SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------
FORM 10-Q
(Mark One)
[X]|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002March 31, 2003
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) 765-5800
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|X| No ---- ----| |
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
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 August 1, 2002April 30, 2003
--------------------- --------------
Par value $1.00 per share 30,504,38130,728,695
ALLEN TELECOM INC.
TABLE OF CONTENTS
Page
No.
----------
PART I. FINANCIAL INFORMATION:
ITEM 1 - Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 2002March 31, 2003 and December 31, 20012002 3
Condensed Consolidated Statements of Income (Loss) -
Three and Six Months Ended June 30,March 31, 2003 and 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows -
SixThree Months Ended June 30,March 31, 2003 and 2002 and 2001 5
Condensed Consolidated Statements of Stockholders'
Equity - SixThree Months Ended June 30,March 31, 2003 and 2002 and 2001 6
Notes to the Condensed Consolidated Financial Statements 7 - 12
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 2018
ITEM 3 - Quantitative and Qualitative Disclosures About
Market Risks 21Risk 19
ITEM 4 - Controls and Procedures 19
PART II. OTHER INFORMATION:
ITEM 1 - Legal Proceedings 21
ITEM 4 - Submission of Matters to a Vote of Security Holders 21 - 22
ITEM 6 - Exhibits and Reports on Form 8-K 19 - 20
Signatures 21
Certifications 22 - 23
Signatures 2425
Exhibit Index 2526
2
ALLEN TELECOM INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except Share and Per Share Data)Thousands)
June 30,March 31, December 31,
2003 2002
2001
-------- ------------------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash and equivalents $ 22,35178,751 $ 16,36848,420
Accounts receivable (less allowance for doubtful
accounts of $3,798$3,414 and $3,338,$3,141, respectively) 92,569 92,291100,661 105,463
Inventories: Raw materials 63,450 66,95762,610 59,092
Work in process 28,652 23,63932,145 30,117
Finished goods 25,966 33,430
-------- --------12,751 11,265
--------- ---------
Total inventories (net of reserves) 118,068 124,026
-------- --------107,506 100,474
--------- ---------
Deferred income taxes 1,856 2,6606,167 5,480
Recoverable income taxes 15,380 20,1693,074 20,379
Other current assets 2,949 2,416
-------- --------3,833 2,710
--------- ---------
Total current assets 253,173 257,930299,992 282,926
Property, plant and equipment, net 39,990 41,29038,236 38,214
Goodwill (Note 5) 141,367 140,995139,136 139,126
Deferred income taxes 45,915 39,40131,626 36,365
Other assets 30,307 32,340
-------- --------33,797 33,407
--------- ---------
TOTAL ASSETS $510,752 $511,956
======== ========$ 542,787 $ 530,038
========= =========
LIABILITIES
Current Liabilities:
Notes payable and current maturities of long-term
obligations $ 12,64512,938 $ 12,31813,277
Accounts payable 44,804 40,35547,238 54,003
Accrued expenses 27,548 27,82746,634 36,192
Income taxes payable 3,061 4,7812,447 4,443
Deferred income taxes 12,744 9,852
-------- --------7,145 10,157
--------- ---------
Total current liabilities 100,802 95,133116,402 118,702
Long-term debt 74,339 140,530
Deferred income taxes 226 2,16464,300 64,084
Other liabilities 16,720 15,772
-------- --------24,080 23,628
--------- ---------
TOTAL LIABILITIES 192,087 253,599
-------- --------204,782 205,784
--------- ---------
REDEEMABLE CONVERTIBLE PREFERRED STOCK
1,000,0001,000 shares at redemption value (liquidation preference
of $50.00 per share) (Note 3) 50,000 -
-------- --------50,000
--------- ---------
STOCKHOLDERS' EQUITY
Common stock 32,500 32,50032,633 32,502
Paid-in capital 203,444 203,548204,302 203,292
Retained earnings 64,567 69,67675,974 67,322
Accumulated other comprehensive loss (15,678) (30,671)(9,549) (13,243)
Less: Treasury stock (common shares, at cost) (15,036) (15,440)(14,409) (14,612)
Unearned compensation (1,132) (1,256)
-------- --------(946) (1,007)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 268,665 258,357
-------- --------288,005 274,254
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $510,752 $511,956
======== ========$ 542,787 $ 530,038
========= =========
See accompanying Notes to the Condensed Consolidated Financial Statements.
3
ALLEN TELECOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended
Six Months Ended
June 30, June 30,
-------------------------- -------------------------March 31,
2003 2002
2001 2002 2001
--------- ----------- --------- ------------------
SALESSales $ 91,850 $105,094110,934 $ 181,719 $ 213,63789,869
Cost of sales (69,803) (77,983) (138,505) (156,622)(Note 2) (72,997) (68,702)
--------- ----------- --------- ------------------
Gross profit 22,047 27,111 43,214 57,01537,937 21,167
Operating expenses:
Selling, general and administrative expenses (Note 2) (14,819) (13,988) (27,973) (28,353)(17,079) (13,154)
Research and development and product
engineering costs (6,483) (7,170) (13,092) (14,070)
Amortization of goodwill (Note 5) - (1,987) - (3,967)2) (8,000) (6,609)
--------- ----------- --------- ------------------
Operating income 745 3,966 2,149 10,62512,858 1,404
Interest expense (1,972) (2,702) (4,472) (5,618)(1,391) (2,500)
Interest income 222 134
--------- --------
Income 199 192 333 513
--------- ----------- --------- ----------
(Loss) income(loss) before taxes and minority interest (1,028) 1,456 (1,990) 5,520
Benefit (provision)11,689 (962)
(Provision) benefit for income taxes 357 (565) 697 (2,150)(Note 3) (2,042) 340
--------- ----------- --------- ----------
(Loss) income--------
Income (loss) before minority interest (671) 891 (1,293) 3,3709,647 (622)
Minority interest 9 (45) (11) (87)(27) (20)
--------- -------------------
Income (loss) from continuing operations 9,620 (642)
Cumulative effect of change in accounting principle (Note 1) -- (3,397)
--------- ------------------
NET INCOME (LOSS) INCOME (662) 846 (1,304) 3,283
Dividends on9,620 (4,039)
Preferred Stock (603) - (603) -stock dividends (968) --
--------- ----------- --------- ------------------
Income (loss) applicable to common shareholders $ 8,652 $ (4,039)
========= ========
EARNINGS (LOSS) INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ (1,265) $ 846 $ (1,907) $ 3,283
========= =========== ========= ==========
NET (LOSS) INCOME PER COMMON SHARE, basic and dilutedSHARE:
Basic:
Income (loss) from continuing operations $ (.04).28 $ .03(.02)
Cumulative effect of change in accounting principle -- (.11)
--------- --------
Net Income (loss) $ (.06).28 $ .12(.13)
========= ===================
Diluted:
Income (loss) from continuing operations $ .26 $ (.02)
Cumulative effect of change in accounting principle -- (.11)
--------- --------
Net Income (loss) $ .26 $ (.13)
========= ==================
Weighted average common shares outstanding:shares:
Basic 30,390 27,980 30,370 27,950
Assumed exercise30,570 30,300
Effect of dilution:
Stock options 406 --
Convertible preferred stock options - 240 - 3306,494 --
--------- ----------- --------- ------------------
Diluted 30,390 28,220 30,370 28,28037,470 30,300
========= =========== ========= ==================
See accompanying Notes to the Condensed Consolidated Financial Statements.
4
ALLEN TELECOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
(Unaudited)
SixThree Months Ended
June 30,
-------------------------------March 31,
------------------------
2003 2002 2001
-------- --------
CASH FLOW FROM OPERATIONS:
Net income (loss) income $ (1,304)9,620 $ 3,283(4,039)
Adjustments to reconcile income to operating cash flow: `
Depreciation 5,950 7,680
Amortization of goodwill - 3,9672,544 3,023
Goodwill impairment charge -- 3,397
Amortization of capitalized software 1,753 1,321634 897
Other amortization 350 155166 150
Changes in operating assets and liabilities:
Receivables 5,606 (16,991)4,932 (2,488)
Inventories 13,661 (31,162)(4,602) 10,083
Accounts payable and accrued expenses (620) (1,809)1,820 (6,203)
Income taxes (1,003) 6,11615,705 (4,177)
Other, net 3,426 (5,333)(2,559) (10)
-------- --------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES 27,819 (32,773)28,260 633
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,963) (6,858)(1,355) (1,479)
Capitalized software product costs (854) (1,384)
Investments in subsidiaries (325) -(536) (419)
Sales and retirements of fixed assets 409 5,867106 164
Return of purchase price (investment in) acquisition 2,000 (59)
-------- --------
CASH USEDPROVIDED (USED) BY INVESTING ACTIVITIES (3,733) (2,375)215 (1,793)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) proceeds from borrowings (67,575) 4,556
PreferredExercise of stock dividend (603) -
Acquisition of treasury shares (167) (1,111)
Proceeds from sale and leaseback transaction - 4,884
Issuance of preferred stock, net 46,798 -
Collection on installment note receivable 1,100 1,000options 1,051 --
Treasury stock sold to employee benefit plan 467 481
Exercise293 180
Proceeds from (repayment of) borrowings 142 (49,461)
Preferred stock dividends (968) --
Acquisition of treasury shares -- (167)
Issuance of preferred stock, options - 807net -- 47,488
Collection on installment note receivable -- 1,100
-------- --------
CASH PROVIDED (USED) PROVIDED BY FINANCING ACTIVITIES (19,980) 10,617518 (860)
-------- --------
NET CASH PROVIDED (USED) 4,106 (24,531)28,993 (2,020)
Effect of foreign currency exchange rate changes on cash 1,877 1,160
Net cash flow from change in year-end of subsidiaries (Note 1) - 20,4311,338 (135)
Cash and equivalents at beginning of year 48,420 16,368 10,539
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 22,35178,751 $ 7,59914,213
======== ========
Supplemental cash flow data:
Cash (paid) receivedrefunded during the period for:
Interest $ (4,174)(386) $ (5,161)(1,492)
Income taxes 1,041 30214,287 (4,288)
See accompanying Notes to the Condensed Consolidated Financial Statements.
5
ALLEN TELECOM INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in Thousands)
(Unaudited)
Comprehensive
Common Paid-In Income
FOR THE SIX MONTHS ENDED JUNE 30, 2002:Comprehensive
Total Stock Capital Income (Loss)
--------- ------- -------- --------- ---------------------------
FOR THE THREE MONTHS ENDED MARCH 31, 2003:
Beginning Balance, January 1, 2003 $ 274,254 $32,502 $203,292
Net income 9,620 $ 9,620
Comprehensive income:
Foreign currency translation adjustments 3,694 3,694
-------
Comprehensive income $13,314
=======
Treasury stock reissued 293 90
Preferred stock dividends (968)
Exercise of stock options 1,051 131 920
Amortization of unearned compensation 61
--------- ------- --------
Ending Balance, March 31, 2003 $ 288,005 $32,633 $204,302
========= ======= ========
FOR THE THREE MONTHS ENDED MARCH 31, 2002:
Beginning Balance, January 1, 2002 $ 258,357 $ 32,500 $ 203,548$32,500 $203,548
Preferred stock issuance costs (3,202)
Preferred stock dividend (603)(3,135)
Comprehensive income (loss):loss:
Net loss (1,304) $(1,304)
Adjustment for derivative instruments (51) (51)(4,039) $(4,039)
Foreign currency translation adjustments 15,044 15,044(1,615) (1,615)
-------
Comprehensive income $13,689loss $(5,654)
=======
Treasury stock reissued 467 (104)180 (12)
Acquisition of treasury stock (167)
Amortization of unearned compensation 12462
--------- ------- -------- ---------
Ending Balance, June 30,March 31, 2002 $ 268,665 $ 32,500 $ 203,444249,643 $32,500 $203,536
========= ======== =========
FOR THE SIX MONTHS ENDED JUNE 30, 2001:
Beginning Balance, January 1, 2001 $ 234,981 $ 30,092 $ 184,066
Net income from change in fiscal year-end of
subsidiaries (Note 1) 2,432
Comprehensive income (loss):
Net income 3,283 $ 3,283
Foreign currency translation adjustments (379) (379)
-------
Comprehensive income $ 2,904
======= Treasury stock reissued 481 204
Acquisition of treasury shares (1,111)
Exercise of stock options 807 118 689
Amortization of unearned compensation 155
--------- -------- ---------
Ending Balance, June 30, 2001 $ 240,649 $ 30,210 $ 184,959
========= ======== =========
Accumulated
Other
Comprehensive
Retained IncomeComprehensive Treasury Unearned
FOR THE SIX MONTHS ENDED JUNE 30, 2002: Earnings Income (Loss) Stock Compensation
--------- -------- ------------- -------- ------------
FOR THE THREE MONTHS ENDED MARCH 31, 2003:
Beginning Balance, January 1, 2003 $67,322 $(13,243) $(14,612) $ (1,007)
Net income 9,620
Comprehensive income:
Foreign currency translation adjustments 3,694
Comprehensive income
Treasury stock reissued 203
Preferred stock dividends (968)
Exercise of stock options
Amortization of unearned compensation 61
------- -------- -------- --------
Ending Balance, March 31, 2003 $75,974 $ (9,549) $(14,409) $ (946)
======= ======== ======== ========
FOR THE THREE MONTHS ENDED MARCH 31, 2002:
Beginning Balance, January 1, 2002 $ 69,676$69,676 $(30,671) $(15,440) $(1,256)$ (1,256)
Preferred stock issuance costs (3,202)
Preferred stock dividend (603)(3,135)
Comprehensive income (loss):loss:
Net loss (1,304)
Adjustment for derivative instruments (51)(4,039)
Foreign currency translation adjustments 15,044(1,615)
Comprehensive incomeloss
Treasury stock reissued 571192
Acquisition of treasury stock (167)
Amortization of unearned compensation 124
---------62
------- -------- -------- ---------------
Ending Balance, June 30,March 31, 2002 $62,502 $(32,286) $(15,415) $ 64,567 $(15,678) $(15,036) $(1,132)
=========(1,194)
======= ======== ======== =======
FOR THE SIX MONTHS ENDED JUNE 30, 2001:
Beginning Balance, January 1, 2001 $ 69,067 $(31,948) $(14,730) $(1,566)
Net income from change in fiscal year-end of
subsidiaries (Note 1) 2,432
Comprehensive income (loss):
Net income 3,283
Foreign currency translation adjustments (379)
Comprehensive income
Treasury stock reissued 277
Acquisition of treasury shares (1, 111)
Exercise of stock options
Amortization of unearned compensation 155
--------- -------- -------- -------
Ending Balance, June 30, 2001 $ 74,782 $(32,327) $(15,564) $(1,411)
========= ======== ======== =======
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 normal recurring adjustments necessary to present
fairly the financial position of the Company as of June 30, 2002March 31, 2003 and the
consolidated results of its operations, cash flows and changes in
stockholders' equity for the periods ended June 30, 2002March 31, 2003 and 2001.2002. The
results of operations for such interim periods are not necessarily
indicative of the results for the full year. The year-end 20012002 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, 2001.2002.
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.Goodwill and Other Intangible Assets
Effective January 1, 2001, such European operations2002, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets." This Statement changed their
fiscal year-endthe accounting for
goodwill from October 31an amortization method to December 31, consistent withan impairment only approach.
Accordingly, the balanceCompany ceased amortizing goodwill (including goodwill
reported in past business combinations) beginning in 2002. In 2002, the
Company completed its initial evaluation of goodwill pursuant to SFAS 142
and recorded an initial charge of $3,397,000 as a cumulative effect of a
change in accounting principle. The Company estimates the Company's operations. The resultsfair value of
operations (net
incomegoodwill for each of $2,432,000)its reporting units. Under SFAS 142, estimated fair
values were based upon the expected present value of future cash flows.
Goodwill was tested for these European subsidiaries for the period
November and December 2000, were recorded directly to retained earningsimpairment in the first quarter of 2001 and2003, as of
January 1, 2003. We test goodwill annually (or more frequently if other
impairment indicators exist) as part of the annual forecasting process.
The results of operationsthis analysis indicated no goodwill impairment review is
required.
Intangible assets subject to amortization are recorded at cost and are
amortized over their estimated useful lives unless those lives are
determined to be indefinite. An impairment loss on intangible assets
subject to amortization would be recognized if the carrying amount is not
recoverable and its carrying amount exceeds fair value, as defined. Such
assets will be tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable.
All of the period January 1, 2001 through June 30, 2001 were includedCompany's intangible assets, other than goodwill, are subject
to amortization.
7
ALLEN TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Significant Accounting Policies (continued):
Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, "Accounting for Stock-Based Compensation Transition and
Disclosure." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based
Compensation", to provide alternative methods of transition to SFAS No.
123's fair value method of accounting for stock-based employee
compensation. SFAS No. 148 does not require companies to account for
employee stock options using the fair value method but does require
additional disclosures.
If the Company had elected to recognize compensation cost for its
stock-based compensation plans based on the fair value determined pursuant
to the Black-Scholes option pricing model at the grant dates for awards
under those plans in accordance with SFAS No. 123, net income and earnings
per common share would have been reduced to the 2001
reported results of operations.
Cash flow of such European operations for the two month period November
and December 2000 is summarized as followspro forma amounts below
(amounts in millions)thousands, except per common share data):
Three Months Ended
March 31,
2003 2002
--------- ---------
Net income from operations(loss):
As reported .................................... $ 2.4
Increase9,620 $ (4,039)
Plus: Stock-based employee compensation
(net of tax) included in inventories (8.5)
Decrease in receivables 3.1
Increase in accounts payable 13.9
Decrease in taxes payable (5.9)
Net increase in fixed assets (1.2)
Borrowings 16.8
Other (0.2)
-----
Increase in cash and equivalents $20.4
=====net income ....... -- --
Less: Stock-based employee compensation
(net of tax) using the fair value method .. (633) (657)
--------- ---------
Pro forma ...................................... $ 8,987 $ (4,696)
========= =========
Earnings (loss) per common share
Basic:
As reported ............................... $ .28 $ (.13)
Pro forma ................................. $ .26 $ (.15)
Diluted:
As reported ............................... $ .26 $ (.13)
Pro forma ................................. $ .24 $ (.15)
78
ALLEN TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
2. Special Charges:
DuringIn the secondfirst quarter 2002,2003, the Company recorded pretaxincurred $840,000 of restructuring
charges of
$968,000, or $.02($.02 per basic and diluted common share (basic and diluted), after related income tax effect,effect)
in connection with workforceheadcount reductions at certain
operations. Theseits Base Station Subsystems and
Components product line in North America, as well as its Repeater and
In-building Coverage product line in Europe. Of these restructuring
charges, are$20,000 were included in selling,Cost of sales, $205,000 in Selling,
general and administrative expenses. In the fourth quarter 2001, the Company
incurred incremental pretax charges of $2,305,000, or $.05 per common
share (basicexpenses and diluted), after related income tax effect, with
respect to the planned closing of the Company's U.S. base station
subsystem$615,000 in Research and
components manufacturing facility in Nevada and
consolidation into the newly acquired manufacturing facility in
Massachusetts. These costs included termination costs of substantially
all employees at the Nevada manufacturing facility of $570,000,
closedown costs of the manufacturing facility of $744,000, a loss on
assets, principally relating to disposal of equipment, of $591,000 and
inventory related charges of $400,000.development costs.
The following is a summary of the status of certain exit costs remainingincurred
(amounts in thousands, except employee data):
SEVERANCE
--------------------------------------------- DISPOSITION
NUMBER OF OF BUILDING
ACCRUAL EMPLOYEES AND EQUIPMENT OTHER
----- ----- ------------ --------- ------------- -----
Balance, December 31, 2001..................2002 ... $ 570 761,111 46 $ 601678 $ 33878
Additions to accrual ......... 820 10 -- 20
Charged against accrual..................... (164) (61) (101) (61)accrual ...... (857) (43) (29) (29)
------- --- ----- ----- ----- ---------
Balance, March 31, 2002..................... 406 15 500 277
Addition to the accrual..................... 968 72 - -
Charged against accrual..................... (705) (87) (31) (150)
----- ----- ----- -----
Balance, June 30, 2002......................2003 ...... $ 669 -1,074 13 $ 469649 $ 12769
======= === ===== ===== ===== =========
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 Junethrough December
31, 2003.
3. Redeemable Convertible Preferred Stock
On March 20, 2002, theIncome Taxes
The Company issued 1,000,000 sharesrecorded a one-time net tax benefit of Series D 7.75%
Convertible Preferred Stock (liquidation preference of $50.00$2,048,000 (or $.06 and
$.05 per share).
Dividends on the Convertible Preferred Stock may be paid in cash,basic and diluted common stock, or a combination thereof. Unpaid and/or undeclared dividends do not
accumulate, but the number of common shares that Convertible Preferred Stock
holders are entitled to receive upon conversion of the Convertible Preferred
Stock will automatically increase, as specifiedshare, respectively) in the Company's Certificatefirst
quarter of Incorporation.
8
ALLEN TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
3. Redeemable Convertible Preferred Stock (continued):
Each share of Convertible Preferred Stock is convertible at2003 resulting primarily from favorable European tax
legislation. This one-time net tax benefit reduced the option ofeffective tax rate
for the holder at any time into shares of common stock of the Company, par value $1
per share, atfirst quarter 2003 to 17.5% from an initial conversionexpected ongoing rate of $7.70 per share (equivalent to a
conversion rate of 6.4935 shares of common stock at a liquidation preference
of $50.00), subject to adjustment under certain conditions (including35%
for the occurrence of certain change of control transactions). On or after February
20, 2005, the Company may, at its option, as discussed below, cause all of
the outstanding shares of Convertible Preferred Stock to be automatically
converted into common stock at the then prevailing conversion ratio. The
Company may exercise that conversion right if, for at least 20 trading days
within any consecutive 30-day trading period (including the last trading
day), the closing price of its common stock equals or exceeds 125% of the
then prevailing conversion price of the Convertible Preferred Stock.
Subject to legal availability of funds, the shares of Convertible Preferred
Stock are mandatorily redeemable by the Company for cash at their liquidation
preference on or after February 15, 2014 (unless previously converted into
common shares of the Company) and are not redeemable by the Company before
that date.
The net proceeds from the issuance of $46,798,000, after deducting the
underwriters discount and issuance costs, was used to repay a portion of the
Company's outstanding indebtedness under its domestic revolving credit
facility. The underwriting discount and expenses of the offering, aggregating
$3,202,000, were charged directly to retained earnings.full year 2003.
9
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
Six Months Ended
June 30, June 30,
----------------------- ----------------------March 31,
2003 2002 2001 2002 2001
--------- ---------
--------- ---------
Sales to external customers:
Wireless communications equipment:
Geolocation products $ 43,618 $ 12,490
Base station subsystems and components $ 35,664 $ 54,610 $ 69,388 $ 114,03332,890 33,707
Repeater and in-building coverage products 26,310 20,635 48,763 43,45516,419 22,470
Base station and mobile antennas 18,630 23,169 35,256 43,689
Geolocation products 7,703 - 20,193 -
--------- ---------14,244 16,626
--------- ---------
Total wireless communications equipment 88,307 98,414 173,600 201,177107,171 85,293
Wireless engineering and consulting services 3,543 6,680 8,119 12,460
--------- ---------3,763 4,576
--------- ---------
Total sales $ 91,850110,934 $ 105,094 $ 181,719 $ 213,637
--------- ---------89,869
--------- ---------
Results of operations:
Wireless communications equipment $ 3,47714,995 $ 6,533 $ 6,766 $ 16,7953,289
Wireless engineering and consulting services (1,134) 1,336 (1,151) 1,494(461) (17)
--------- ---------
--------- ---------
2,343 7,869 5,615 18,289
Goodwill amortization - (1,987) - (3,967)14,534 3,272
General corporate expenses (1,598) (1,916) (3,466) (3,697)
--------- ---------(1,676) (1,868)
--------- ---------
Operating income $ 74512,858 $ 3,966 $ 2,149 $ 10,625
========= ========= ========= =========1,404
--------- ---------
As of
June 30, 2002March 31, 2003 December 31, 2001
----------------------- ----------------------2002
-------------- -----------------
Segment Assets:
Wireless communications equipment $ 289,039304,567 $ 293,084295,953
Wireless engineering and consulting services 10,770 12,3609,527 9,737
--------- ---------
Total segment assets 299,809 305,444314,094 305,690
Goodwill 141,367 140,995139,136 139,126
Deferred income taxes 47,771 42,06137,793 41,845
Other general corporate assets 21,805 23,45651,764 43,377
--------- ---------
Total assets $ 510,752542,787 $ 511,956
========= =========530,038
--------- ---------
10
ALLEN TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. Impact of New Accounting Pronouncements:
Effective January 1, 2002, the Company implemented the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets". This statement changed the accounting for goodwill
from an amortization method to an impairment-only approach. Accordingly, the
Company ceased amortizing goodwill (including goodwill reported in past
business combinations) beginning in 2002. This change improved the reported
Net (Loss) Income Per Common Share by approximately $.07 and $.14 per common
share (basic and diluted), for the three and six months ended June 30, 2002,
respectively; as compared with the comparable prior year periods.
The following supplemental information is presented, on a pro forma basis,
for the consolidated results of operations for 2001, as compared with 2002,
adjusted to exclude amortization of goodwill in the 2001 periods (amounts in
thousands):
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -------------------------
2002 2001 2002 2001
-------- --------- --------- ---------
Reported net (loss) income $ (662) $ 846 $ (1,304) $ 3,283
Add back goodwill amortization
(net of related income taxes) -- 1,982 -- 3,957
-------- --------- --------- ---------
Pro forma net (loss) income $ (662) $ 2,828 $ (1,304) $ 7,240
-------- --------- --------- ---------
Reported net (loss) income per common share
(basic and diluted) $ (.04) $ .03 $ (.06) $ .12
Effect of add back of goodwill amortization -- .07 -- .14
-------- --------- --------- ---------
Pro forma net (loss) income per common
share $ (.04) $ .10 $ (.06) $ .26
-------- --------- --------- ---------
In the second quarter of 2002, the Company completed its initial evaluation
of goodwill pursuant to the impairment requirements of the aforementioned
SFAS No. 142. As a result of this evaluation, the Company has determined that
there may be impairment with respect to a portion of its $32,663,000 of
goodwill related to the Decibel Products portion of its base station and
mobile antennas product line. The Company will complete the valuation
necessary to determine the actual amount of impairment loss, if any, in the
second half of 2002; however, based on its current information the Company
estimates that such loss could range between zero and $5,000,000. Impairment
charges, if any, from this initial evaluation would be reported as a
"Cumulative Effect of an Accounting Change" in the Company's consolidated
statement of operations.
11
ALLEN TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
5. Impact of New Accounting Pronouncements (continued):
In June 2001, the Financial Accounting Standards Board (FASB) issued
SFASStatement of Financial Accounting Standards (SFAS) No. 143, "Accounting
for Asset Retirement Obligations", which addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long livedlong-lived assets and associated asset retirement costs. The new rules
apply to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and (or)and/or
normal operation of a long-lived asset. SFAS No. 143 is effective for the
Company beginning January 1, 2003. The Company believes the adoption of SFAS No. 143 will not, at this time, have a material impact on its consolidated
financial position or results of operations.
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 implemented SFAS No. 144 on January 1, 2002, as
required, and the adoption of this statement did not have ahad no
material impact on the Company's financial positionstatements.
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or resultsDisposal Activities". SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of operations.a commitment to an exit or disposal
plan. This statement supercedes the guidance provided by Emerging Issues
Task Force 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)". SFAS No. 146 is required to be adopted for
exit or disposal activities initiated after December 31, 2002. SFAS No.
146 only affects the timing of the recognition of the costs to be incurred
if an entity makes a decision to exit or dispose of a particular business
activity. The Company adopted the provisions of SFAS No. 146 as of January
1, 2003.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45), which expands previously
issued accounting guidance and disclosure requirements for certain
guarantees. FIN 45 requires an entity to recognize an initial liability
for the fair value of an obligation assumed by issuing a guarantee. The
recognition requirements of FIN 45 are to be applied prospectively to
guarantees issued after December 31, 2002. The adoption of FIN 45 had no
material impact on the Company's financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment to Statement 133
on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133. SFAS No 149 is applied prospectively and is
effective for contracts entered into or modified after June 30, 2003,
except for SFAS No. 133 implementation issues that have been effective for
fiscal quarters that began prior to June 15, 2003 and certain provisions
relating to forward purchases and sales on securities that do not yet
exist. The Company has not determined the effect, if any, that SFAS No.
149 will have on its consolidated financial statements.
11
ALLEN TELECOM INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Continued)
6. Acquisition:Other Matters:
On DecemberFebruary 18, 2001,2003, Andrew Corporation (Andrew) and the Company
acquired substantially allannounced the signing of a definitive agreement under which Andrew will
acquire the Company in a stock-for-stock transaction. Under the terms of
the assets
and certain liabilitiesagreement, the Company's stockholders will receive 1.775 shares of
Bartley R.F. Systems, Inc. ("Bartley"). The
resultsnewly-issued Andrew common stock for each common share of Bartley's operations are includedthe Company that
they currently own. Completion of the transaction, which is expected to
occur in the consolidated financial
statements forfirst half of 2003, is subject to approval of shareholders of
both companies, expiration of the threeapplicable waiting periods under the
anti-trust filings and six months periods ended June 30, 2002. In the
second quarter of 2002, the Company completed the necessary third party
valuations of acquired intangible assets and, as a result, allocated $126,000
of purchase price to patent technology which will be amortized over a period
of five to ten years.other customary closing conditions.
7. Reclassifications:
Certain prior year balances have been reclassified to conform to the
current year presentation.
12
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 net income of $9.6 million ($.26 per diluted common share) for the
first quarter 2003, as compared with a net loss of $0.7$0.6 million or $0.04($.02 per
diluted common share, (all per
common share amounts included herein refer to both basic and diluted)share) for the first quarter 2002. Included in the secondnet income for
the first quarter 2002, which includes a pretax2003 are restructuring charge for severance
costs related to headcount reductions at several operations of $1.0 million
($0.02 per common share). This compares with net incomecharges of $0.8 million ($0.03.02 per
diluted common share), transaction costs incurred in connection with the planned
acquisition of the Company by Andrew Corporation of $0.5 million ($.01 per
diluted common share) forand a one-time net tax benefit of approximately $2.0
million ($.05 per diluted common share). For more information on restructuring
charges and the second quarterone-time tax benefit, please see Notes 2 and 3 of 2001. Total sales decreased 13%the Notes to
Condensed Consolidated Financial Statements. Sales increased 23% from $105.1$89.9
million in the secondfirst quarter 20012002 to $91.9$110.9 million in the secondfirst quarter 2002.
For the six months ended June 30, 2002, we reported a net loss of $1.3 million
($0.06 per common share), which includes the above mentioned pretax
restructuring charge of $1.0 million ($0.02 per common share). This compares to
net income of $3.3 million ($0.12 per common share) for the six months
ended June 30, 2001. Total sales decreased by 15% from $213.6 million for the
six months ended June 30, 2001 to $181.7 million for the comparable 2002
period.2003.
The strong Euro currency relative to the U.S. dollar positively impacted
reported sales in the secondfirst quarter of 20022003 as compared to the secondfirst quarter of
2001.2002. As a result of foreign currency rate differences,changes, reported sales in the secondfirst
quarter 20022003 were $2.0$6.3 million higher, as compared with the corresponding prior
year period, assuming the exchange rate had stayed the same as 2001. The
foreign currency impact on sales for the six months ending June 30, 2002, as
compared with the 2001 period, was not significant.2002. The impact
on operating earnings for both threewas not significant since most costs related to the sales
were also incurred in Euro currency.
We expect second quarter 2003 sales to be between $113.0 million and six month periods was also not significant.$120.0
million. Our expectations are based on the continuing strength in our
geolocation product line and improvements in most other product lines resulting
from an improved outlook at some of our OEM customers and on seasonal
improvements with many of our products.
Under the Company's contract with its major geolocation customer, there are a
number of technological and other benchmarks that we are required to meet. From
time to time, the customer has raised concerns regarding our ability to meet
certain of the performance benchmarks in a timely fashion. Such concerns are
typically resolved by the companies' respective technology and operations
departments in the ordinary course of business. We believe that we have met our
obligations under the contract and that we will continue to be able to do so in
the future in accordance with the terms of the contract. However, if we fail to
meet such performance benchmarks, such failure would have a negative impact on
our sales, operating margins and income.
13
ALLEN TELECOM INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
The weighted average common shares outstanding for the Basic Earnings Per Common
Share computation increased for both the second quarter and six month periods of
2002, as compared with the comparable 2001 periods, due primarily to shares
issued in connection with our fourth quarter 2001 acquisition of Bartley R.F.
Systems, Inc. In computing Basic Earnings Per Common share for the 2002 periods,
earnings are reduced by dividends declared on the Convertible Preferred Stock
issued in the first quarter of 2002. The dividend declared in the second quarter
of 2002 amounted to $603,000 and reflects the partial period for which the
Convertible Preferred Stock was outstanding prior to the dividend payment date.
Such dividends would amount to $3,875,000 on an annual basis when, and if,
declared. For purposes of computing Diluted Earnings Per Common Share, and
only if such calculation results in dilution, Preferred Stock dividends will
not reduce earnings; however, the weighted average shares outstanding would
increase by 6,493,500 common shares representing the amount of common shares
into which the Preferred Stock is currently convertible.
Wireless Communications Equipment:
Wireless communications equipment sales were down 10%up 26% from $98.4$85.3 million in first
quarter 2002 to $107.2 million in the secondfirst quarter 20012003. Sales for the
geolocation product line increased 249% from $12.5 million in first quarter 2002
to $88.3$43.6 million in the first quarter 2003. Second quarter 2003 sales of
geolocation products are expected to be very close to first quarter 2003 sales
levels to meet specific installation dates mandated by the FCC. Virtually all of
the projected geolocation product sales for the second quarter 2002. The sales
changes by2003 are in
backlog at March 31, 2003. Backlog for this product line within the wireless communications segment were as
follows: Sales for the new geolocation product line were $7.7was $94.2 million in second
quarter 2002 as compared with no sales in 2001.at
March 31, 2003.
Sales for the repeaters and in-building coverage productproducts line increased 28%decreased 27%
from $20.6$22.5 million in secondfirst quarter 20012002 to $26.3$16.4 million in secondfirst quarter 2002. This is due to an increase2003.
The decrease in sales of testrepeaters and measurement equipmentin-building products was due to lower
project sales in Europe and repeaters.North America. Sales decreased
for theof base station subsystems and
components and base station and mobile antenna product linesproducts decreased from $54.6$33.7
million to $35.7$32.9 million, or 35%2.4%, and from $23.2$16.6 million to $18.6$14.3 million, or
20%14%, respectively. These sales declines
are due to reduced spending by wireless communications carriers and OEM's in
most world markets. Geographically, sales were down in all parts of the world
with the exception of the United States, where sales increased 22% due to sales
of the new geolocation products and an increaseThis decrease in sales of our repeater and
in-building coverage product lines.
Sales declined 14% from $201.2 million for the six months ended June 30, 2001 to
$173.6 for the six months ended June 30, 2002. Sales decreased 39% and 19% in
the base station subsystems and
componentscomponent products was primarily due to a decrease in sales to U.S. OEM
customers which was partially offset by increased sales to customers in Europe
and China. Geographically, sales of wireless communications equipment increased
from the first quarter 2002 to the first quarter 2003 in all regions except for
Latin America, where sales were down $0.5 million from prior year levels
primarily due to weaker sales of base station and mobile antenna products. The large
increase in geolocation product sales, which are all based in the U.S., was
partially offset by weaker sales across all other product lines, respectively. Sales increased 12% in the repeateras wireless
carriers and in-building
coverage products. Sales of geolocation products were $20.2 million with no
sales in the prior comparable 2001 period. Sales changes for the six months
ended June 30, 2001 and 2002 were consistent with those outlined in the second
quarter.
14
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)OEMs continued to reduce capital expenditures.
The following table sets forth our wireless communications equipment segment
sales by product line:
SALES BY PRODUCT LINE
SECOND QUARTER YEAR TO DATE
-------------- ------------
($ MILLIONS) 1Q 2003 1Q 2002 2001 2002 2001
------- -------
------- -------
Geolocation Products $ 43.6 $ 12.5
Base Station Subsystems and Components $ 35.7 $ 54.6 $ 69.4 $ 114.032.9 33.7
Repeater and In-Building Coverage Products 26.3 20.6 48.8 43.516.4 22.5
Base Station and Mobile Antennas 18.6 23.2 35.2 43.7
Geolocation Products 7.7 -- 20.2 --
------- ------- ------- -------14.3 16.6
------ ------
Total Wireless Communications Equipment $107.2 $ 88.3 $ 98.4 $ 173.6 $ 201.2
======= ======= ======= =======85.3
------ ------
Backlog for this segment increased 24%13% from $94.8$140.0 million at December 31, 2002
to $158.7 million at March 31, 20022003. The increase was due primarily to $117.6 million at June 30, 2002. Backlog increased
along all product lines
excluding repeatersorders of geolocation products and in-building coverage products. The largest percentage
increase in backlog was in the base station subsystems and mobile antenna product line that
increased 115% from the March 31, 2002 level. Geolocation products backlog
increased $14.5 million, which accounted for the single largest dollar increase.
Gross profit margins were essentially flat at 24.8% in the second quarter 2002,
as compared with 24.9% in the second quarter 2001. Lower gross margins caused by
lower pricing and higher costs were offset by stronger margins in the test and
measurement and geolocation product lines. For the six months ended June 30,
2002 and 2001, the gross profit margins were 24.3% and 26.2%, respectively. The
lower gross margins were caused by lower pricing and lower manufacturing
efficiencies due to lower sales in comparison with the prior year.
Selling, general, and administrative expenses (excluding 2002 restructuring
charges) were $11.3 million, or 12.8% of sales, in the second quarter 2002, and
increased slightly, from operating expenses in the second quarter 2001 of $10.8
million, or 11.0% of sales, due to higher compensation costs. Selling, general
and administrative expenses (excluding 2002 restructuring charges) as a
percentage of sales for the six months ended June 30, 2002 and 2001 were 12.5%
and 10.8%, respectively, due to the spreading of fixed costs over lower sales
volumes.
Research and development spending declined from $7.2 million, or 7.3% of sales,
in the second quarter 2001 to $6.5 million, or 7.4% of sales, in the second
quarter 2002, principally due to lower design development and field testing of
geolocation products. For the six months ended June 30, 2002, research and
development spending declined from $14.1 million in 2001 to $13.1 million in
2002 for similar reasons. We believe that product development costs will remain
fairly consistent in dollars throughout the year.
15components.
14
ALLEN TELECOM INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
Gross profit margins were 34.5% in the first quarter 2003, as compared with
23.7% in the first quarter 2002. The higher gross profit margins in 2003 were
due to cost reduction efforts taken in the latter part of 2002 that lowered our
cost of goods sold by $1.7 million on an annualized basis, as well as a higher
proportion of sales of our geolocation product line, which have higher margins
than the overall company average (geolocation product sales increased from 15%
of wireless communications equipment sales in the first quarter 2002 to 41% of
sales in the first quarter 2003). Margins are expected to decline slightly in
the second quarter of 2003 compared to first quarter 2003 levels due to
increased pricing pressure on all of our product lines, as well as anticipated
increased sales in base station subsystems and components and base station and
mobile antennas, which have lower gross profit margins than the overall company
average. Sales of repeater and in-building coverage products, which have gross
profit margins essentially the same as the overall company average, are expected
to remain flat from the first quarter 2003 to the second quarter 2003.
Selling, general and administrative expenses were $14.5 million, or 13.5% of
sales, and $10.3 million, or 12.1% of sales, for the first quarters of 2003 and
2002, respectively. Spending is higher primarily due to higher volume related
sales commissions, bad debt expense, year over year severance costs and the
stronger Euro in relation to the U.S. dollar, which causes higher U.S. dollar
expenses.
Research and development (R&D) and product engineering costs were $8.0 million
in first quarter 2003 (7.2% of sales) and $6.6 million in first quarter 2002
(7.4% of sales). The increase results from restructuring costs incurred in the
first quarter 2003 within the R&D groups and an increase in spending for new
product initiatives regarding our repeater and in-building coverage and base
station subsystems and components product lines.
Wireless Engineering and Consulting Services:
Wireless engineering and consulting services sales were down $3.2$0.8 million, or
47%18%, from $6.7$4.6 million in secondfirst quarter 20012002 to $3.5$3.8 million in secondfirst quarter
2002.2003. Sales were down $4.3 million, or 35%, for the six months ended June 30,
2002 in comparison with the prior year period. Sales for the quarter and six
month periods decreased in 2002 compared with prior year due to the low level of software sales and a decline in
engineering consulting services in the Company's markets. Gross profit margins
for this segment were 3.7%25.8% in the secondfirst quarter 2002
(13.2% for the six months ended June 30, 2002),2003, as compared with 38.9%19.5% in
the secondfirst quarter 2001 (35.1% for the six months ended June 30, 2001).2002. This decreaseincrease in margins is primarily attributable to
lower software sales, which
contribute higher margins than other products and services, as well as less than
full deployment of engineers.cost savings from restructuring actions during 2002. Selling, general and
administrative expenses (excluding 2002 restructuring
charges) increased to 26.2%38.0% of sales for the secondfirst quarter of
20022003 compared to 19.0%21.0% for the secondfirst quarter of 2001.2002. This higher ratio was
attributable to the
lower sales as the amount of selling, general and administrative expenses
decreased $0.3 million from period to period. Selling, general and
administrative expenses (excluding 2002 restructuring charges) as a percentage
of sales were essentially flat at 23.2% for the six months ended June 30, 2002
compared with 23.1% for the six months ended June 30, 2001. The consistent ratio
wasprimarily due to lower sales for the six months ended June 30, 2002 as the amount of
selling, general, and administrative expenses decreased $1.0 million from the
prior year period. The lower spending was due to lowerhigher bad debt expense, as well
as cost savings from various restructuring actions.
Interest and Financing Expenses:
Net interest expense decreased to $1.8 million from $2.5 million and to $4.1
million from $5.1 million for the three and six months ended June 30, 2002 and
2001, respectively. The decreases are due to lower interest rates for both
periods of 2002higher personnel expenses, and lower
borrowing levels (primarily in the second quarter of
2002). On March 20, 2002, we issued $50.0 million of Convertible Preferred Stock
that generated cash proceeds, net of fees and expenses, of $46.8 million, which
was used to pay down domestic bank borrowings. We estimate interest savings, as
a result of using the preferred stock proceeds to reduce debt, would approximate
$2.3 million on an annual basis based on our current average interest rate of
approximately 5.0%.
16sales.
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 expense decreased $1.2 million, or 50.6%, to $1.2 million in the
first quarter 2003 from $2.4 million in the first quarter 2002. The significant
decrease is due to both lower borrowing levels and lower interest rates. In the
first quarter of 2002, we issued $50.0 million of Convertible Preferred Stock
("Preferred Stock") that generated net cash proceeds of $47.5 million, which was
used to pay down domestic bank borrowings. This, along with cash generated from
operations of $98.6 million since March 31, 2002, has allowed the Company to
eliminate all domestic bank borrowings at March 31, 2003 and substantially
increase its interest earnings on cash and cash equivalent investments.
Provision for Income Taxes:
OurThe Company recorded a one-time tax benefit of approximately $2.0 million (or
$.06 and $.05 per basic and diluted common share, respectively) in the first
quarter of 2003 resulting primarily from favorable European tax legislation.
This one-time net tax benefit reduced the effective income tax rate was 35.0% and 39.0% for the first
quarter and six month
periods ended June 30, 2002 and 2001, respectively. The principal reason2003 to 17.5% from an expected ongoing rate of 35% for the decrease is due tobalance of
the change in accounting for goodwill amortization that was
almost entirely non-deductible for income tax purposes in 2001. The 2002 tax
rate is in line with our current expectation for the full year.
We haveyear 2003.
Through March 31, 2003, we recorded a net U.S. deferred tax assetsasset pertaining to the
recognition of net operating loss carryforwards, net deductible temporary
differences and tax credits in the amount of approximately $49.8$35.3 million as
compared with $40.2 million at June 30, 2002 as
compared to $41.8 million (then solely related to the Company's U.S. operations)
as of December 31, 2001. The increase is primarily due to recognition of tax
benefits on operating loss carryforwards at certain of our European operations.2002. We have not provided a
valuation allowance relating to a portion of the Europeanthis asset, in the amount of $1.2 million. Weas we believe it is more likely than
not that we will realize the net value of these assets.this asset. This determination is
primarily based upon our expectation that future U.S. operations will be
sufficiently profitable to utilize the operating loss carryforwards, as well as
various tax, business and other planning strategies available to us. We cannot
provide assurance that we will be able to realize these assetsthis asset or that future
valuation allowances will not be required. The failure to utilize such assetsthis asset
would adversely effect our results of operations and financial position.
New Goodwill Accounting Standard:
Effective January 1, 2002, we implemented Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142).
Accordingly, amortization of goodwill, including goodwill recorded in past
business combinations, ceased upon adoption of this Statement. Earnings per
common share for the three and six month periods ending June 30, 2001 would have
increased by $.07 and $.14 per common share, respectively, excluding the
amortization of goodwill, which was eliminated in 2002 when this new standard
went into effect.
In the second quarter of 2002, we completed our initial evaluation of goodwill
pursuant to the impairment requirements of SFAS No. 142. As a result of this
evaluation, we have determined that there may be impairment with respect to a
portion of the $32.7 million of goodwill related to the Decibel Products portion
of our base station and mobile antennas product line. We will complete the
valuation necessary to determine the actual amount of impairment loss, if any,
in the second half of 2002. However, based on current information we estimate
that such loss could range between zero and $5.0 million. Impairment charges, if
any, from this initial evaluation would be reported as a "Cumulative Effect of
an Accounting Change" in our consolidated statement of operations. See Note 5 of
the Condensed Consolidated Financial Statements for additional information.
17
ALLEN TELECOM INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
We consider the required impairment test for goodwill to be a "Critical
Accounting Policy". In computing the fair value of goodwill, we primarily used a
discounted present value of future cash flow technique; however, we also used a
market based approach in valuing one of our reporting units because we had
valid points for comparison. The discounted cash flow methodology involves the
use of two key assumptions: 1) estimated future income and resulting cash flows
and 2) an estimated discount rate, both of which are highly subjective and
likely to change in the future. The estimated future cash flows rely upon our
management's estimate of future profitability over an extended period of time.
The discount rate is based upon externally sourced information. These estimates
will likely change in the future and, if such changes are adverse, could impact
the recorded value of goodwill on our consolidated balance sheet. Accordingly,
we may be required to record a non-cash charge to operations for goodwill
impairment in the future, which would adversely affect reported earnings and,
consequently, our stockholders' equity.
We have allocated goodwill among each of our reporting units, which includes
$132.7 million allocated to our wireless communication equipment segment and
$8.7 million to our wireless engineering and consulting services segment.
Because goodwill is allocated among many reporting units, the sensitivity of
changes in assumptions regarding the calculation of the present value of cash
flows would be different for each unit. This is due to the varying degree of
differences between the net asset value, including goodwill, for a reporting
unit and its respective fair value as we have calculated it. In some cases, the
difference between the net asset value and fair value is large, which is not the
case for other reporting units. As a result, specific adverse changes in
assumptions would not necessarily result in goodwill impairment charges across
all reporting units equally. If the estimated future cash flows used in our
assumptions were reduced by 10%, it would have resulted in an estimated
preliminary impairment charge in the range of approximately $7.0 million to
$12.0 million. Further, if the assumed discount rate used were to be increased
by 1% (independent of the aforementioned change in cash flow), it would have
resulted in an estimated preliminary impairment charge in the range of
approximately $10.0 million to $15.0 million. Such amounts are only preliminary,
since upon identifying any possible impairment charge we would then be required
to perform a secondary step to determine the fair value of all assets and
liabilities of the applicable reporting units in order to determine the actual
impairment charge, if any. If the cash flow and discount rate were to favorably
change, there would be no resulting impairment charge. While an impairment
charge is a non-cash charge to earnings, the severity of any charge and its
impact on stockholders' equity could adversely affect our cost of capital and
our ability to raise external capital.
We are primarily a communications infrastructure equipment provider to the
wireless telecommunications industry, which has recently experienced a severe
economic downturn. The failure of this industry to rebound and/or our failure to
maintain or improve sales and operating results could result in future goodwill
impairment charges. Our senior management has reviewed this Critical Accounting
Policy with the Audit Committee of our Board of Directors and, in general,
reviewed the methodology, assumptions and results of our goodwill analysis.
1816
ALLEN TELECOM INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Continued)
LIQUIDITY AND CAPITAL RESOURCES:
As set forth in the Condensed Consolidated Statements of Cash Flows, $27.8$28.3
million of cash was generated by operationsOperating Activities for the six months ended June 30,
2002,first quarter
2003, as compared to $32.8$0.6 million of cash usedgenerated in the comparable 20012002
period. This significant improvement ofin cash generation is due primarily to the
receipt of a reduction of inventorytax refund in Europe and receivables. From March 31, 2001 to June 30, 2002, our consolidated
inventory decreased $24.6 million to $118.1 million.the improvement in net income.
We used $3.7generated $0.2 million of cash in investing activitiesfrom Investing Activities in the first six monthsquarter
of 2002,2003, due principally to $3.0$1.8 million for capital expenditures. For the first
six months of 2001, $2.4 million was used in investing activities, including
$6.9 million for capital expenditures and software
purchases which was partially offset by proceeds
from the salereturn of an unused facility.$2.0 million of the
purchase price relating to the Company's acquisition of Bartley R.F. Systems,
Inc. For the first quarter of 2002, $1.8 million was used in Investing
Activities primarily for capital expenditures.
Cash provided by Financing Activities for the first quarter 2003 was $0.5
million. Cash used by financing activitiesFinancing Activities for the six months ended June 30,first quarter 2002 was $20.0 million. On March 20, 2002, we issued$0.9
million and resulted primarily from the issuance of $50.0 million of Redeemable
Convertible Preferred
Stock, which netted $46.8generated $47.5 million of cash after deduction of certain fees and
expenses (see Note 3 of the Condensed Consolidated Financial
Statements for additional information).expenses. Cash proceeds from this offering, as well as cash generated by
operations,operating activities, were used to repay borrowings of $49.5 million in the
first quarter 2002 and an additional $18.1 million in the second
quarter of 2002. Cash generated by financing activities for the six months ended
June 30, 2001 was $10.6 million and resulted primarily from borrowings and a
sale and leaseback transaction in the second quarter of 2001.
As a result of our Convertible Preferred Stock offering and the resulting
pay-down of domestic debt, we permanently reduced our domestic revolving credit
agreement commitment on March 20, 2002 from $105.0 million to $76.9 million.
On a worldwide basis, at June 30, 2002,March 31, 2003, we had $130.5$122.3 million of lines of
credit, of which $116.4$108.1 million were unused and available. At March 31, 2002, and
December 31, 2001, we
had available unused lines of credit of $92.3 million.
Our cash balance at March 31, 2003 of approximately $78.8 million and $71.4
million, respectively.our
available unused credit lines provide the Company with the ability to fund
operations and take advantage of acquisition opportunities. We do not anticipate
that our cash balance will continue to grow at the same rates as we have seen
over the last four quarters.
The strong Euro currency, relative to the U.S. dollar, has positively impacted
the translated value of our European subsidiaries, whose assets and liabilities
are denominated principally in Euros. OurThe foreign currency translation loss
adjustment included as a portion of our "Accumulated Other Comprehensive Loss"
(representing primarily the net impact on the translated net asset investment of
foreign subsidiaries) declined $16.6$3.7 million to $15.7 million at June 30, 2002
from $32.2$1.8 million at March 31, 2003 from $5.5 million at
December 31, 2002.
This increaseIn the patent infringement matter involving True Position, Inc. and its
subsidiary, KSI, the parties are in the translated valueprocess of our net foreign asset position iscompleting discovery on
liability issues, narrowing claims for consideration by the principal reasonjudge and drafting
dispositive motions, which are to be filed by the upcoming deadline in mid-May.
The court date for the increasetrial of this matter is currently scheduled for September
22, 2003. This matter relates to all of the Company's geolocation products and
revenue. Potential costs and expenses, as well as the need to pay any damages
awarded in Stockholders' Equity at June 30, 2002 as compared with December 31, 2001.
19favor of the plaintiffs, could adversely affect the Company's
business, financial position, results of operations or cash flow.
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 Form 10-Q whichthat 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,
incurred, savings realized and timing of the integration of acquisitions; the
cost, success and timetable for new product development, including, for example,
products for 3G,
E 911E911 and power amplification; the health, economic stability
and relative currency valuations in world and national markets; the cost and outcome of pending litigation,
including, for example, a lawsuit filed by a competitor in the E 911E911 geolocation
business claiming infringement by the Company of intellectual property rights;
the health and economic stability of the world and national markets; the cost
and availability of capital and financing to the Company and its customers; loss
or bankruptcy of one or more of the Company's customers, which could adversely
affect the Company's ability to make future sales or collect its accounts
receivable; the uncertain timing and level of purchases by
the limited number of the Company's customers of both current products
and services, and those under development;development for current and prospective customers of the
Company's products and services; the effective realization of inventory
receivables and
other working capital assets to cash; the impact of competitive products and
pricing in the Company's markets; the impact of changes in the market value of
pension fund assets held by, and the actuarial assumptions used by, the
Company's defined benefit pension plans; the ability of the Company to generate
future U.S. and foreign profits or to implement other tax planning strategies needed to utilize
the Company's tax loss carry forwards; the changes in business conditions and/or
changes in assumptions whichthat could result in goodwill impairment charges; the
impact of U.S. and foreign government legislative/regulatory actions, including,
for example, the scope and timing of E 911E911 geolocation requirements in the U.S.
markets and spectrum availability and licensing for new wireless applications;
the impact of future business conditions on the Company's ability to meet terms
and conditions of the Company's borrowing agreements; the cost, timing and
availability of personnel, facilities, materials and vendors required for the
Company's current and future products; and whether and when backlog will be
converted to customer sales.sales; the impact, if any, on current or future sales,
earnings or financial condition of the Company resulting from the previously
announced agreement under which Andrew Corporation will acquire Allen Telecom;
and the Company's ability to consummate the merger with Andrew. Allen Telecom
Inc.'s Annual Report on Form 10-K and other Quarterly Reports on Form 10-Q may
contain additional details concerning these factors.
2018
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.RISK.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" under Item 7 of the Company'sour Annual Report on Form 10-K for the year ended
December 31, 2001.2002. There has been no material change from the end of the
previous fiscal year to June 30, 2002.March 31, 2003.
ITEM 4 - CONTROLS AND PROCEDURES.
As of March 31, 2003 (the "Evaluation Date"), under the supervision and with the
participation of our management, including our Chief Executive Officer and our
Chief Financial Officer, we evaluated the effectiveness of the design and
operation of our disclosure controls and procedures, as required pursuant to
Rule 13a-14 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Based upon this evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that, to the best of their knowledge as of the
Evaluation Date, our disclosure controls and procedures were effective to ensure
that information required to be disclosed by us in the reports filed or
submitted by us under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
Additionally, our Chief Executive Officer and Chief Financial Officer have
determined that there have been no significant changes in our internal controls
or in other factors that could significantly affect these controls, subsequent
to the Evaluation Date.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On December 11, 2001, a competitor, TruePosition, Inc., and its subsidiary, KSI,
Inc., filed a lawsuit against Allen Telecom Inc. in the United States District
Court for the District of Delaware. The plaintiffs alleged in their complaint
that we, through our Grayson Wireless Division, have infringed three patents in
connection with our GEOMETRIX wireless geolocation business. On July 16, 2002,
the plaintiffs amended their complaint to add four additional patents to the
lawsuit. In our answer filed on July 30, 2002, to the amended complaint, we
denied all the plaintiffs' allegations and asserted counterclaims against the
plaintiffs for infringement of one of our patents and for tortious interference
with our business relationships. We believe that we have meritorious defenses
against all of the claims asserted by the plaintiffs, and intend to vigorously
defend the lawsuit.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Stockholders of the Company held on April 26, 2002
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 8 Directors
of the Company to hold office until the next Annual Meeting of Stockholders of
the Company and until their respective successors shall have been duly elected
and qualified. The aggregate numbers of shares of common stock (a) voted in
person or by proxy for each nominee, or (b) with respect to which proxies were
withheld for each nominee, were as follows:
Nominee For Withheld
------- --- --------
Philip Wm. Colburn 23,363,975 2,057,089
J. Chisholm Lyons 23,357,197 2,063,867
Sheldon I. Ausman 23,598,700 1,822,364
Robert G. Paul 23,598,976 1,822,088
Charles W. Robinson 23,524,441 1,896,623
Martyn F. Roetter 23,600,744 1,820,320
Gary B. Smith 23,575,458 1,845,606
Kathleen M. H. Wallman 23,590,818 1,830,246
21
PART II - OTHER INFORMATION
(Continued)
A vote by ballot was taken at the Annual Meeting on the proposal to ratify the
appointment of Deloitte & Touche LLP as auditors for the Company for the fiscal
year ending December 31, 2002. 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
--- ------- -------
24,969,093 369,027 82,943
That (a) a vote by ballot was taken at the meeting on the proposal to approve
the adoption of the Amended and Restated 1992 Stock Plan, and (b) the aggregate
numbers of shares of Common Stock in person or by proxy (i) voted for, (ii)
voted against or (iii) abstaining from the vote on such proposal were as
follows:
For Against Abstain
--- ------- -------
21,486,603 2,992,238 942,222
The foregoing proposals are described more fully in the Company's definitive
proxy statement dated March 17, 2002, 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
(3.1) Third Restated Certificate of Incorporation (filed as Exhibit Number
4(a) to Registrant's Registration Statement of Form S-8,
Registration No. 333-96805, filed July 19, 2002 (Commission file
number 1-6016) and incorporated herein by reference).
(10.1) Allen Telecom Inc. Amended and Restated 1992 Stock Plan (filed as
Exhibit A to Registrant's Proxy Statement dated March 17, 2002
(Commission file number 1-6016) and incorporated herein by
reference).
(10.2) Form of Incentive Stock Option to Purchase Stock pursuant to the
Allen Telecom Inc. Amended and Restated 1992 Stock Plan.
(10.3) Form of Non-Qualified Option to Purchase Stock pursuant to the Allen
Telecom Inc. Amended and Restated 1992 Stock Plan.
(99.1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(99.2) Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
22
PART II - OTHER INFORMATION
(Continued)(99.2) Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On April 23, 2002,January 8, 2003, the Company filed a Current Reportcurrent report on Form 8-K under
Item 5, "Other Events", and Item 7 whereby it filed a press release, dated
April 22,
2002, reporting Allen Telecom's firstJanuary 8, 2003, characterizing sales and earnings for the fourth quarter
2002 earnings results.and full year 2002.
On June 12, 2002,February 6, 2003, the Company filed a Current Reportcurrent report on Form 8-K under
Item 5, "Other Events", and Item 7 whereby it filed a press release, dated
June 11, 2002,
updating Allen Telecom's expected second quarter 2002February 6, 2003, reporting sales and earnings results.
23results for the fourth
quarter and full year 2002.
19
PART II - OTHER INFORMATION
(continued)
(b) Reports on Form 8-K (continued)
On February 18, 2003, the Company filed a current report on Form 8-K under
Item 5, "Other Events", and Item 7 whereby it filed a press release, dated
February 18, 2003, reporting that the Company had signed a definitive
merger agreement with Andrew Corporation on February 17, 2003.
On February 27, 2003, the Company filed a current report on Form 8-K under
Item 5, "Other Events", and Item 7 whereby it filed the definitive merger
agreement with Andrew Corporation which had been signed on February 17,
2003.
On February 28, 2003, the Company filed a current report on Form 8-K under
Item 5, "Other Events", and Item 7 whereby it filed a press release, dated
February 28, 2003, reporting that it had indefinitely postponed its annual
meeting pending the consummation of the previously announced merger with
Andrew Corporation.
20
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, 2002May 14, 2003 By: /s/ Robert A. Youdelman
------------------------------------
Robert A. Youdelman
Executive Vice President
(Chief Financial Officer)
Date: May 14, 2003 By: /s/ James L. LePorte, III
------------------------------------
James L. LePorte, III
Vice President Finance
(Chief Accounting Officer)
21
CERTIFICATION
ALLEN TELECOM INC.
I, Robert G. Paul, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Allen Telecom Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
22
CERTIFICATION
ALLEN TELECOM INC.
(Continued)
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Robert G. Paul
-----------------------------------
Robert G. Paul
President
(Chief Executive Officer)
23
CERTIFICATION
ALLEN TELECOM INC.
(Continued)
I, Robert A. Youdelman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Allen Telecom Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
24
CERTIFICATION
ALLEN TELECOM INC.
(Continued)
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/s/ Robert A. Youdelman
-----------------------------------
Robert A. Youdelman
Executive Vice President
(Chief Financial Officer)
Date: August 13, 2002 By: /s/ James L. LePorte, III
-----------------------------------
James L. LePorte, III
Vice President Finance
(Principal Accounting Officer)
2425
EXHIBIT INDEX
ALLEN TELECOM INC.
Exhibit Number:
- ---------------
(3.1) Third Restated Certificate of Incorporation (filed as Exhibit Number (a) to Registrant's Registration Statement of Form S-8,
Registration No. 333-96805, filed July 19, 2002 (Commission
file number 1-6016) and incorporated herein by reference).
(10.1) Allen Telecom Inc. Amended and Restated 1992 Stock Plan (filed
as Exhibit A to Registrant's Proxy Statement dated March 17,
2002 (Commission file number 1-6016) and incorporated herein
by reference).
(10.2) Form of Incentive Stock Option to Purchase Stock pursuant to
the Allen Telecom Inc. Amended and Restated 1992 Stock Plan.
(10.3) Form of Non-Qualified Option to Purchase Stock pursuant to the
Allen Telecom Inc. Amended and Restated 1992 Stock Plan.
(99.1) Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(99.2) Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
25(99.2) Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
26