Condensed Financial Statements. 4 5 ALLEN TELECOM INC. ------------------ CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS ----------------------------------------------- (Amounts in Thousands) (Unaudited)
Six Months Ended June 30, ---------------------------------- 1998 1997 ------------ ------------ Cash (used) provided by operating activities $ (2,055) $ 13,192 ------------ ------------ Cash flows from investing activities: Investments in telecommunications companies (28,271) (30,989) Capital expenditures (7,634) (11,465) Sales and retirements of fixed assets 18 919 Capitalized software product costs (2,488) (2,867) Sale of investment 664 505 ------------ ------------ Cash used by investing activities (37,711) (43,897) ------------ ------------ Cash flows from financing activities: Proceeds from borrowings 32,935 30,828 Treasury stock sold to employee benefit plans 894 897 Exercise of stock options 123 243 ------------ ------------ Cash provided by financing activities 33,952 31,968 ------------ ------------ Net cash used by discontinued centralized emissions testing business (1,308) (700) ------------ ------------ Net cash (used) provided (7,122) 563 Effect of exchange rate changes on cash (1,584) (1,856) Cash and equivalents at beginning of year 30,775 23,879 ------------ ------------ Cash and equivalents at end of period $ 22,069 $ 22,586 ============ ============ Supplemental cash flow data: Depreciation and amortization included in "Cash (used) provided by operating activities" $ 11,707 $ 10,154 Interest capitalized 286 110 Cash paid during the period for: Interest 3,775 1,412 Income taxes 8,487 3,813
See accompanying notes to the Consolidated Condensed Financial Statements. 5 6 ALLEN TELECOM INC. ------------------ CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY --------------------------------------------------------- (Amounts in Thousands) (Unaudited)
Accumulated Other Comprehensive Retained Comprehensive Common Total Income (Loss) Earnings Income (Loss) Stock ------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998: Beginning Balance, January 1, 1998 $ 260,822 $ 70,091 $ 207 $ 29,746 Comprehensive Income (loss): Net loss (4,796) $ (4,796) (4,796) --------- Other comprehensive loss: Unrealized gain on securities recorded to income (9,588) (9,588) Less: Tax on unrealized loss on securities 4,027 4,027 --------- --------- Net: Unrealized loss on securities (5,561) (5,561) Foreign currency translation adjustments (2,972) (2,972) --------- Other comprehensive loss (8,533) (8,533) --------- Comprehensive loss $ (13,329) ========= Exercise of stock options 124 25 Treasury stock reissued 869 Restricted stock, net (372) (20) Amortization of unearned compensation 259 - - - --------- --------- --------- --------- Ending Balance, June 30, 1998 $ 248,373 $ 65,295 $ (8,326) $ 29,751 ========= ========= ========= ========= FOR THE SIX MONTHS ENDED JUNE 30, 1997: Beginning Balance, January 1, 1997 $ 225,951 $ 46,742 $ (510) $ 29,614 Comprehensive Income: Net income 13,760 $ 13,760 13,760 --------- Other comprehensive income (loss): Unrealized gain on securities arising during period 16,028 16,028 Less: Tax on unrealized gain on securities (6,732) (6,732) --------- --------- Net: Unrealized gain on securities 9,296 9,296 Foreign currency translation adjustments (3,951) (3,951) --------- Other Comprehensive loss 5,345 5,345 --------- Comprehensive Income $ 19,105 ========= Exercise of stock options 706 49 Treasury stock reissued 898 Restricted stock, net Amortization of unearned compensation 408 Common stock issued in acquisitions 6,515 - - - --------- --------- --------- --------- Ending Balance, June 30, 1997 $ 253,583 $ 60,502 $ 4,835 $ 29,663 ========= ========= ========= ========= Unearned Treasury Paid-In Compensation Stock Capital ---------------------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998: Beginning Balance, January 1, 1998 $ (2,768) $ (16,992) $ 180,538 Comprehensive Income (loss): Net loss Other comprehensive loss: Unrealized gain on securities recorded to income Less: Tax on unrealized loss on securities Net: Unrealized loss on securities Foreign currency translation adjustments Other comprehensive loss Comprehensive loss Exercise of stock options 99 Treasury stock reissued 461 408 Restricted stock, net 147 (237) (262) Amortization of unearned compensation 259 - - --------- --------- --------- Ending Balance, June 30, 1998 $ (2,362) $ (16,768) $ 180,783 ========= ========= ========= FOR THE SIX MONTHS ENDED JUNE 30, 1997: Beginning Balance, January 1, 1997 $ (2,908) $ (17,932) $ 170,945 Comprehensive Income: Net income Other comprehensive income (loss): Unrealized gain on securities arising during period Less: Tax on unrealized gain on securities Net: Unrealized gain on securities Foreign currency translation adjustments Other Comprehensive loss Comprehensive Income Exercise of stock options (250) 907 Treasury stock reissued 392 506 Restricted stock, net Amortization of unearned compensation 408 Common stock issued in acquisitions - 798 5,717 --------- --------- --------- Ending Balance, June 30, 1997 $ (2,500) $ (16,992) $ 178,075 ========= ========= =========
See accompanying notes to the Consolidated Condensed Financial Statements. 6 7 ALLEN TELECOM INC, ------------------ NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) 1. General: ------- In the opinion of the management of Allen Telecom Inc. (the "Company"), the accompanying unaudited consolidated condensed interim financial statements reflect all adjustments necessary to present fairly the financial position of the Company as of June 30, 1998 and the consolidated results of its operations, cash flows and changes in stockholders' equity for the periods ended June 30, 1998 and 1997. The results of operations for such interim periods are not necessarily indicative of the results for the full year. The year-end 1997 consolidated condensed balance sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Certain reclassifications have been made to the 1997 financial statements to conform to the 1998 method of presentation. 2. Other Income (loss): ------------------- The components of "Other Income (loss), net" pertain to various telecommunication investments and are as follows (amounts in thousands):
Three Months Ended Six Months Ended June 30, June 30, ------------------- ------------------ 1998 1997 1998 1997 ------- ------- ------- ------- RF Micro Devices Inc. $(3,505) $ 500 $ 8,033 $ 500 NextWave Telecom Inc. - - (6,640) - Windata Inc. - - (3,734) - Columbia Spectrum Management, L.P. - 200 - 1,725 ------- ------- ------- ------- $(3,505) $ 700 $(2,341) $ 2,225 ======= ======= ======= =======
The Company owns stock of RF Micro Devices Inc. ("RFMD"), which completed an initial public offering of its common stock on June 3, 1997. The composition of the Company's holdings at December 31, 1997 (included in "Other assets") and at June 30, 1998 (included in "Other current assets") are as follows (amounts in thousands):
----------------------------------------------------------------------------- Unrealized Market Shares Cost Gains Value ----------------------------------------------------------------------------- December 31, 1997 1,021 $ 2,778 $ 9,890 $12,668 June 30, 1998 965 $ 3,003 $ 7,497 $10,500 -----------------------------------------------------------------------------
7 8 ALLEN TELECOM INC, ------------------ NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) (Continued) The Company's investment in RFMD was subject to certain trading restrictions, which were substantially eliminated in the first quarter of 1998, at which time the Company decided to sell its holdings. As a result, the Company transferred unrealized appreciation, previously recorded in stockholders' equity, in the pretax amount of $11,590,000 to "Other income (loss), net" in the first quarter. During the second quarter of 1998, the Company realized a before-tax gain of $860,000 after selling 56,000 shares, using specific identification to allocate the cost basis. "Other income (loss), net", in the second quarter of 1998 includes a loss ($.05 per basic and diluted share after related income taxes) related to adjusting such investment to market value at June 30, 1998. Approximately 900,000 shares were sold in July 1998 at a pre-tax gain of approximately $5,000,000 (selling price in excess of carrying value at June 30, 1998), which will be recognized in the third quarter of 1998. Future changes in unrealized holding gains related to the remaining 65,000 shares will be reflected in current earnings until the date of sale. The Company has an investment in and a receivable from NextWave Telecom Inc. ("NextWave"), which was previously awarded telecommunications licenses under a competitive auction bid process. In 1998, the Federal Communication Commission issued guidelines with respect to alternatives for certain C Block licensees in regard to the payment or return of licenses previously awarded. These guidelines were less favorable than had been requested by certain licensees. In the first quarter of 1998, the Company recognized impairment in the entire value of its investment in and receivable from NextWave as a result of that action. On June 8, 1998, NextWave filed for relief under Chapter 11 of the United States bankruptcy code. Additionally, in the first quarter of 1998, the Company fully reserved its investment in Windata Inc. as a result of that company's decision to liquidate and sell its assets and product lines. The net impact on earnings per share for such Other Income (loss) for the three and six months ended June 30, 1998 was $.08 and $.06 per basic and diluted share, respectively, after related tax effects. 3. Impact of New Accounting Pronouncements: ---------------------------------------- The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", in June 1998. This statement is effective for financial statements issued for all fiscal quarters of fiscal years beginning after June 15, 1999. Accordingly, the Company will adopt the provisions of the standard on January 1, 2000. The Company utilizes hedging activities primarily in its foreign subsidiaries to limit exchange rate risk. The Company has not yet determined the effect, if any, of the adoption of this Statement on results of operations, financial position or liquidity. 8 9 ALLEN TELECOM INC, ------------------ NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS ---------------------------------------------------- (Unaudited) (Continued) In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". This statement provides guidance on the accounting treatment for certain costs incurred in developing or purchasing software for the internal use of the Company. The Company will adopt the standard on January 1, 1999, requiring the Company to expense certain costs incurred on a prospective basis. The Company has determined that once adopted, the statement will not have a material impact on results of operations. 4. Operations ---------- In the second quarter of 1998, the Company announced the consolidation and rationalization of certain product lines. In this connection, the Company has recorded a $15,800,000 before-tax special charge to earnings (or $.38 per basic and diluted share after related income taxes) related to inventory, other asset write-offs and employee terminations. Of this amount, $12,200,000 is recorded in cost of sales, and $3,600,000 in selling, general and administrative expenses. 5. Discontinued Operations Litigation: ----------------------------------- In early 1998, the Company's Marta Technologies Inc. ("Marta") subsidiary, which operates its discontinued vehicle emissions testing business, reopened the Cincinnati, Ohio program for testing. In connection with the initial suspension of that contract by the Ohio Environmental Protection Agency ("Ohio EPA"), Marta was granted a preliminary injunction on September 23, 1996 and a permanent injunction on November 19, 1997 against Ohio EPA and its Director, enjoining them from (i) conducting a hearing regarding termination of the contract, (ii) terminating the Ohio contract, or (iii) prohibiting Marta from performing its obligations under the Ohio contract. On December 31, 1997, Marta filed a lawsuit against Ohio EPA and its Director in an amount not less than $40 million claiming damages for Ohio EPA's unilateral and illegal suspension of the program and numerous other actions which will, in the future, increase costs to operate the program and/or reduce the amount of revenues the State was contractually obligated to provide. Subsequent thereto, the State counterclaimed, denied Marta's allegations and demanded $10 million in liquidated damages, contract damages and/or civil penalties as a result of Marta's alleged failure to meet the terms of the contract. In the opinion of management, based on the advice of counsel, it cannot predict the outcome of these lawsuits and the Company has not recorded any asset or liability with respect thereto. 9 10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ---------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- ALLEN TELECOM INC. ------------------ RESULTS OF OPERATIONS - --------------------- Summary: - -------- Allen Telecom Inc. (the "Company") reported a net loss of $11.1 million ($.41 per common share) for the three months ended June 30, 1998, as compared with net income of $6.7 million ($.25 per common share) for the three months ended June 30, 1997. For the six months ended June 30, 1998, the Company reported a net loss of $4.8 million ($.18 per share), compared to net income of $13.8 million ($.51 per share) in 1997. Included in results of operations for the second quarter of 1998 are special charges related to the consolidation and rationalization of certain product lines. These actions include, among others, the discontinuance of product development and marketing efforts on the SmartCell wireless local loop product, which did not achieve adequate market acceptance, the consolidation of two manufacturing operations of the Systems product line, the formation of a worldwide systems business, and the reorganization of the Company's North American-based sales force. As a result of asset write-offs, severance and other costs associated with such actions, the Company incurred a special charge in the amount of $15.8 million before-tax, or $.38 per share after related income taxes. (See also Note 4 of Notes To Consolidated Condensed Financial Statements.) Sales: - ------ Sales for the second quarter 1998 of $98.0 million decreased approximately 10.0% from the comparable 1997 period, while sales for the six-month period ended June 30, 1998 of $211.4 million were essentially equal to 1997 sales. The decrease in sales in the second quarter of 1998 is due principally to lower sales of international site and domestic systems products. Sales of foreign operations were negatively impacted by the weakening U.S. dollar relative to certain European currencies since 1997. As a result, reported sales in the first half of 1998 were $8.0 million lower as compared with the first half of 1997, assuming the exchange rates stayed the same. The Company continues to see weakness in certain Asian economies, which have been and are expected to continue to be important markets for wireless equipment products. In addition, the U.S. wireless telecommunications market continues to be soft, particularly with respect to the developing PCS markets. Other international markets remain strong for the Company's equipment business, although the Company has been advised by certain European original equipment manufacturers ("OEM's") that their large inventory buildup will continue to negatively impact near term orders. 10 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ---------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- ALLEN TELECOM INC. ------------------ (Continued) Operations: - ----------- Gross profit margins were 30.5% in the second quarter of 1998, prior to the aforementioned special charges, as compared with 35.1% in the second quarter of 1997. For the six-month period ended June 30, 1998 and 1997, profit margins were 31.0%, prior to special charges, and 35.4%, respectively. The lower gross profit margins in 1998 were due to lower sales levels, increased pricing pressure and a greater sales mix of lower margin products. Selling, general and administrative expenses were 17.3% (excluding special charges) and 15.4% for the second quarters of 1998 and 1997, and 15.7% and 15.6% for the six-month periods ended June 30, 1998 and 1997, respectively. The increase in this ratio for the second quarter reflects the spreading of fixed costs on lower sales, while the ratio is essentially the same for the six-month period versus the prior year due to flat sales. Selling, general and administrative expenses for the quarter and year-to-date period were impacted by lower staffing and operating expenses as a result of actions instituted in late 1997 to lower costs. Offsetting this decline, in part, is higher amortization of goodwill ($3.1 million compared with $1.4 million in the 1998 and 1997 six-month periods, respectively) due primarily to the acquisition of the outstanding 20% ownership interest in the Company's FOREM S.r.l subsidiary ("Forem") in 1997. Research and development and new product engineering costs were 8.4% and 7.0% of sales in the second quarter of 1998 and 1997, and 7.5% and 6.8% for the six-month periods ended June 30, 1998 and 1997, respectively. The increase in this ratio for the second quarter reflects the spreading of higher costs on lower sales. The increase in costs for the 1998 three and six-month periods over the comparable 1997 periods is due to increased spending for the development of the Company's geolocation product (ability to locate subscribers who dial 911 from a wireless telephone) and other R&D projects. Other Income (Loss): - -------------------- See Note 2 of Notes to Consolidated Condensed Financial Statements for information concerning other income (loss) items. 11 12 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ---------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- ALLEN TELECOM INC. ------------------ (Continued) Interest and Financing Expenses: - -------------------------------- Net interest and financing costs increased to $1.8 million and $3.0 million in the three and six months ended June 30, 1998, respectively, from $.7 million and $1.3 million for the comparable 1997 periods. The principal reason for the increase is higher outstanding borrowings incurred for investments in telecommunication companies and lower cash flow from operations. Provision for Income Taxes: - --------------------------- The Company's effective tax rate was 36% and 37% for the quarters ended June 30, 1998 and 1997, respectively, while such rates were 25% and 40%, respectively, for the six-month periods then ended. The reduction in effective tax rate for the six months ended June 30, 1998 reflects lower proportional foreign income taxed at higher rates and a higher proportion of available tax credits on lower income. The second quarter tax rate of 36% is in line with the Company's current expectation of a 38% effective tax rate for the full year. Minority Interests: - ------------------- Minority interest expense decreased from $1.8 million and $3.3 million in the second quarter and six months ended June 30, 1997, respectively, to $.5 million and $1.2 million for the comparable 1998 periods. This decrease is primarily due to the exclusion of the 20% minority interest in Forem which was purchased in late 1997. Discontinued Operations: - ------------------------ The Company is continuing the process of attempting to sell its centralized automotive emissions testing business. In early 1998, Marta Technologies, Inc. ("Marta"), the subsidiary which operates this business, re-started the Cincinnati, Ohio program which had been shut down since August 1996. Marta instituted litigation (as described in Note 5 of Notes To Consolidated Condensed Financial Statements) against the State of Ohio for damages with respect to both the shut down of the program and other actions which would increase costs or reduce revenues. Based on the Cincinnati program's operations to date, the inability to resolve operational and legal issues with respect to this program could negatively impact the carrying value and ultimate recovery value of this program upon sale or other disposition. 12 13 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL ---------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- ALLEN TELECOM INC. ------------------ (Continued) LIQUIDITY AND CAPITAL RESOURCES: - -------------------------------- As set forth in the Consolidated Condensed Statement of Cash Flows, the Company used $2.1 million in cash from operations for the six months ended June 30, 1998 as compared with cash generation of $13.2 million for the comparable 1997 period. The decline in cash flow from operations is principally due to lower net income in 1998, combined with higher income tax payments by the Company's foreign subsidiaries in the first half of 1998 offset, in part, by a lower investment in working capital. Further, the Company expended $28.3 million for investments in telecommunications companies, relating primarily to the final purchase price for the outstanding minority interest in Forem. This payment was financed through long-term borrowings. This payment is the principal reason for the decline in Accounts payable and the corresponding increase in Long-term debt in the Consolidated Condensed Balance Sheet at June 30, 1998. At June 30, 1998, the Company had available unused lines of credit in the amount of $47 million. - -------------------------------------------------------------------------------- Statements included in this Form 10-Q which are not historical in nature are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements regarding the Company's future performance and financial results are subject to certain risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. Allen Telecom's Annual Report on Form 10-K contains certain detailed factors that could cause the Company's actual results to materially differ from forward-looking statements made by the Company, including, among others, the costs and timetable for new product development, the health and economic stability of the world and national markets, the uncertain level of purchases by current and prospective customers of the Company's products and services, the impact of competitive products and pricing, the potential impact of the Company's attempts to sell it discontinued operations in the vehicle emissions testing business, and the ultimate market value of the Company's investments in telecom ventures. 13 14 PART II - OTHER INFORMATION --------------------------- ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. - -------------------------------------------------------------------- Not applicable. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ At the Annual Meeting of Stockholders of the Company held on May 1, 1998 three proposals were voted upon by the Company's stockholders. A brief description of each proposal voted upon at the Annual Meeting and the number of votes cast for, against and withheld are set forth below. A vote by ballot was taken at the Annual Meeting for the election of 9 Directors of the Company to hold office until the next Annual Meeting of Stockholders of the company and until their respective successors shall have been duly elected and qualified. The aggregate numbers of shares of Common Stock (a) voted in person or by proxy for each nominee, or (b) with respect to which proxies were withheld for each nominee, were as follows:
Nominee For Withheld ------- --- -------- Phillip Wm. Colburn 24,302,130 466,111 ---------- ------- Jill K. Conway 24,302,385 465,856 ---------- ------- Albert H. Gordon 24,149,683 618,558 ---------- ------- William O. Hunt 24,309,343 458,898 ---------- ------- J. Chisholm Lyons 24,241,150 527,091 ---------- ------- John F. McNiff 24,307,743 460,498 ---------- ------- Robert G. Paul 24,317,052 451,189 ---------- ------- Charles W. Robinson 24,157,767 610,474 ---------- ------- William M. Weaver, Jr. 24,153,535 614,706 ---------- -------
A vote by ballot was taken at the meeting on the proposal to approve the adoption of the amendment to increase the number of shares available under the Company's 1992 Stock Plan, as amended. The aggregate numbers of shares of Common Stock in person or by proxy which: (a) voted for, (b) voted against or (c) abstained from the vote on such proposal were as follows:
For Against Abstain --- ------- ------- 20,374,074 4,350,389 43,778
14 15 PART II - OTHER INFORMATION --------------------------- (Continued) A vote by ballot was taken at the Annual Meeting on the proposal to ratify the appointment of Coopers & Lybrand L.L.P. (now known as PricewaterhouseCoopers LLP) as auditors for the Company for the fiscal year ending December 31, 1998. The aggregate numbers of shares of Common Stock in person or by proxy which: (a) voted for, (b) voted against or (c) abstained from the vote on such proposal were as follows:
For Against Abstain --- ------- ------- 24,698,289 34,075 35,877
The foregoing proposals are described more fully in the Company's definitive proxy statement dated March 19, 1998, filed with the Securities and Exchange Commission pursuant to Section 14(a) of the Securities Act of 1934, as amended, and the rules and regulations promulgated thereunder. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K. - ------------------------------------------ (a) Exhibits -------- (11) Statement re computation of per share earnings. (27) Financial Data Schedule. (b) Reports on Form 8-K ------------------- None. 15 16 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Allen Telecom Inc. (Registrant) Date: August 13, 1998 By: /s/ Robert A. Youdelman --------------- -------------------------------------- Robert A. Youdelman Executive Vice President (Chief Financial Officer) Date: August 13, 1998 By: /s/ James L. LePorte, III --------------- -------------------------------------- James L. LePorte, III Vice President, Treasurer and Controller (Principal Accounting Officer) 16 17 EXHIBIT INDEX ------------- ALLEN TELECOM INC. ------------------ Exhibit Number - -------------- (11) Statement re computation of per share earnings. (27) Financial Data Schedule. 17 EX-11 2 EXHIBIT 11 1 EXHIBIT 11 COMPUTATION OF PER SHARE EARNINGS ALLEN TELECOM INC. (Amounts in Thousands) Net income and common shares used in the calculations of earnings per common share were computed as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------ 1998 1997 1998 1997 ---- ---- ---- ---- Income: - ------- Net income (loss) applicable to Common stock - Basic and Diluted $(11,134) $ 6,734 $ (4,796) $ 13,760 ======== ======== ======== ======== Common Shares: - -------------- Weighted average common shares outstanding- Basic 27,180 26,830 27,160 26,740 Assumed exercise of stock options 180 390 220 390 -------- -------- -------- -------- Common shares - Diluted 27,360 27,220 27,380 27,130 ======== ======== ======== ========
EX-27 3 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALLEN TELECOM'S JUNE 30, 1998 CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JUN-30-1998 22,069 0 105,079 (2,129) 94,148 241,211 110,766 (52,095) 493,470 92,373 131,777 0 0 29,751 218,622 493,470 211,382 211,382 (157,908) (157,908) (54,952) (143) (2,987) (4,672) 1,158 0 0 0 0 (4,796) (.18) (.18) 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.
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