-----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, RYLea20Jk6eheOASVxmQn9ADI+ibFtIw+zQeXCm6kpSwpW8Ie+CC811WbcHRpyQU GOeiNc1v8Z6BkXZdNuoKNQ== 0000950152-01-505796.txt : 20020410 0000950152-01-505796.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950152-01-505796 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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: 1934 Act SEC FILE NUMBER: 001-06016 FILM NUMBER: 1786271 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 l90901ae10-q.txt ALLEN TELECOM INC. 10-Q 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 ------------------ 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) 765-5855 --------------- 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 November 1, 2001 --------------------- ---------------- Par value $1.00 per share 28,130,311 ---------- ALLEN TELECOM INC. ------------------ TABLE OF CONTENTS -----------------
Page No. ------------------- 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
2 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. 3 ALLEN TELECOM INC. ------------------ 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. 4 ALLEN TELECOM INC. ------------------ 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) ---------- ---------- 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 ---------- ---------- CASH USED BY INVESTING ACTIVITIES (5,327) (18,400) ---------- ---------- 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 ---------- ---------- CASH PROVIDED BY FINANCING ACTIVITIES 5,581 20,724 ---------- ---------- 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. 5 ALLEN TELECOM INC. ------------------ 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. 6 ALLEN TELECOM INC. ------------------ 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 ====== 7 ALLEN TELECOM INC. ----------------- 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. ----------------- 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 --------------------------------------------------------- Total Assets $ 498,893 $ 473,022 ---------------------------------------------------------
9 ALLEN TELECOM INC. ----------------- 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 10 ALLEN TELECOM INC. ------------------ 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. 11 ALLEN TELECOM INC. ------------------ 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. ------------------ 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. ------------------ 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. ------------------ 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. ------------------ 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. ------------------ 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 EX-4.1 3 l90901aex4-1.txt EXHIBIT 4.1 Exhibit 4.1 AMENDMENT NO. 5 TO CREDIT AGREEMENT THIS AMENDMENT NO. 5 TO CREDIT AGREEMENT, is dated as of September 28, 2001 (this "Amendment"), among the following: (i) ALLEN TELECOM INC., a Delaware corporation (herein, together with its successors and assigns, the "Borrower"); (ii) the Lenders party to the Credit Agreement, as hereinafter defined; (iii) BANK ONE, MICHIGAN (successor in interest to NBD Bank) as a Lender and as Documentation Agent (the "Documentation Agent"); and (iv) KEYBANK NATIONAL ASSOCIATION, a national banking association, as a Lender and as the Administrative Agent and the Collateral Agent under the Credit Agreement (the "Administrative Agent"): PRELIMINARY STATEMENTS: (1) The Borrower, the Lenders, the Documentation Agent and the Administrative Agent are parties to the Credit Agreement, dated as of December 31, 1998 (as amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement"; the terms defined therein are used herein as so defined). (2) The parties hereto desire to modify certain terms and provisions of the Credit Agreement, all as more fully set forth below. NOW, THEREFORE, the parties hereby agree as follows: Section 1. AMENDMENTS. 1.1. AMENDED DEFINITIONS. Section 1.1 of the Credit Agreement is hereby amended to delete the definitions of "APPLICABLE FACILITY FEE RATE", "PERMITTED ACQUISITION" and "UCC" therefrom and to insert in place thereof, respectively, the following: "APPLICABLE FACILITY FEE RATE" shall mean: (a) for any date prior to September 28, 2001, as determined in accordance with section 4.1(a)(ii) of this Agreement as in effect prior to September 28, 2001; (b) from September 28, 2001 through November 30, 2001, 50 basis points; and (c) commencing with the fiscal quarter of the Borrower ended September 30, 2001, and continuing with each fiscal quarter thereafter, the number of basis points determined by the Administrative Agent in accordance with the Pricing Grid Table, based upon the Leverage Ratio. Changes in the Applicable Facility Fee Rate shall become effective on the first day of the month following the receipt by the Administrative Agent, pursuant to section 8.1(a) or (b) of the financial statements of the Borrower; PROVIDED, HOWEVER, that, notwithstanding the foregoing, unless otherwise agreed by the Required Lenders, during any period when (i) the Borrower shall have failed to timely deliver its financial statements referred to in Section 8.1(a) or (b), (ii) a Default under section 10.1(a) shall have occurred and be continuing, or (iii) an Event of Default shall have occurred and be continuing, the Applicable Facility Fee Rate shall be the highest number of basis points indicated therefor in the Pricing Grid Table, regardless of the Leverage Ratio at such time. Any changes in the Applicable Facility Fee Rate shall be determined by the Administrative Agent in accordance with the above provisions and the Administrative Agent shall promptly provide notice of such determinations to the Borrower and the Lenders, which determinations by the Administrative Agent shall be conclusive and binding absent manifest error. "PERMITTED ACQUISITION" shall mean and include any Acquisition that: (a) is not actively opposed by the Board of Directors (or similar governing body) of the selling Person or the Person whose equity interests are to be acquired, UNLESS all of the Lenders specifically approve or consent to such Acquisition in writing; (b) if such Acquisition involves cash consideration, including cash consideration to be used to prepay or otherwise retire any Indebtedness of the business being acquired, whether such cash consideration is payable immediately or on a deferred or contingent basis ("CASH CONSIDERATION"), then, unless the Required Lenders specifically approve or consent to such Acquisition in writing, (i) for any period prior to September 28, 2001, the aggregate Cash Consideration for such Acquisition does not and will not aggregate in excess of $20,000,000, and (ii) on and after September 28, 2001, no Acquisition may be made by the Borrower if such Acquisition involves any Cash Consideration, EXCEPT the Borrower may make the Target Acquisition so long as (A) the Target Acquisition shall have been completed on or before December 31, 2001, and (B) prior to or concurrently with the consummation of the Target Acquisition, the Borrower shall have received the proceeds of the issuance of additional equity of the Borrower, which proceeds shall have been (1) in an amount greater than or equal to 2.5 times the Cash Consideration to be paid in connection with the Target Acquisition, and (2) applied by the Borrower (after deducting taxes, fees and expenses actually paid in connection with the issuance of such equity) on the date such proceeds are received to (y) repay any Loans outstanding on such date, or (z) pay all or a portion of the Cash Consideration for the Target Acquisition; (c) if such Acquisition results in any new Subsidiary or Subsidiaries of the Borrower, there are no holder or holders of minority equity interests therein; and (d) after giving effect thereto, the Borrower would be in compliance, on a PRO FORMA basis, with the financial covenants contained in sections 9.8, 9.9, 9.10 and 9.11. The term Permitted Acquisition does not include any loans, advances or minority investments otherwise permitted pursuant to section 9.5. "UCC" shall mean the Uniform Commercial Code, as in effect from time to time in the State of Ohio. 2 1.2. NEW DEFINITIONS. Section 1.1 of the Credit Agreement is hereby amended to add the following new definitions thereto: "ADJUSTED COVENANT DATE" shall mean the date upon which the Target Acquisition shall have been consummated in accordance with section 9.2(c) hereof. "APPLICABLE MARGIN" shall mean: (a) for any date prior to September 28, 2001, as determined in accordance with section 2.8(h) of this Agreement as in effect prior to September 28, 2001; (b) from September 28, 2001 through November 30, 2001, (i) 250 basis points for General Revolving Loans that are Eurocurrency Loans, and (ii) 50 basis points for General Revolving Loans that are Prime Rate Loans; and (c) commencing with the fiscal quarter of the Borrower ended September 30, 2001, and continuing with each fiscal quarter thereafter, the number of basis points determined by the Administrative Agent in accordance with the Pricing Grid Table, based upon the Leverage Ratio. Changes in the Applicable Margin shall become effective on the first day of the month following the receipt by the Administrative Agent, pursuant to section 8.1(a) or (b) of the financial statements of the Borrower; PROVIDED, HOWEVER, that, notwithstanding the foregoing, unless otherwise agreed by the Required Lenders, during any period when (i) the Borrower shall have failed to timely deliver its financial statements referred to in section 8.1(a) or (b), (ii) a Default under section 10.1(a) shall have occurred and be continuing, or (iii) an Event of Default shall have occurred and be continuing, the Applicable Margin for Loans shall be the highest number of basis points indicated therefor in the Pricing Grid Table, regardless of the Leverage Ratio at such time. Any changes in the Applicable Margin shall be determined by the Administrative Agent in accordance with the above provisions and the Administrative Agent shall promptly provide notice of such determinations to the Borrower and the Lenders, which determinations by the Administrative Agent shall be conclusive and binding absent manifest error. "CONSOLIDATED CURRENT ASSETS" shall mean, at any date, current assets, as determined on a Consolidated basis and in accordance with GAAP. "CONSOLIDATED CURRENT LIABILITIES" shall mean, at any date, current liabilities, as determined on a Consolidated basis and in accordance with GAAP, PROVIDED THAT, included in Consolidated Current Liabilities shall be (i) the aggregate outstanding principal amount of all Loans, (ii) the aggregate amount of the Letter of Credit Outstandings, and (iii) the aggregate outstanding principal amount of the Senior Notes. "FIXED CHARGE COVERAGE RATIO" shall mean, for the most recently completed Testing Period, the ratio of (a) Consolidated EBITDA for such Testing Period, LESS Consolidated Capital Expenditures for such Testing Period, to (b) the sum of Consolidated Interest Expense, Consolidated Income Tax Expense and the aggregate amount expended in cash or property (other than capital stock of the Borrower which is not Redeemable Stock) for Dividends, for such Testing Period, PLUS the amount representing the current 3 portion (determined in accordance with GAAP) of its Consolidated Total Long Term Debt as of the end of such Testing Period. "INTEREST COVERAGE RATIO" shall mean, for the most recently completed Testing Period, the ratio of (a) Consolidated EBIT to (b) Consolidated Interest Expense. "LEVERAGE RATIO" shall mean, for the most recently completed Testing Period, the ratio of (a) Consolidated Total Debt as of the end of the most recently completed fiscal quarter to (b) Consolidated EBITDA. "LIQUIDITY RATIO" shall mean, for the most recently completed Testing Period, the ratio of (a) Consolidated Current Assets to (b) Consolidated Current Liabilities. "PRICING GRID TABLE" shall mean the following pricing grid table: PRICING GRID TABLE (Expressed in Basis Points)
------------------------------------------------------------------------------------------------------------- Applicable Margin Applicable Margin Applicable for Eurocurrency for Prime Rate Facility Fee Rate Leverage Ratio Loans Loans ------------------------------------------------------------------------------------------------------------- Greater than 4.00 to 1.00 300.00 100.00 50.00 ------------------------------------------------------------------------------------------------------------- Greater than 3.50 to 1.00 275.00 75.00 50.00 but less than or equal to 4.00 to 1.00 ------------------------------------------------------------------------------------------------------------- Greater than 3.00 to 1.00 250.00 50.00 50.00 but less than or equal to 3.50 to 1.00 ------------------------------------------------------------------------------------------------------------- Greater than 2.50 to 1.00 225.00 0.00 37.50 but less than or equal to 3.00 to 1.00 ------------------------------------------------------------------------------------------------------------- Greater than 2.00 to 1.00 200.00 0.00 37.50 but less than or equal to 2.50 to 1.00 ------------------------------------------------------------------------------------------------------------- Less than or equal to 2.00 175.00 0.00 25.00 to 1.00 -------------------------------------------------------------------------------------------------------------
"TARGET ACQUISITION" shall mean the acquisition by the Borrower of substantially all of the net assets of the Person identified by the Borrower in the materials distributed to the Lenders on September 19, 2001, on terms and conditions consistent with those set forth in such materials. 1.3. DELETED DEFINITIONS. Section 1.1 of the Credit Agreement is hereby amended to delete the following definition: "APPLICABLE EUROCURRENCY MARGIN". 1.4. AMENDMENT TO SECTION 2.8. Section 2.8 of the Credit Agreement is hereby amended to delete subparts (a), (b) and (h) therefrom and to insert in place thereof the following: 4 (a) INTEREST ON PRIME RATE LOANS. The unpaid principal amount of each General Revolving Loan or Swing Line Revolving Loan that is a Prime Rate Loan shall bear interest from the date of the Borrowing thereof (including any date of Conversion or Redenomination thereof) until maturity (whether by acceleration or otherwise) at a fluctuating rate per annum which shall at all times be equal to the Applicable Margin PLUS the Prime Rate from time to time in effect. (b) INTEREST ON EUROCURRENCY LOANS. The unpaid principal amount of each General Revolving Loan that is a Eurocurrency Loan shall bear interest from the date of the Borrowing thereof (including any Continuation, Conversion or Redenomination thereof) until maturity (whether by acceleration or otherwise) at a rate per annum which shall at all times during the Interest Period applicable thereto be the Applicable Margin for such Eurocurrency Loan PLUS the relevant Adjusted Eurocurrency Rate for such Interest Period. (h) [Intentionally Deleted]. 1.5. AMENDMENT TO SECTION 4.1. The Credit Agreement is hereby amended to delete subpart (ii) from section 4.1(a) thereof and to insert in place thereof the following: (ii) [Intentionally Deleted]. 1.6. AMENDMENT TO CERTAIN FINANCIAL COVENANTS. Sections 9.6, 9.7, 9.8, 9.9, 9.10 and 9.11 of the Credit Agreement are hereby amended such that, for any date prior to September 30, 2001, the Borrower shall be required to comply with such sections as in effect prior to the Amendment Effective Date (as defined below), and, on September 30, 2001 and thereafter, such sections shall be amended in their entirety to read, respectively, as follows: 9.6. DIVIDENDS, ETC. The Borrower will not (a) directly or indirectly declare, order, pay or make any dividend (other than dividends payable solely in capital stock of the Borrower) or other distribution on or in respect of any capital stock of any class of the Borrower, whether by reduction of capital or otherwise (collectively "DIVIDENDS"), or (b) directly or indirectly make, or permit any of its Subsidiaries to directly or indirectly make, any purchase, redemption, retirement or other acquisition of any capital stock of any class of the Borrower (other than for a consideration consisting solely of capital stock of the same class of the Borrower) or of any warrants, rights or options to acquire or any securities convertible into or exchangeable for any capital stock of the Borrower (collectively, "STOCK REPURCHASES"), UNLESS, immediately prior to and immediately after giving effect to any such action, (i) no Default under section 10.1(a) or Event of Default shall have occurred and be continuing, (ii) the Borrower shall be in compliance with section 9.7, (iii) the Leverage Ratio shall be less than 3.00 to 1.00, and (iii) the Interest Coverage Ratio shall be greater than 2.00 to 1.00. 9.7. MINIMUM CONSOLIDATED NET WORTH. The Borrower will not permit its Consolidated Net Worth at any time to be less than $216,585,000, EXCEPT that (i) effective as of the end of the Borrower's fiscal quarter ended on or nearest to June 30, 2001, and as of the end of each fiscal quarter thereafter, the foregoing amount (as it may from time to time be adjusted as herein provided) shall be positively increased by 50% of the 5 Consolidated Net Income of the Borrower for the fiscal quarter ended on such date, if any (there being no reduction in the case of any such Consolidated Net Income which reflects a deficit), (ii) the foregoing amount (as it may from time to time be adjusted as herein provided) shall be increased by an amount equal to 75% of the cash proceeds (net of underwriting discounts and commissions and other customary fees and costs associated therewith) from any sale or issuance of equity by the Borrower after June 30, 2001 (other than any sale or issuance to management or employees or employee benefit plans pursuant to employee benefit plans of general application), (iii) the foregoing amount (as it may from time to time be adjusted as herein provided) shall be positively increased by 75% of the increase in Consolidated Net Worth attributable to the issuance, subsequent to June 30, 2001, of common stock or other equity interests as consideration in any Acquisitions permitted under section 9.2, and (iv) the foregoing amount (as it may from time to time be adjusted as herein provided) shall be decreased (but not by more than a maximum of $50,000,000) by 100% of the aggregate value of the consideration paid by the Borrower and its Subsidiaries in cash or property for Stock Repurchases made after December 31, 1999. 9.8. LEVERAGE RATIO. The Borrower shall not permit at any time the Leverage Ratio to exceed the maximum permitted for any Testing Period (depending upon whether or not the Adjusted Covenant Date shall have occurred) pursuant to the table set forth below for the time period set forth below:
MAXIMUM AMOUNT MAXIMUM AMOUNT PERMITTED PRIOR TO THE PERMITTED ON AND AFTER TIME PERIOD ADJUSTED COVENANT THE ADJUSTED COVENANT DATE DATE ---------------------------------------------------------------------------------------------------------------- September 30, 2001 through December 30, 2001 3.60 to 1.00 3.15 to 1.00 ---------------------------------------------------------------------------------------------------------------- December 31, 2001 through March 30, 2002 3.75 to 1.00 3.40 to 1.00 ---------------------------------------------------------------------------------------------------------------- March 31, 2002 through June 29, 2002 4.25 to 1.00 3.75 to 1.00 ---------------------------------------------------------------------------------------------------------------- June 30, 2002 through September 29, 2002 4.30 to 1.00 3.75 to 1.00 ---------------------------------------------------------------------------------------------------------------- September 30, 2002 through December 30, 2002 3.75 to 1.00 3.15 to 1.00 ---------------------------------------------------------------------------------------------------------------- December 31, 2002 through March 30, 2003 3.45 to 1.00 3.00 to 1.00 ---------------------------------------------------------------------------------------------------------------- March 31, 2003 through June 29, 2003 3.10 to 1.00 3.00 to 1.00 ---------------------------------------------------------------------------------------------------------------- June 30, 2003 and thereafter 3.00 to 1.00 3.00 to 1.00 ----------------------------------------------------------------------------------------------------------------
9.9. MINIMUM CONSOLIDATED EBITDA. The Borrower shall not permit at any time Consolidated EBITDA for its Testing Period most recently ended to be less than the minimum amount required (depending upon whether or not the Adjusted Covenant Date shall have occurred) pursuant to the table set forth below for the time period set forth below:
---------------------------------------------------------------------------------------------------------------- MINIMUM AMOUNT MINIMUM AMOUNT REQUIRED PRIOR TO THE REQUIRED ON AND AFTER TIME PERIOD ADJUSTED COVENANT THE ADJUSTED COVENANT DATE DATE ---------------------------------------------------------------------------------------------------------------- September 30, 2001 through December 30, 2001 $48,200,000 $47,200,000 ----------------------------------------------------------------------------------------------------------------
6 December 31, 2001 through March 30, 2002 $43,000,000 $41,700,000 ---------------------------------------------------------------------------------------------------------------- March 31, 2002 through June 29, 2002 $37,800,000 $37,700,000 ---------------------------------------------------------------------------------------------------------------- June 30, 2002 through September 29, 2002 $37,400,000 $38,100,000 ---------------------------------------------------------------------------------------------------------------- September 30, 2002 through December 30, 2002 $40,500,000 $41,400,000 ---------------------------------------------------------------------------------------------------------------- December 31, 2002 through March 30, 2003 $43,600,000 $47,500,000 ---------------------------------------------------------------------------------------------------------------- March 31, 2003 through June 29, 2003 $48,000,000 $55,000,000 ---------------------------------------------------------------------------------------------------------------- June 30, 2003 through September 29, 2003 $50,000,000 $55,000,000 ---------------------------------------------------------------------------------------------------------------- September 30, 2003 through December 30, 2003 $52,500,000 $55,000,000 ---------------------------------------------------------------------------------------------------------------- December 31, 2003 and thereafter $55,000,000 $55,000,000 ----------------------------------------------------------------------------------------------------------------
9.10. FIXED CHARGE COVERAGE RATIO. The Borrower shall not permit at any time the Fixed Charge Coverage Ratio to be less than the minimum required for any Testing Period (depending upon whether or not the Adjusted Covenant Date shall have occurred) pursuant to the table set forth below for the time period set forth below:
---------------------------------------------------------------------------------------------------------------- MINIMUM REQUIRED MINIMUM REQUIRED ON PRIOR TO THE ADJUSTED AND AFTER THE ADJUSTED TIME PERIOD COVENANT DATE COVENANT DATE ---------------------------------------------------------------------------------------------------------------- September 30, 2001 through December 30, 2001 1.70 to 1.00 1.50 to 1.00 ---------------------------------------------------------------------------------------------------------------- December 31, 2001 through March 30, 2002 1.25 to 1.00 1.25 to 1.00 ---------------------------------------------------------------------------------------------------------------- March 31, 2002 through June 29, 2002 1.07 to 1.00 1.15 to 1.00 ---------------------------------------------------------------------------------------------------------------- June 30, 2002 through September 29, 2002 1.00 to 1.00 1.10 to 1.00 ---------------------------------------------------------------------------------------------------------------- September 30, 2002 through December 30, 2002 1.00 to 1.00 1.10 to 1.00 ---------------------------------------------------------------------------------------------------------------- December 31, 2002 through March 30, 2003 1.03 to 1.00 1.25 to 1.00 ---------------------------------------------------------------------------------------------------------------- March 31, 2003 through June 29, 2003 1.15 to 1.00 1.40 to 1.00 ---------------------------------------------------------------------------------------------------------------- June 30, 2003 through September 29, 2003 1.25 to 1.00 1.45 to 1.00 ---------------------------------------------------------------------------------------------------------------- September 30, 2003 through December 30, 2003 1.30 to 1.00 1.50 to 1.00 ---------------------------------------------------------------------------------------------------------------- December 31, 2003 and thereafter 1.50 to 1.00 1.50 to 1.00 ----------------------------------------------------------------------------------------------------------------
9.11. LIQUIDITY RATIO. The Borrower shall not permit at any time the Liquidity Ratio to be less than the minimum required for any Testing Period (depending upon whether or not the Adjusted Covenant Date shall have occurred) pursuant to the table set forth below for the time period set forth below:
---------------------------------------------------------------------------------------------------------------- MINIMUM REQUIRED MINIMUM REQUIRED ON PRIOR TO THE ADJUSTED AND AFTER THE ADJUSTED TIME PERIOD COVENANT DATE COVENANT DATE ---------------------------------------------------------------------------------------------------------------- September 30, 2001 through December 30, 2001 0.95 to 1.00 1.05 to 1.00 ----------------------------------------------------------------------------------------------------------------
7 December 31, 2001 through March 30, 2002 0.95 to 1.00 1.05 to 1.00 ---------------------------------------------------------------------------------------------------------------- March 31, 2002 through June 29, 2002 0.95 to 1.00 1.05 to 1.00 ---------------------------------------------------------------------------------------------------------------- June 30, 2002 through September 29, 2002 0.95 to 1.00 1.05 to 1.00 ---------------------------------------------------------------------------------------------------------------- September 30, 2002 through December 30, 2002 0.95 to 1.00 1.10 to 1.00 ---------------------------------------------------------------------------------------------------------------- December 31, 2002 through March 30, 2003 0.95 to 1.00 1.10 to 1.00 ---------------------------------------------------------------------------------------------------------------- March 31, 2003 through June 29, 2003 1.00 to 1.00 1.15 to 1.00 ---------------------------------------------------------------------------------------------------------------- June 30, 2003 through September 29, 2003 1.00 to 1.00 1.20 to 1.00 ---------------------------------------------------------------------------------------------------------------- September 30, 2003 through December 30, 2003 1.05 to 1.00 1.20 to 1.00 ---------------------------------------------------------------------------------------------------------------- December 31, 2003 and thereafter 1.05 to 1.00 1.20 to 1.00 ----------------------------------------------------------------------------------------------------------------
Section 2. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as follows: 2.1. AUTHORIZATION AND VALIDITY OF AMENDMENT. This Amendment has been duly authorized by all necessary corporate action on the part of the Borrower, has been duly executed and delivered by a duly authorized officer of the Borrower, and constitutes the valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms. 2.2. REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Credit Parties contained in the Credit Agreement and in the other Credit Documents are true and correct in all material respects on and as of the Amendment Effective Date, as though made on and as of the Amendment Effective Date, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties are hereby reaffirmed as true and correct in all material respects as of the date when made. 2.3. NO EVENT OF DEFAULT. No Default or Event of Default exists or hereafter will begin to exist. 2.4. COMPLIANCE. The Borrower is in full compliance with all covenants and agreements contained in the Credit Agreement, as amended hereby, and the other Credit Documents to which it is a party. 2.5. NO CLAIMS. The Borrower is not aware of any claim or offset against, or defense or counterclaim to, any of its obligations or liabilities under the Credit Agreement or any other Credit Document. Section 3. RATIFICATIONS. Except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. 8 Section 4. BINDING EFFECT. This Amendment shall become effective on the date set forth in the opening paragraph of this Amendment (the "Amendment Effective Date"), subject to the satisfaction of the following conditions on or before such date: (a) the Borrower, the Administrative Agent and the Required Lenders shall have executed this Amendment; (b) the Borrower shall have paid to the Administrative Agent, for the pro rata benefit of the Lenders that shall have executed this Amendment by 5:00 P.M. (Eastern Daylight Time) on September 28, 2001, an amendment fee in an amount equal to (i) 40 basis points times (ii) the aggregate amount of the Commitments of all of the Lenders executing this Amendment by such time; (c) the Borrower shall have paid to the Administrative Agent the agent fees set forth in the letter dated as of September 13, 2001 from the Administrative Agent to the Borrower; (d) the Borrower shall have paid all reasonable legal fees and expenses of the Administrative Agent in connection with this Amendment and the documents executed in connection therewith; and (e) the Borrower shall have provided such other items and shall have satisfied such other conditions as may be reasonably required by the Administrative Agent and the Lenders. Section 5. MISCELLANEOUS. 5.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or any Lender or any subsequent Loan or other Credit Event shall affect the representations and warranties or the right of the Administrative Agent or any Lender to rely upon them. 5.2. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and all other agreements, instruments or documentation now or hereafter executed and delivered pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference therein to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. 5.3. SEVERABILITY. Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable. 5.4. APPLICABLE LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Ohio without regard to conflicts of laws provisions. 9 5.5. HEADINGS. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 5.6. ENTIRE AGREEMENT. This Amendment is specifically limited to the matters expressly set forth herein. This Amendment and all other instruments, agreements and documentation executed and delivered in connection with this Amendment embody the final, entire agreement among the parties hereto with respect to the subject matter hereof and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the matters covered by this Amendment, and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto relating to the subject matter hereof or any other subject matter relating to the Credit Agreement. Except as set forth herein, the Credit Agreement shall remain in full force and effect and be unaffected hereby. 5.7. WAIVER OF CLAIMS. The Borrower, by signing below, hereby waives and releases the Administrative Agent and each of the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which the Borrower is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto. 5.8. COUNTERPARTS. This Amendment may be executed by the parties hereto separately in one or more counterparts and by facsimile signature, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. [Remainder of page intentionally left 10 5.9. JURY TRIAL WAIVER. EACH OF THE PARTIES TO THIS AMENDMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date first above written. ALLEN TELECOM INC. KEYBANK NATIONAL ASSOCIATION, individually as the Swing Line Lender, By:_______________________________ a Lender, a Letter of Credit Issuer, and as the Syndication Agent and Name:_____________________________ the Administrative Agent Title:____________________________ By:_________________________________ Lawrence A. Mack, Senior Vice President BANK ONE, MICHIGAN FIRSTAR BANK, NATIONAL ASSOCIATION (formerly NBD Bank), (formerly Star Bank, individually as a Lender and National Association) as Documentation Agent By:_________________________________ By:_______________________________ Name:_______________________________ Name:_____________________________ Title:______________________________ Title:____________________________ FIFTH THIRD BANK, NORTHEASTERN OHIO LaSALLE BANK NATIONAL ASSOCIATION (formerly LaSalle National Bank) By:_______________________________ Name:_____________________________ By:_________________________________ Title:____________________________ Name:_______________________________ Title:______________________________ 11 DRESDNER BANK AG, New York and Grand Cayman Branches By:_______________________________ Name:_____________________________ Title:____________________________ and:______________________________ Name:_____________________________ Title:____________________________ 12 ================================================================================ ================================================================================ ALLEN TELECOM INC. as the Borrower THE LENDERS NAMED HEREIN as the Lenders BANK ONE, MICHIGAN as the Documentation Agent and KEYBANK NATIONAL ASSOCIATION as the Administrative Agent --------------------- AMENDMENT NO. 5 dated as of September 28, 2001 to the CREDIT AGREEMENT dated as of December 31, 1998 --------------------- ================================================================================ ================================================================================ -----END PRIVACY-ENHANCED MESSAGE-----