--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO
SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 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
incorporation or organization) Identification No.)
25101 CHAGRIN BOULEVARD, BEACHWOOD, OHIO 44122
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
216/765-5855
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $1 par value New York Stock Exchange
Pacific Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 26, 2002, there were 30,427,171 shares of the Registrant's
Common Stock outstanding, and the aggregate market value, based upon the last
sale price of the Registrant's Common Stock on the Dow Jones Composite on
February 26, 2002 of $7.34, of the Registrant's Common Stock held by
nonaffiliates of the Registrant was $223,335,435.10.
EXHIBIT INDEX IS ON PAGES 32 TO 39 OF THIS REPORT.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Annual Meeting of Stockholders to be
held April 26, 2002 are incorporated by reference into Part III hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
ALLEN TELECOM INC.
FORM 10-K
(FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001)
PAGE
----
PART I
Item 1 -- Business................................................. 1
Item 2 -- Properties............................................... 12
Item 3 -- Legal Proceedings........................................ 12
Item 4 -- Submission of Matters to a Vote of Security Holders...... 12
Executive Officers of The Registrant..................... 13
PART II
Item 5 -- Market for Registrant's Common Equity and Related
Stockholder Matters...................................... 14
Item 6 -- Selected Financial Data.................................. 14
Item 7 -- Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 15
Item 7A -- Quantitative and Qualitative Disclosures about Market
Risk..................................................... 27
Item 8 -- Financial Statements and Supplementary Data.............. 27
Item 9 -- Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 27
PART III
Item 10 -- Directors and Executive Officers of the Registrant....... 27
Item 11 -- Executive Compensation................................... 27
Item 12 -- Security Ownership of Certain Beneficial Owners and
Management............................................... 27
Item 13 -- Certain Relationships and Related Transactions........... 27
PART IV
Item 14 -- Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................. 28
SIGNATURES........................................................... 30
EXHIBIT INDEX........................................................ 32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS........................... F-1
Allen Telecom, Antenna Specialists, Comsearch, Decibel, Extend-a-Cell,
FOREM, GEOMETRIX, Grayson Wireless, MIKOM, On-Glass, Tekmar Sistemi and Telia
are our trademarks, registered trademarks, service marks or registered service
marks in the U.S. or other jurisdictions that are mentioned in this document.
All other trademarks, servicemarks or trade names referred to in this document
are the property of their respective owners.
ALLEN TELECOM INC.
FORM 10-K
PART I
ITEM 1 -- BUSINESS
OVERVIEW
We are a leading global provider of wireless infrastructure equipment and
services to many of the world's largest wireless communications carriers, or
carriers, and original equipment manufacturers, or OEMs. Our business is aligned
around the five product lines highlighted below:
- Base Station Subsystems and Components, including filters, duplexers,
combiners, amplifiers and microwave radios;
- Repeaters and In-Building Coverage Products, including off-air repeaters,
optical repeaters, low power distributed indoor antenna solutions, tower
mounted amplifiers and bi-directional boosters;
- Base Station and Mobile Antennas, including panel, omni-directional,
glass-mounted and point-to-point antennas;
- Geolocation Products, including our GEOMETRIX wireless 911 caller
location system; and
- Wireless Engineering and Consulting Services, including frequency
planning for microwave and other wireless networks, system design and
analysis and cell site field engineering.
Our products and services are integral to mobile wireless communications
networks and offer our customers the ability to build networks that enhance
network capacity, coverage and performance. Our products and services are
designed for use in current wireless networks as well as next-generation
wireless networks. As a leading global provider of wireless infrastructure
equipment and services, we expect that demand for our products and services will
continue to be driven by the continuing investment by carriers in their wireless
networks in order to expand coverage and capacity and improve performance. We
believe that the catalysts for future carrier investment include continued
growth in wireless subscribers, increased minutes of use, or MOUs, and expanded
usage of wireless devices for data services. We believe that our broad suite of
products, as well as our experience, reputation and customer relationships,
position us to benefit from the build out of next-generation networks such as
2.5G and 3G.
Carriers are currently in the process of determining their migration paths
to the next-generation networks. 2.5G is an intermediary, higher data capacity
solution while 3G is the next major technological evolution of wireless networks
that is expected to provide even greater capacity to carriers' networks and
allow carriers to provide new features and services. By offering an enhanced set
of products and services to their end-user customers, carriers believe that they
will be able to generate additional average revenue per user. 3G infrastructure
equipment has begun to be deployed in parts of Europe and Asia. This deployment
will require new infrastructure equipment and therefore is expected to create
new product opportunities for us. We have developed and, in certain cases, have
already shipped 3G compatible products, including filters, duplexers, combiners,
base station antennas, power amplifiers, tower mounted amplifiers, repeaters and
test equipment. We also have developed a network-based geolocation solution that
enables carriers to determine the location of callers. Our network-based
geolocation solution is being deployed or evaluated by a number of carriers in
the U.S. that must comply with Federal Communications Commission, or FCC,
regulations requiring them to provide caller location information for wireless
911 calls. AT&T Wireless Services, Inc. recently selected our GEOMETRIX wireless
911 caller location systems for installation in selected AT&T Wireless networks.
We expect our geolocation business to meaningfully contribute to our overall
financial performance in the future as carriers are required to build out their
location-based capabilities.
We market our products and services to many of the world's largest OEMs,
including Alcatel SA, Lucent Technologies Inc., Motorola, Inc., Nokia
Corporation, Nortel Networks Corporation and
1
Siemens AG, as well as the world's largest carriers, including AT&T Wireless,
Nextel Communications, Inc., Orange SA, Sprint Corporation, Verizon Wireless and
Vodafone Group plc. We conduct operations globally, with manufacturing and
assembly facilities in Australia, Brazil, China, the Czech Republic, France,
Germany, Italy, Mexico and the U.S., and have sales and marketing offices in 19
countries. Sales made to customers located outside the U.S. accounted for 60.8%
of our total sales during 2001. Our total sales during 2001 were $394.6 million,
generating operating income of $7.5 million, as compared to total sales during
2000 of $392.6 million, generating operating income of $27.4 million.
RECENT DEVELOPMENTS
Amendment to Revolving Credit Facility
We recently entered into an amendment to our revolving credit facility,
dated as of December 31, 2001, that modified the financial covenants contained
therein to levels we believe could be achieved under current market conditions.
The amendments permit us to maintain a higher leverage ratio, set lower
benchmarks for earnings before interest, income taxes, depreciation and
amortization, and establish lower minimum fixed charge coverage ratios over
several time periods through mid- to late 2003. We also agreed to cause some of
our domestic subsidiaries to guarantee our obligations under our revolving
credit facility, to pledge some of the stock of our foreign subsidiaries and to
place a mortgage on certain real estate owned by us. We entered into the
amendment because of concerns regarding our ability to meet the covenants
contained in our revolving credit facility.
The amendment to our revolving credit facility also requires us to
permanently reduce the commitment under that facility upon the consummation of
an equity offering by an amount equal to the lesser of (i) 60% of the net
proceeds of this offering or (ii) $30.0 million.
Agreement with AT&T Wireless
AT&T Wireless recently selected our GEOMETRIX wireless 911 caller location
systems from our Grayson Wireless Division for installation in selected AT&T
Wireless networks.
The network-based GEOMETRIX systems are compatible with AT&T Wireless' TDMA
(digital) and AMPS (analog) network technologies and customer handsets. AT&T
Wireless has agreed to install the GEOMETRIX systems pursuant to the FCC's Phase
II E 911 regulations. The system automatically locates and forwards the caller
position information to public safety agencies that receive 911 calls.
AT&T Wireless customers will be able to use their existing handsets and
current 911 calling procedures. To maintain caller privacy, GEOMETRIX systems
are designed to provide location information only when a caller initiates a 911
call.
The GEOMETRIX system is intended to allow carriers to meet the FCC's Phase
II requirements for most wireless E 911 callers. The GEOMETRIX system is the
first Phase II-compliant wireless location system to be placed into commercial
service, and to date remains the only Phase II-compliant system in service.
Patent Litigation
On December 11, 2001, a lawsuit was filed against us in the United States
District Court for the District of Delaware by a competitor, TruePosition, Inc.,
and its subsidiary, KSI, Inc. The plaintiffs allege that we, through our Grayson
Wireless Division, have infringed three patents in connection with our GEOMETRIX
wireless geolocation business. The plaintiffs seek injunctive relief,
compensatory and treble damages and attorneys' fees. In our answer filed on
January 18, 2002, we have denied the plaintiffs' allegations and have asserted a
counterclaim against the plaintiffs of infringement of one of our patents. We
believe that we have meritorious defenses against the claims asserted by the
plaintiffs and intend to vigorously defend the lawsuit. However, we cannot
assure you that we will ultimately prevail in this action.
2
Completion of Bartley R.F. Systems, Inc. Acquisition
On December 18, 2001, we completed the acquisition of substantially all of
the assets of Bartley R.F. Systems, Inc., headquartered in Amesbury,
Massachusetts. Our current U.S. manufacturing facility for base station
subsystems and components in Sparks, Nevada will be consolidated into Bartley's
manufacturing facility for base station subsystems in Amesbury, Massachusetts.
This consolidation is expected to be completed early in the second quarter of
2002 and is projected to result in annual cost savings of approximately $4.0 to
$5.0 million. The acquisition is expected to be accretive to our earnings in its
first full year. In connection with the acquisition, we recorded a reserve for
restructuring costs of approximately $2.3 million in the fourth quarter of 2001.
The consideration for the acquisition included issuance of 2,271,391 shares
of our common stock and associated preferred stock purchase rights to Bartley
R.F. Systems, Inc. We have registered the resale of those shares.
INDUSTRY DYNAMICS
Over the past 12 months, the end-users of our equipment, global carriers,
have been facing slowing subscriber growth rates, greater price competition,
reduced access to capital and the need to carefully manage their cash flow and
profitability. In response to these challenges, carriers are reducing their
capital spending and appear to be refocusing on projects that can most directly
contribute to their revenues. An independent study published by the Yankee Group
in September 2001 indicates the 2002 worldwide market for wireless
infrastructure to be approximately $100.1 billion, representing a slight
increase from approximately $99.4 billion in 2001. The same study indicates a
2004 market of approximately $120.2 billion. Over the longer term, we anticipate
capital investment growth to resume at an increased level due to a number of
factors, including a growing number of telecommunication subscribers, increasing
MOUs, and a growing demand for new services and features, such as mobile
messaging, Internet access and other data services that require additional
network capacity and capabilities.
To further enhance capacity and performance of wireless networks, wireless
technology has evolved from first generation analog technology, or 1G, in the
early 1980s to second-generation digital voice and data technologies, or 2G,
which was introduced in most networks in the early and mid-1990s. These digital
systems provide improved network capacity and signal quality and remain the
current standard for most wireless networks. While the build out of 2G networks
continues, an increasing demand for additional data capacity and transmission
speeds that permit wireless transmission of integrated voice, data, Internet and
video traffic has caused OEMs and carriers to begin to develop new equipment and
networks based on advanced technologies, such as 2.5G and 3G.
2.5G technology enable carriers to upgrade their existing 2G networks with
certain software and hardware enhancements. These upgrades often require
significant investments in software and equipment, but generally do not require
the comprehensive new infrastructure equipment investment required for 3G
networks. In addition, while these upgraded networks provide improvements in
capacity, coverage and performance, they have significantly less bandwidth
capacity and transmission speeds than 3G networks are expected to provide.
Deployment of 3G Technology
In order to address these future network requirements, many carriers are
expected to ultimately spend a considerable amount of capital upgrading their
mobile networks to 3G, or third generation, technologies. These technologies
provide a number of advantages over current mobile network technologies,
including the ability to deliver voice, data and multimedia services, provide
incremental network capacity and improve operating efficiencies. 3G is expected
to provide high capacity broadband wireless data services at speeds of up to two
megabits per second, with the capacity and speed to support voice, data, mobile
Internet access and full-motion video. The use of mobile wireless devices for
Internet access and other data transmissions is expected to increase
substantially over the next several years. 3G technology is also expected to
often provide incremental network capacity and operating efficiencies.
3
Some major carriers in Europe and Asia began a limited initial build out of
the first 3G networks in 2001. Regulatory agencies in most European countries,
Japan and Korea have already licensed 3G frequencies, with carriers spending
over $100 billion for these licenses to date. In the U.S., the FCC is expected
to award licenses for 3G frequencies in the next several years, which we
anticipate will be followed by an extensive 3G infrastructure build out. As a
result, predominantly all of the current demand for 3G infrastructure equipment
is driven by the rollout of 3G networks in Europe and Asia.
The deployment of new networks incorporating 3G technology will require the
timely development, manufacture and installation of new or advanced
infrastructure equipment, including power amplifiers, base stations, subsystems,
antennas and repeaters that are specifically designed for the newly licensed
frequencies. In most cases, that equipment will need to be specifically tailored
to the new licensed frequencies and comply with the more stringent design
specifications. As a result, many wireless OEMs are currently working with
qualified vendors to design and manufacture new systems and components for 3G
networks. For example, wider bandwidth channels and greater data transmissions
will require next generation, multi-channel power amplifiers that are highly
linear and compatible with the new 3G frequencies. In addition, we believe that
many OEMs are outsourcing more of their needs for certain wireless
communications equipment, such as next generation power amplifiers, which, prior
to 3G, were primarily manufactured in-house by OEMs. For these reasons, we
believe that the build out of new 3G networks will create substantial new
product opportunities for some qualified vendors which, in the case of next
generation power amplifiers, we estimate to be in the $1.0 to $2.0 billion range
annually.
The deployment of 3G networks will also require a greater number of base
stations per coverage area because of increased propagation losses at the higher
frequencies and the need for greater accuracy of data transmissions. As a
result, despite the increased efficiency of base station technology, we believe
the number of base stations required to support 3G will likely increase by two
to four times the 1G equivalent for the same coverage area. We believe we are
well positioned to capitalize on the 3G spending cycle.
Wireless Geolocation Markets
We believe based on our recent contract wins with both Verizon Wireless and
AT&T Wireless that the market for ancillary wireless services, particularly E
911, is developing. As new wireless technologies advance in capability and the
number of subscribers grows, increased governmental focus in the U.S. is being
placed on automatically identifying the location of wireless 911 callers to the
local police or fire department. According to the Cellular Telecommunications &
Internet Association, there were over 51 million wireless calls to 911 in the
U.S. in 2000, an 18.0% increase over 1999. Previous solutions did not accurately
identify the location of the caller or dispatch center, creating a need for a
more effective solution. To promote the availability of accurate geolocation
services for wireless 911 calls in the U.S., the FCC has adopted regulations
that require carriers to begin implementing geolocation capabilities based on
strict standards. Geolocation solutions are being deployed or evaluated by a
number of carriers in the U.S. that must comply with the new FCC regulations.
Equipment suppliers and carriers have been developing a variety of
network-based and handset-based solutions to provide enhanced 911, or E 911,
geolocation capabilities. Our network-based GEOMETRIX product is capable of
meeting the requirements established by the FCC and meeting the needs of mobile
carriers, putting us in a favorable position to capitalize on the growth of E
911 network spending. This capability is expected to lead to multiple product
application opportunities for telecommunications equipment manufacturers.
Opportunities include ancillary services such as fleet management, concierge
services, mobile commerce and wireless information directories.
KEY ACQUISITIONS
We focus our acquisition efforts on companies with strong engineering and
technical capabilities, proven management teams, superior products and strong
customer relationships. Our acquisitions have been an important element in
strengthening our management team, growing our business, extending our
4
international presence and expanding our product and service offerings and
technological expertise. Since 1990, we have acquired a number of companies,
including the following key companies:
YEAR COMPANY ACQUIRED PRIMARY LOCATION PRIMARY PRODUCTS OR SERVICES ACQUIRED
---- ---------------- ---------------- -------------------------------------
2001 Bartley R.F. Systems, Inc. U.S. RF filters and filter-related
subsystems
1997 Telia S.A. France Power amplifiers
1996 Tekmar Sistemi S.r.l. Italy In-building coverage systems
1994 MIKOM G.m.b.H Germany Repeaters
1994 FOREM S.r.l Italy Base station subsystems and components
1992 Comsearch U.S. Wireless engineering services
1992 Decibel Products U.S. Base station antennas
1990 Grayson Wireless U.S. Repeaters
---------------
Note: Many of our acquisitions were completed in stages. The years of
acquisition set forth in the table represent, in each such case, the first year
in which we owned a majority of the acquired company, the balance of which we
acquired in subsequent years. Decibel Products and Comsearch were owned by
Alliance Telecommunications Corp., which we acquired in 1992.
PRODUCTS AND SERVICES
Our products and services consist of five product lines: (i) Base Station
Subsystems and Components; (ii) Repeaters and In-Building Coverage Products;
(iii) Base Station and Mobile Antennas; (iv) Geolocation Products; and (v)
Wireless Engineering and Consulting Services. We provide our products and
services on a global basis to many of the world's largest OEMs and carriers. We
expect our business to benefit from the need for expanded coverage, greater
capacity and improved performance of existing and emerging wireless networks.
Base Station Subsystems and Components
We are one of the largest suppliers of base station subsystems and
components, supplying many different customized subsystems and components that
are incorporated in OEM equipment for cell site installation. Our products serve
all major wireless standards and frequencies, including emerging 3G networks.
Our base station subsystems and components include:
- Filters that ensure that incoming signals are received and outgoing
signals are transmitted clearly and without interference;
- Duplexers that are stationed at most cell site transceivers to allow a
single antenna to be used for the simultaneous transmission and reception
of radio signals;
- Power Amplifiers that enhance the reception of weak signals or boost
outgoing signals, including low noise and tower mounted amplifiers;
- Combiners that combine multiple radio frequencies for delivery to one
antenna system;
- Auto-Tune Combiners that adjust automatically to changes in frequencies;
- Microwave Radios that are used primarily to provide, at selected
frequencies, communication links between a base station and the network;
and
- Related Products, such as equipment racks, connectors and cables.
These products are marketed and sold primarily under the FOREM, Decibel
Products and Telia names and accounted for $183.0 million, or 46.3%, and $190.9
million, or 48.6%, of our total sales in 2001 and 2000, respectively.
We recently introduced next generation single and multi-carrier,
highly-linear power amplifiers. Such products are usually located within base
stations and amplify the power of the wireless transmission with minimal
distortion and interference. These products are capable of processing multiple
frequencies and are
5
available for a number of mobile wireless standards, including 3G. We are
currently working with a major OEM to design its next generation power amplifier
product line.
Repeaters and In-Building Coverage Products
Our repeaters and in-building coverage products support both coverage and
capacity enhancement for carriers. We provide turnkey, customized product
applications for major projects throughout the world involving highway tunnels,
subway and railway systems, airports, convention centers and the Australian
Olympic venues. Our products include:
- Repeaters that expand coverage and fill coverage gaps caused by
obstructions, such as mountains, tunnels and buildings, including high
power and low power off-air repeaters and optical repeaters;
- Distributed Antenna Systems for mobile wireless communications,
broadcasting, high speed data links and broadband coverage systems,
including low power fiber optic and cable distributed antennas;
- Bi-Directional Boosters that amplify transmitted and received signals at
the cell site; and
- Test Equipment and Analysis Software that measure and analyze radio
transmission characteristics for optimization of wireless communications
networks.
These products are marketed and sold under the MIKOM, Grayson Wireless and
Tekmar Sistemi names, and accounted for $94.5 million, or 24.0%, and $78.8
million, or 20.1%, of our total sales in 2001 and 2000, respectively.
Base Station and Mobile Antennas
We are a leading manufacturer of base station and mobile antennas serving
all major wireless standards and frequencies. We manufacture a comprehensive
line of base station antennas, including:
- Omni Antennas that broadcast signals in a full 360-degree circular
pattern;
- Directional and Panel Antennas that concentrate signals in a particular
direction, thereby increasing capacity and coverage;
- Sectorized Array Antennas that generate multiple beams; and
- Broadband Antennas that process multiple frequency bands on a single
antenna.
We continually enhance our base station antennas to optimize current 2G
networks. We also have recently developed base station antennas for 3G networks,
including dual band antennas that transmit and receive RF signals simultaneously
for multiple frequencies in an integrated antenna. We complement our base
station antennas with customer service centers that deliver base station
antennas, cable and other equipment such as mounting hardware, monitors, sensors
and jumpers directly to cell sites to aid in the deployment of our base station
antennas. The cable is delivered using our patented dispenser with connectors
and other hardware already attached, allowing easier, faster installation.
We also provide mobile vehicular antennas that allow two-way
communications, including dual band, glass-mounted and global positioning
antennas. We design and develop new vehicular antennas to address changing
wireless technologies and introduced a series of wireless data service antennas.
In addition, we provide mobile antennas for satellite-based digital audio radio
systems.
Our base station and mobile antenna products and services are marketed
under the Decibel Products and Antenna Specialists names, and accounted for
$88.2 million, or 22.4%, and $97.8 million, or 24.9%, of our total sales in 2001
and 2000, respectively.
6
Geolocation Products
We are one of two recognized suppliers of network-based geolocation systems
capable of providing carriers with the equipment and software necessary to
locate wireless 911 callers. Our GEOMETRIX wireless location system is based on
position calculations utilizing time difference of arrival, or TDOA, and angle
of arrival, or AOA, triangulation techniques. We believe our network-based
GEOMETRIX product is capable of exceeding the accuracy and reliability
requirements set by the FCC for E 911 networks. Our system can locate calls
which transition between analog and digital sites, and calls in which the caller
is a subscriber, roamer or non-subscriber. Our GEOMETRIX product can be used
with all air interfaces including AMPS, TDMA, CDMA, GSM and iDEN, and requires
no changes in wireless service and no modifications or replacement of existing
handsets. In addition, our system was designed to accommodate a variety of
location-based services, such as fleet management, concierge services, mobile
commerce, wireless information directories and other location dependent
services. Our geolocation products accounted for $7.8 million, or 2.0%, of our
total sales during 2001. These products did not account for any of our sales in
2000 or 1999.
In October 2001 we installed and activated the nation's first wireless E
911 caller location system in St. Clair County, Missouri. The GEOMETRIX location
system's actual performance has exceeded the Phase II location accuracy
standards set by the FCC. Our network-based GEOMETRIX product was also recently
selected by AT&T Wireless to provide wireless 911 caller location systems for
installation in selected TDMA AT&T Wireless networks. See "-- Recent
Developments -- Agreement with AT&T Wireless."
Wireless Engineering and Consulting Services
We are a leading provider of frequency planning and microwave coordination
services as well as wireless network design and field engineering services.
These services are provided to carriers to assist in determining and analyzing
network coverage requirements based on area topography and demographics. Our
engineering expertise in spectrum sharing, microwave interconnectivity and cell
system design has enabled us to obtain orders from most major domestic carriers.
Our spectrum sharing software is currently licensed and utilized by major
operators and consultants to perform analysis in most domestic PCS markets, and
our software for microwave interconnectivity is operational in Asia, Europe,
North America and South America.
Our wireless engineering and consulting services are marketed and provided
under the Comsearch name and accounted for $21.1 million in sales, or 5.3%, and
$25.1 million, or 6.4%, of our total sales in 2001 and 2000, respectively.
Other Information
See Note 8 of the Notes to Consolidated Financial Statements for additional
financial information regarding our products or services. See also Item
7 -- "Management Discussion and Analysis of Financial Conditions and Results of
Operations" for additional information regarding seasonality and backlog.
CUSTOMERS
We sell our products and services to OEMs, carriers and product
distributors located throughout the world. The OEM market for our products
consists of a relatively small number of potential customers. The carrier market
for our products, while experiencing some consolidation, is a larger and more
broadly dispersed market.
7
During 2001, our OEM customers accounted for 42.6% of our total sales and
our carriers accounted for 57.4% of our total sales. During 2001, Siemens AG
accounted for 10.2% of our sales and was our only customer to account for more
than 10.0% of our total sales. Our top ten customers for 2001 were:
Alcatel SA Nortel Networks Corporation
AT&T Wireless, Inc. Orange SA
Lucent Technologies Inc. Siemens AG
Motorola, Inc. Sprint Corporation
Nextel Communications, Inc. Verizon Wireless
During 2001, our customers located outside the U.S. accounted for 60.8% of
our total sales. We believe that, since many of our domestic customers
incorporate our products into their products, many of which are ultimately
delivered to end-users located outside the U.S., a higher percentage of our
products is ultimately delivered to customers located outside the U.S.
SALES AND MARKETING
We dedicate a specific team of experienced and knowledgeable engineering,
sales and marketing professionals to market our products directly to each OEM
customer and many of our carrier customers. Each dedicated team provides
engineering and customer service support throughout and after the sales and
development cycle of a specific product, thereby developing collaborative
working relationships between our team and our customers' management,
engineering, technical, design, purchasing and production personnel. This
collaboration with multiple levels of a customer's organization, particularly
during the design, qualification and early production phases, allows us to
become an integral part of new product development and a logical supplier of
products for our customers.
We market and sell our products and services worldwide to carriers
primarily through our direct sales forces. We maintain sales offices in the
following 19 countries: Argentina, Australia, Austria, Brazil, Canada, China,
the Czech Republic, France, Germany, India, Italy, Mexico, Norway, Peru,
Singapore, Slovakia, Switzerland, the United Kingdom and the U.S. We supplement
our direct sales force with a network of manufacturers' representatives. Our
sales personnel are responsible for managing specified carrier accounts and
specified products or groups of products in their sales territories. These sales
personnel have the engineering and technical expertise to identify carriers'
needs and provide them with tailored solutions or off-the-shelf products.
RESEARCH AND DEVELOPMENT
We believe that our research and development competencies are key reasons
for our industry leadership position and are critical to our continued success.
Because the wireless communications industry is characterized by rapidly
changing technologies and evolving customer specifications and industry
standards, providers of products and services to the industry must continually
focus on their research and development efforts. Each of our product lines
consists of highly engineered, innovative products for our customers.
Generally, our research and development efforts are managed and focused on
a product by product basis. We have 12 research and development facilities
located in the Czech Republic, France, Germany, Italy and the U.S. and as of
December 31, 2001 we employed approximately 425 engineers and other technical
personnel who are dedicated to our research and development and other
engineering efforts. Our research and development and other engineering efforts
generally can be characterized as follows:
- we collaborate closely with many of our customers to design and build new
products or modify existing products to exacting specifications required
by our customers for their network systems and solutions;
- we design and manufacture enhancements and improvements to our existing
products in response to our OEM or carrier customers' requests or
feedback; and
8
- we independently design and build new products in anticipation of
changing wireless communications technologies, evolving customer
specifications and industry standards, developing market opportunities or
changing market dynamics.
As a result of our collaborative relationships with our customers, we
believe we are able to compete more effectively. Collaboration with our
customers allows us to:
- reduce the costs and minimize the risks of research and development for
us and our customers;
- reduce the costs and time associated with establishing new markets for
our products;
- establish ready markets for our products that meet our customers'
specifications;
- solidify and enhance our working relationships with our customers; and
- share our technical expertise and experience with our customers.
For additional information concerning research and development
expenditures, see "Research and Development Costs" in Note 1 of Notes to
Consolidated Financial Statements on page F-9 in this Annual Report on Form
10-K.
INTELLECTUAL PROPERTY
We hold over 100 patents, and have a number of patents pending, in the
U.S., Canada and certain European countries. While we consider our patents to be
of significant value, we believe that our technological position depends
primarily on the experience, the technical competence and the creative ability
of our engineering and production staff in the areas of product design and
manufacturing. We also hold a number of registered trademarks to protect certain
of our brand names.
We zealously protect our patents, copyrights, trademarks, trade secrets and
other proprietary information and intellectual property. Our company policies
require our key employees and any third party to whom we release proprietary
information to execute confidentiality agreements.
MANUFACTURING
We believe that our core competencies of product design technology,
engineering expertise, proprietary manufacturing processes and comprehensive
testing permit us to consistently meet or exceed our customers' quality
specifications. All of our OEM and many of our carrier customers have recognized
our ability to consistently meet or exceed exacting product specifications by
granting us qualified vendor status, which gives us a competitive advantage over
our competitors who have not achieved that status. We maintain 16 manufacturing
facilities located in Australia, Brazil, China, the Czech Republic, France,
Germany, Italy, Mexico and the U.S., most of which are ISO-9001 or ISO-9002
certified.
A substantial amount of our component production is outsourced to contract
manufacturers, many of whom also hold such ISO-9001 or ISO-9002 certification.
Our practice of outsourcing a portion of our manufacturing needs permits us to
maintain a flexible workforce and meet fluctuating customer demands and
requirements.
We generally attempt to utilize several alternative supplier sources for
the raw materials, subsystems and components required for our products. For
certain raw materials or components, however, we utilize a small number of
suppliers and, in very few instances, a single source supplier. In these
instances, we believe the risks associated with purchasing raw materials or
components from a limited number of suppliers are justified by the suppliers'
commitment to us, which is consistent with our commitment to our customers, to
provide lower pricing, more timely delivery and higher quality. We believe that,
together with our contract manufacturers and planned manufacturing plant
expansion, we have the capacity to meet the anticipated orders for our products.
9
BUSINESS SEGMENTS, FOREIGN OPERATIONS AND EXPORT SALES
Information relating to the Company's business segments, foreign and
domestic operations and export sales is included herein on pages F-22 and F-23,
"Industry Segment and Geographic Data", in Note 8 of the Notes to Consolidated
Financial Statements of this Annual Report on Form 10-K.
COMPETITION
The base station subsystems and components market for our products is
highly competitive. In the base station subsystems and components market, we
compete primarily with Allgon AB, Filtronic PLC, Radio Frequency Systems, Inc.,
a division of Alcatel SA, and REMEC, Inc.
There is an increasing number of competitors supplying products and
services to carriers. Our primary competitors for our base station and mobile
antenna products are Allgon AB, Andrew Corporation, EMS Technologies, Inc.,
Kathrein, Inc. and Radio Frequency Systems, Inc., a division of Alcatel SA. For
our repeater, test and measurement equipment and in-building coverage products,
our primary competitors are Agilent Technologies, Inc., Allgon AB, Kathrein,
Inc., LGC Wireless Inc. and Repeater Technologies, Inc. Our primary competitors
for our wireless engineering and consulting services are LCC International and
Wireless Facilities, Inc. In the geolocation products market, our primary
competitor for our geolocation products is TruePosition, Inc. In addition,
competitors for our geolocation products include a number of manufacturers who
have developed or proposed handsets for the handset-based geolocation solution.
We believe that we are currently one of the top three competitors in the
markets for our base station subsystems and components, repeaters and
in-building products and base station antennas, and are a leading competitor in
the markets for our wireless engineering and consulting services and mobile
antennas. Some of our competitors have substantially greater financial,
marketing and other resources and better name recognition than we do. We believe
the principal factors that allow us to compete effectively in our marketplace
include:
- our ability to manufacture high volume, quality products in a timely
manner;
- the strength of existing customer relationships;
- proximity to existing and potential customers of our sales force, product
development and manufacturing facilities;
- low cost production and competitive pricing;
- our strong reputation and well-recognized brands;
- accountability and customer service;
- financial resources;
- management expertise; and
- expertise in existing and emerging technologies.
In addition to these factors, we believe that our ability to develop and
manufacture our E 911 geolocation products in-house provides us with a
competitive advantage over many of our competitors.
GOVERNMENT REGULATION
Certain of our wireless communications products must conform to a variety
of domestic, foreign and international regulatory specifications established to,
among other things, maintain public safety, avoid interference among users of
radio frequencies and permit interconnection of equipment. Regulatory bodies
worldwide have adopted and are adopting or revising standards for wireless
communications products, which standards may change from time to time. The
emergence or evolution of regulations and industry standards for wireless
products, through official standards committees or widespread use by operators,
could require us to modify our products.
Our business depends on the availability of radio frequencies to carriers
for use in the operation of two-way wireless communications systems. Radio
frequencies are subject to extensive regulation under the
10
laws of the United States, foreign laws and international treaties. Each country
has different regulations and regulatory processes for wireless communications
equipment and uses of radio frequencies. The regulatory environment in which our
customers operate is subject to significant change, the results and timing of
which are uncertain. The process of establishing new regulations for wireless
frequencies and allocating such frequencies to carriers is complex and lengthy.
For example, in many countries, including the U.S., it may take years before 3G
wireless communications will be available to the public because of the need to:
(i) determine what frequencies to use for the service; (ii) clear the necessary
spectrum of its current users, if necessary; (iii) establish regulations for
this new wireless service; (iv) auction the spectrum or otherwise determine the
frequency licensees; and (v) build out the necessary infrastructure. Our
customers and potential customers may not be able to obtain spectrum licenses
for their planned uses of our equipment. Failure by the regulatory authorities
to allocate suitable, sufficient radio frequencies for such uses in a timely
manner could deter potential customers from ordering our products and seriously
harm our business.
Unlike calls placed from landline telephones in the U.S., calls for
emergency assistance from wireless phones are not currently traceable to
specific locations. In response to this public safety issue, the FCC issued a
series of orders requiring that carriers implement a system to locate callers as
early as October 2001. The rules specify that network-based solutions must cover
either one-half of such carrier's coverage area or one-half of such carrier's
subscribers commencing the later of October 1, 2001 or six months after the
local public safety answering point has requested the service, and the entire
coverage area or all subscribers by October 1, 2002 or within 18 months of a
request by a local public safety answering point, whichever is later. Carriers
choosing handset-based systems must begin marketing handsets commencing October
1, 2001 and may activate only handsets that are geolocation-capable after
December 31, 2002. Handset-electing carriers will further be required to have
reached 95% penetration of all handsets with geolocation capability by December
31, 2005. Carriers must choose between satisfying the FCC's requirements under a
handset-based approach or a network-based approach or petition the FCC for a
waiver allowing an extension of the implementation deadline for a hybrid or
different approach. We offer a network-based system for locating cellular phone
users making 911 calls. Most carriers, however, have indicated to the FCC that
they will adopt handset-based or other alternative solutions. Most carriers are
seeking waivers and/or delays in the FCC's implementation of these requirements
and the FCC has granted a waiver to one carrier allowing a hybrid approach and
delaying such carrier's implementation requirements. Our sales of this product
will be affected by any changes in the FCC's E 911 rollout or other
requirements, by the decisions of carriers to use network-based, handset-based
or other E 911 systems and the timing of requests made by local public safety
answering points.
EMPLOYEES
As of December 31, 2001, we had approximately 2,700 employees. We believe
our future success will depend on our continued ability to attract, retain,
integrate and motivate qualified personnel. None of our employees is represented
by a labor union and we have not experienced any work stoppage in any of our
existing businesses. We place a high value on maintaining a rewarding work
environment for our employees, who we believe are a key factor in our success.
We consider our relationship with our employees to be good.
ABOUT US
Allen Telecom was founded in 1928 as Allen Electric & Equipment Company. We
have repositioned our business through a series of strategic acquisitions and
divestitures during the 1990s and have been known as Allen Telecom Inc. since
February 1997. Our common stock was first listed on the New York Stock Exchange
in September 1971.
Our executive offices are located at 25101 Chagrin Boulevard, Beachwood,
Ohio 44122-5687, and our telephone number is (216) 765-5800.
Allen Telecom, Antenna Specialists, Comsearch, Decibel, Extend-A-Cell,
FOREM, GEOMETRIX, Grayson Wireless, MIKOM, On-Glass, Tekmar Sistemi and Telia
are our trademarks, registered
11
trademarks, service marks or registered service marks in the U.S. or other
jurisdictions that are mentioned in this prospectus. All other trademarks,
servicemarks or trade names referred to in this prospectus are the property of
their respective owners.
ITEM 2 -- PROPERTIES
As of December 31, 2001, our continuing operations were conducted in 54
facilities in ten states in the United States and 19 foreign countries. Our
product development, manufacturing and distribution facilities for our Wireless
Communications Equipment segment occupy approximately 1.2 million square feet of
which approximately 1.0 million square feet are rented under operating leases.
Our principal manufacturing and service facilities for the Wireless
Communications Equipment segment are located in Australia, Brazil, China, the
Czech Republic, France, Germany, Italy, Mexico, Massachusetts, Nevada, Ohio,
Texas and Virginia. Our Wireless Engineering and Consulting Services segment
leases approximately 67,000 square feet in Virginia.
All machinery, plants, warehouses and office spaces are in good condition
and are reasonably suited and adequate for the purposes for which they are
presently used.
ITEM 3 -- LEGAL PROCEEDINGS
On December 11, 2001, a lawsuit was filed against us in the United States
District Court for the District of Delaware by a competitor, TruePosition, Inc.,
and its subsidiary, KSI, Inc. The plaintiffs allege that we, through our Grayson
Wireless Division, have infringed three patents in connection with our GEOMETRIX
wireless geolocation business. The plaintiffs seek injunctive relief,
compensatory and treble damages and attorneys' fees. In our answer filed on
January 18, 2002, we have denied the plaintiffs' allegations and have asserted a
counterclaim against the plaintiffs of infringement of one of our patents. We
believe that we have meritorious defenses against the claims asserted by the
plaintiffs, and intend to vigorously defend the lawsuit. However, we cannot
assure you that we will ultimately prevail in this action. Whether we ultimately
win or lose, litigation could be time-consuming and costly and injure our
reputation. If the plaintiffs prevail in this action, we may be required to
negotiate royalty or license agreements with respect to the patents at issue,
and may not be able to enter into such agreements on acceptable terms. Any
limitation on our ability to provide a service or product could cause us to lose
revenue-generating opportunities and require us to incur additional expenses. We
may also be required to indemnify our customers for any expenses or liabilities
resulting from the claimed infringements. These potential costs and expenses, as
well as the need to pay any damages awarded in favor of the plaintiffs, could
adversely affect the Company's business, financial position, results of
operations or cash flow.
We are also a party to various other legal proceedings, lawsuits and other
claims arising in the ordinary course of our business involving such matters as
contract disputes, product liability, casualty claims, employment practices and
intellectual property infringement. We do not believe that such other
litigation, if adversely determined, would have a material adverse effect on our
business, financial position, results of operations or cash flow.
For additional information see the last paragraph of Note 5, "Commitments
and Contingencies" on page F-17 of this Annual Report on Form 10-K.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS
Our executive officers and their respective ages and positions are set
forth below.
NAME AGE POSITION
---- --- --------
Robert G. Paul............................ 59 President, Chief Executive Officer and Director
Robert A. Youdelman....................... 59 Executive Vice President and Chief Financial Officer
Peter G. de Villiers...................... 48 Vice President
James L. LePorte, III..................... 47 Vice President -- Finance
Laura C. Meagher.......................... 41 Secretary and General Counsel
Roger L. Schroeder........................ 48 Treasurer and Assistant Secretary
---------------
Set forth below is biographical information for our executive officers
listed above.
Robert G. Paul has been our President since December 1989 and our Chief
Executive Officer since February 1991 and has served as a director since March
1990. He was our Chief Operating Officer from December 1989 to February 1991,
Senior Vice President -- Finance from April 1987 to December 1989, Vice
President -- Finance from January 1987 to April 1987 and a Vice President from
1974 to January 1987. He also was President of the Antenna Specialists Company
from 1978 to June 1990. Mr. Paul joined us in 1970 as an Assistant to the
President and also served as Assistant Treasurer from 1970 to 1972. He was
elected our Treasurer in 1972 and Vice President and Treasurer in 1974. Mr. Paul
also is a Director of Rogers Corporation.
Robert A. Youdelman joined us in 1977 as Director of Taxes and was elected
Vice President -- Taxation in February 1980. In December 1989, he was elected
our Senior Vice President -- Finance, Chief Financial Officer and Assistant
Secretary and was promoted to Executive Vice President in February 1997. Mr.
Youdelman is an attorney.
Peter G. de Villiers joined us in July 1992 upon our acquisition of
Alliance Telecommunications Corporation, where he served as Vice
President -- Marketing and Sales from March 1991 to June 1993. Mr. de Villiers
served as Vice President -- Strategic Planning for a subsidiary of Allen Telecom
upon the merger of Alliance into the subsidiary in June 1993 until February
1997. In February 1997, he was elected Vice President.
James L. LePorte, III joined us in 1981 as Senior Financial Analyst. In
1983, he was appointed Manager of Financial Analysis and, in 1984, was named
Assistant Controller. Mr. LePorte was elected our Controller in April 1988,
elected a Vice President in December 1990, and served as our Treasurer from
September 1995 to February 1999. Mr. LePorte was elected Vice
President -- Finance in April 1999.
Laura C. Meagher joined us in 1999 as Corporate Counsel and was elected
Secretary and General Counsel in September 1999. Prior to joining us, Ms.
Meagher was an attorney with the law firm of Benesch, Friedlander, Coplan &
Aronoff LLP, Cleveland, Ohio, from September 1989 to August 1999.
Roger L. Schroeder joined us in 1981 as an Internal Auditor. In 1984, he
was appointed Manager of Financial Analysis. He was promoted to Director of
Financial Analysis in 1988 and named Director of Financial Analysis and
Insurance in 1993. Mr. Schroeder was elected Assistant Secretary in December
1992 and Assistant Treasurer in April 1997, and was promoted to Treasurer and
Assistant Secretary in February 1999.
There is no family relationship between any of our executive officers. All
of our officers hold office until the first meeting of directors following the
annual meeting of stockholders and until their successors have been elected and
qualified.
13
PART II
ITEM 5 -- MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been traded on the New York Stock Exchange since
September 1971 under the symbol "ALN." Our common stock is also listed on the
Pacific Exchange. The following table sets forth, for the periods indicated, the
range of high and low sales prices of our common stock as reported by the Dow
Jones Composite, which includes the New York Stock Exchange, the American Stock
Exchange and all regional markets.
HIGH LOW
------ ------
YEAR ENDED DECEMBER 31, 1999:
First Quarter............................................... $ 8.69 $ 4.50
Second Quarter.............................................. 11.88 5.75
Third Quarter............................................... 11.50 7.88
Fourth Quarter.............................................. 12.38 8.00
YEAR ENDED DECEMBER 31, 2000:
First Quarter............................................... $19.94 $10.56
Second Quarter.............................................. 20.00 12.88
Third Quarter............................................... 21.94 15.69
Fourth Quarter.............................................. 24.00 14.13
YEAR ENDED DECEMBER 31, 2001:
First Quarter............................................... $21.75 $11.60
Second Quarter.............................................. 15.00 10.80
Third Quarter............................................... 14.80 6.63
Fourth Quarter.............................................. 9.64 6.85
On February 26, 2002, there were approximately 1,652 holders of record of
our common stock. For the years ended 1996 through 2001 the Company paid no cash
or stock dividends.
The Company's debt agreements restrict, under limited circumstances, our
ability to pay cash dividends without the bank's consent. Further, our ability
to pay cash dividends may be dependent, in part, on our subsidiaries' ability to
make cash dividends and other payments to us.
For additional information see the last paragraph of Note 2, "Financing,"
on Page F-12 and Note 9 on Page F-24 of this Annual Report on Form 10-K.
ITEM 6 -- SELECTED CONSOLIDATED FINANCIAL DATA
Selected consolidated financial data of the Company for each of the past
five years is as follows (amounts in thousands, except per share data):
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
Sales................................... $435,253 $390,644 $336,213 $392,608 $394,601
Income (loss) from continuing
operations............................ 23,981 (5,512) (5,218) 10,753 (1,823)
Income (loss) per common share from
continuing operations
Basic.............................. 0.89 (0.21) (0.19) 0.38 (0.06)
Diluted............................ 0.88 (0.21) (0.19) 0.38 (0.06)
Total assets............................ 514,433 465,585 451,430 473,022 511,956
Total debt.............................. 104,034 140,233 123,086 138,435 152,848
Cash dividends declared per common
share................................. -- -- -- -- --
14
See also "Critical Accounting Policies" as set forth in Item
7 - Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 22 of this Annual Report on Form 10-K.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and notes thereto included in a separate section beginning on page
F-1 of this Report.
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.
We were founded in 1928 as Allen Electric & Equipment Company and have been
listed on the New York Stock Exchange since September 1971. We repositioned our
business through a series of strategic acquisitions and divestitures during the
1990s and have been known as Allen Telecom Inc. since February 1997.
Sales. Our sales are derived primarily from wireless infrastructure
equipment and engineering services provided to wireless communications original
equipment manufacturers, or OEMs, and carriers. We make the majority of our
communications equipment sales pursuant to orders received under master purchase
agreements or specific purchase contracts, and our wireless engineering services
are typically provided on the basis of time and materials or specific service
contracts. Sales are recorded at the time products are shipped or services are
performed.
We derive a significant portion of our sales from some of the world's
largest carriers and OEMs. Our top 10 customers accounted for 47.7%, 55.2% and
55.2% of total sales in 1999, 2000 and 2001, respectively. Siemens AG, our
largest customer in 2001, accounted for 10.2% of total sales in 2001. Siemens AG
was the only customer in 2001 to account for more than 10% of total sales. In
2000, Nortel Networks Corporation accounted for 15.2% of total sales and was the
only customer to account for more than 10% of sales. No individual customer
accounted for more than 10% of our total sales in 1999.
We manufacture, distribute and market our products to the following
geographic regions: Asia, Australia, Europe, Latin America and North America.
International sales constituted approximately 58.7%, 58.5% and 60.8% of total
sales in 1999, 2000 and 2001, respectively. We expect international sales as a
percentage of total sales to increase over the next several years as we benefit
from the expected build out of 3G wireless networks, primarily in Europe,
although increasing sales of geolocation products in the United States are
expected to mitigate this trend. Export sales from the U.S. are primarily to
major carriers and are typically payable in U.S. dollars. European-based sales
are to major OEMs and carriers, and are typically denominated in Euros. As a
result of our international position, we are subject to foreign currency
translation fluctuations that impact the amount of sales we report in U.S.
dollars for financial reporting purposes. Other than these translation effects,
we do not believe that such currency fluctuations have significantly impacted
our competitive position or our sales to domestic or international customers for
either our U.S. or international operations.
Our annual revenue growth in the past few years has been largely dependent
upon the overall growth rate of wireless telecommunications infrastructure
equipment spending, which includes spending by both OEMs, principally for our
base station subsystems and components product line, and carriers for our other
product lines. An independent study by the Yankee Group in September 2001
indicates that wireless
15
telecommunications equipment spending will increase slightly from $99.4 billion
in 2001 to $100.1 billion in 2002. Several of our OEM customers have publicly
indicated that 2002 revenues are difficult to forecast based upon industry
uncertainties. However, certain OEMs have provided guidance that suggests lower
sequential revenue in the first quarter of 2002, followed by modest sequential
growth in the second half of 2002. Our carrier customers have provided limited
public guidance with respect to their 2002 capital spending, and many of them
have reduced their capital spending budgets based upon their own cash flow and
profitability restraints. We cannot be certain that our results in any
particular period will be consistent with future wireless telecommunications
spending patterns of OEMs and carriers.
Our historical sales have reflected seasonal fluctuations due to the effect
of less infrastructure build out and product installations in the winter months,
primarily as a result of the impact of inclement weather conditions in the large
northern hemisphere markets of Europe and North America.
We report our sales in two segments, Wireless Communications Equipment and
Wireless Engineering and Consulting Services. Our Wireless Communications
Equipment segment consists of four product lines. The following table sets forth
our sales by segments and product lines:
YEAR ENDED DECEMBER 31,
------------------------------------------------
SALES BY SEGMENTS AND PRODUCT LINES 1999 2000 2001
----------------------------------- -------------- -------------- --------------
($ MILLIONS)
Wireless Communications Equipment:
Base Station Subsystems and Components... $143.3 42.6% $190.9 48.6% $183.0 46.3%
Repeaters and In-Building Coverage
Products.............................. 93.5 27.8% 78.8 20.1% 94.5 24.0%
Base Station and Mobile Antennas......... 76.8 22.9% 97.8 24.9% 88.2 22.4%
Geolocation Products..................... -- -- -- -- 7.8 2.0%
------ ----- ------ ----- ------ -----
Total Wireless Communications
Equipment........................... 313.6 93.3% 367.5 93.6% 373.5 94.7%
Wireless Engineering and Consulting
Services................................. 22.6 6.7% 25.1 6.4% 21.1 5.3%
------ ----- ------ ----- ------ -----
Total Sales........................... $336.2 100.0% $392.6 100.0% $394.6 100.0%
====== ===== ====== ===== ====== =====
Backlog. Backlog includes all purchase orders and contracts for products
and services with requested delivery dates within one year. Generally, purchase
orders are subject to cancellation at the request of the customer. Cancelled
orders are, in some instances, subject to cancellation or restocking charges
payable to us.
Cost of Sales. Cost of sales consists primarily of: (i) direct material
costs of production components; (ii) production salaries, wages and employee
benefits; (iii) fees paid to contract manufacturers; (iv) costs of our
manufacturing facilities, including rent, depreciation, utilities, maintenance
and insurance; and (v) indirect supervisory manufacturing salaries, wages and
employee benefits.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses generally include salaries, wages, commissions, employee
benefits, travel and entertainment, communications, third party professional
fees, bad debt expense and a portion of facility expenses related to sales and
administrative activities.
Research and Development and Product Engineering Costs. Research and
development and product engineering costs relate to our engineering and
technical operations and include salaries, wages, employee benefits, test
equipment, test labs, third party contract research, prototype expenses and
related facility expenses. Over the last three years, we have invested a
significant portion of our research and development resources in our new
initiatives, including products for emerging 3G networks, E 911 geolocation
products and next generation power amplifiers.
Other Income, Net. Other income, net principally includes non-recurring
gains and losses relating to the sale of investments.
Income Taxes. We operate our business in 19 countries and accrue and pay
income taxes in each of those countries in accordance with each country's tax
rates and rules.
16
Reporting Matter. In order to facilitate the timely preparation of our
financial statements on a consolidated basis, we historically included the
results of our principal European operations 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 our
operations. The results of operations (net income of $2.4 million) for these
European operations for November and December 2000 were recorded directly to
retained earnings in the first quarter of 2001. The results of operations for
the period January 1, 2001 through December 31, 2001 were included in the 2001
reported results of operations.
RESULTS OF OPERATIONS
The following table sets forth our consolidated results of operations as a
percentage of sales for the periods shown:
YEAR ENDED DECEMBER 31,
------------------------
1999 2000 2001
------ ------ ------
Sales....................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 73.5 70.7 75.1
----- ----- -----
Gross profit.............................................. 26.5 29.3 24.9
Operating expenses:
Selling, general and administrative expenses.............. 16.3 13.8 14.4
Research and development and product engineering costs.... 8.3 6.5 6.6
Amortization of goodwill.................................. 2.1 2.0 2.0
----- ----- -----
Operating (loss) income..................................... (0.2) 7.0 1.9
Other income, net........................................... 1.0 -- --
Net interest expense........................................ 2.4 2.3 2.6
----- ----- -----
(Loss) Income before taxes and minority interests........... (1.6) 4.7 (0.7)
Benefit from (provision for) income taxes................... 0.5 (1.9) 0.3
Minority interests.......................................... (0.5) -- (0.1)
----- ----- -----
(Loss) income from continuing operations.................... (1.6)% 2.8% (0.5)%
===== ===== =====
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Sales. Sales increased slightly to $394.6 million in 2001 from $392.6
million in 2000. As a result of the lower-valued Euro compared to the U.S.
dollar, our reported sales, when translated into U.S. dollars, were $5.3 million
lower in 2001 than they would have been had the average exchange rate remained
constant from 2000 to 2001.
Sales from our Wireless Communications Equipment segment increased $6.0
million, or 1.6%, to $373.5 million in 2001 from $367.5 million in 2000
primarily due to greater demand for repeater and in-building coverage products
and sales of geolocation products, partially offset by a decline in sales of
base station subsystems and components and base station and mobile antennas.
Sales of repeater and in-building coverage products increased 20.0% in 2001 from
2000 due primarily to increased repeater sales to European carriers. The
decrease in sales of base station subsystems and components and base station and
mobile antennas products was principally attributable to a decline in base
station deployments around the world as well as increased competition which
resulted in lower pricing to our customers.
Sales from our Wireless Engineering and Consulting Services segment
decreased $4.0 million, or 16.1%, to $21.1 million in 2001 from $25.1 million in
2000 primarily due to a decrease in demand in the U.S. for consulting services
by fixed wireless operators. Sales in the last four months of 2001 were
particularly weak, partially due to a decrease in consulting activity following
the attack of September 11, 2001.
17
International sales constituted approximately 58.5% and 60.8% of total
sales in 2000 and 2001, respectively. This increased percent of international
sales is attributable to the increase in sales of repeater products to European
carriers and an increase in sales of base station antennas in China.
Geographically, all regions experienced a small decrease in sales in 2001 from
2000, with the exception of Asia, which had an increase in customer sales to
China.
Backlog. Backlog increased $12.1 million, or 10.9%, to $123.4 million at
December 31, 2001 from $111.3 million at December 31, 2000. Backlog for our
Wireless Communications Equipment segment increased $15.7 million to $122.6
million at December 31, 2001 from $106.9 million at December 31, 2000
principally due to the acquisition of Bartley R.F. Systems, Inc. ("Bartley") and
a significant increase in the backlog for geolocation products. Backlog of all
other product lines declined by $41.1 million from year to year. Backlog for our
Wireless Engineering and Consulting Services segment decreased $3.5 million to
$0.9 million at December 31, 2001 from $4.4 million at December 31, 2000.
Gross Profit. Gross profit decreased $16.7 million, or 14.5%, to $98.3
million in 2001 from $114.9 million in 2000. Our gross profit margin decreased
to 24.9% in 2001 from 29.3% in 2000 principally due to higher restructuring
costs charged to cost of sales, increased price discounting, and changes in
product mix with more sales of lower margin coverage projects, microwave radio
and booster products and less sales of higher margin measurement and software
products. Restructuring charges of $1.0 million were recorded in 2001 compared
with restructuring charges of $0.1 million recorded in 2000. Excluding
restructuring charges, our gross profit margins would have been 25.2% in 2001
and 29.3% in 2000. For more information on restructuring costs please refer to
Note 12 in the Notes to Consolidated Financial Statements.
Gross profit margins for our Wireless Communications Equipment segment
decreased to 24.9% in 2001 from 28.5% in 2000 and, excluding restructuring
charges, would have been 25.2% in 2001 and 28.6% in 2000. This decline in gross
profit margin is attributable to more competitive pricing and increased sales of
lower margin products, including boosters, microwave radios and coverage
projects.
Gross profit margins for our Wireless Engineering and Consulting Services
segment decreased to 25.6% in 2001 from 39.0% in 2000 primarily due to decreased
sales of higher margin software, and decreased utilization of our engineers for
various engineering services projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.5 million, or 4.6%, to $56.8 million in
2001 from $54.3 million in 2000 primarily due to higher restructuring charges in
2001 as well as an increase in pension expense (the year 2000 had a pension
curtailment gain of $0.8 million). Excluding special charges, these expenses
would have been $55.5 million or 14.1% of sales, in 2001 and $54.4 million, or
13.9% of sales, in 2000.
Selling, general and administrative expenses for our Wireless
Communications Equipment segment increased $4.1 million, or 10.0%, in 2001 from
2000 due to higher restructuring costs and higher pension expense, as well as
higher selling expenses in our repeaters and in building coverage product line.
Special charges associated with restructuring actions were $1.3 million in 2001.
As a percentage of sales, excluding special charges, these expenses increased to
11.9% in 2001 from 11.3% in 2000.
Selling, general and administrative expenses for our Wireless Engineering
and Consulting Services segment decreased $1.0 million, or 18.5%, in 2001 from
2000. As a percentage of sales, these expenses declined to 20.7% in 2001 from
21.3% in 2000 as a result of continuing cost controls with the downturn in sales
during the year.
Research and Development and Product Engineering Costs. Research and
development and product engineering costs increased $0.7 million, or 2.5%, to
$26.1 million in 2001 from $25.4 million in 2000. As a percentage of sales,
these costs remained relatively constant in 2001 and 2000. Our research and
development and product engineering costs in 2000 and 2001 related exclusively
to our Wireless Communications Equipment segment.
18
Amortization of Goodwill. Goodwill amortization increased slightly to $7.9
million in 2001 from $7.8 million in 2000. See "-- Impact of New Accounting
Pronouncements" below for additional information.
Net Interest Expense. Net interest expense increased $1.2 million, or
13.4%, to $10.2 million in 2001 from $9.0 million in 2000. The increase in net
interest expense is primarily due to increased debt levels and lower interest
income offset, in part, by lower borrowing rates. The increased debt levels were
due to increased working capital needs in 2001.
Income Taxes. Income tax expense decreased by $8.6 million in 2001, to a
tax benefit of $1.1 million as compared to a tax expense of $7.5 million in
2000. The effective tax rate decreased to 39.0% in 2001 from 41.0% in 2000. The
principal reasons for the decrease are due to lower statutory rates at our
foreign subsidiaries and an increase in income in lower tax jurisdictions.
Through December 31, 2001, we have recorded a net U.S. deferred tax asset
pertaining to the recognition of net operating loss carryforwards, net
deductible temporary differences and tax credits in the amount of $41.8 million,
up from $32.6 million at December 31, 2000. The increase of $9.2 million in the
deferred tax asset in 2001 is caused by the tax effects of a U.S. loss of
approximately $21.2 million and tax credits generated in 2001. The tax losses
generally may be carried forward for up to 20 years and expire between the years
2011 and 2021. We have not provided a valuation reserve 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 primarily upon our expectation that future
U.S. operations will be sufficiently profitable (notwithstanding recent losses)
to utilize the operating loss carryforwards, and various tax, business and other
planning strategies available to the company. We cannot assure you that we will
be able to realize this asset or that future valuation allowances will not be
required. The failure to utilize this asset would adversely affect our results
of operations and financial position. See also "Critical Accounting Policies"
below and Note 7 of the Notes to Consolidated Financial Statements.
Minority Interests. Minority interests expense remained constant at $0.1
million in both 2001 and 2000.
Special Charges. In 2001, the Company recognized a pretax restructuring
charge of approximately $2.3 million, or $.05 per basic and diluted share after
related income tax effect, with respect to the closing and consolidation of the
Company's U.S. base station subsystems and components manufacturing facility in
Nevada into the newly acquired Bartley manufacturing facility in Massachusetts.
Of the cost, approximately $1.0 million is in cost of sales and $1.3 million is
in selling, general and administrative expenses. The Company expects to incur
all but approximately $250,000 of these restructuring costs in 2002.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Sales. Sales increased $56.4 million, or 16.8%, to $392.6 million in 2000
from $336.2 million in 1999. As a result of the lower-valued Euro compared to
the U.S. dollar, our reported sales, when translated into U.S. dollars, were
$27.1 million lower in 2000 than they would have been had the average exchange
rate remained constant from 1999 to 2000.
Sales from our Wireless Communications Equipment segment increased $53.9
million, or 17.2%, to $367.5 million in 2000 from $313.6 million in 1999
primarily due to greater demand for base station subsystems and components and
base station and mobile antennas, partially offset by a decline in sales of
repeaters and in-building coverage products. Sales of base station subsystems
and components increased 33.2% in 2000 from 1999 due primarily to increased base
station deployments around the world. Sales of base station and mobile antennas
increased 27.3% in 2000 from 1999 primarily due to increased deployments of cell
sites in the U.S. that included our base station antenna products. The decline
in sales of repeater and in-building coverage products was principally
attributable to lower sales of certain test and measurement products and
decreased repeater sales to some European carriers.
19
Sales from our Wireless Engineering and Consulting Services segment
increased $2.5 million, or 11.1%, to $25.1 million in 2000 from $22.6 million in
1999 primarily due to greater demand for consulting services by fixed wireless
operators.
International sales constituted approximately 59% of total sales in both
1999 and 2000. Geographically, all regions experienced an increase in sales in
2000 from 1999, with the exception of Asia, which had a decrease in sales to
customers in China.
Backlog. Backlog increased $26.4 million, or 31.1%, to $111.3 million at
December 31, 2000 from $84.9 million at December 31, 1999. Backlog for our
Wireless Communications Equipment segment increased $23.3 million to $106.9
million at December 31, 2000 from $83.6 million at December 31, 1999. Backlog
for our Wireless Engineering and Consulting Services segment increased $3.1
million to $4.4 million at December 31, 2000 from $1.3 million at December 31,
1999.
Gross Profit. Gross profit increased $25.8 million, or 28.9%, to $114.9
million in 2000 from $89.1 million in 1999. Our gross profit margin increased to
29.3% in 2000 from 26.5% in 1999 principally due to lower restructuring charges
of $0.1 million recorded in 2000 compared to $6.1 million recorded in 1999, and
the cost benefits resulting from these restructuring actions. Excluding
restructuring charges, our gross profit margins would have increased to 29.3% in
2000 from 28.3% in 1999 primarily due to improved gross profit margins for our
Wireless Engineering and Consulting Services segment.
Gross profit margins for our Wireless Communications Equipment segment
increased to 28.5% in 2000 from 26.5% in 1999 and, excluding restructuring
charges, would have remained relatively constant at 28.6% in 2000 and at 28.5%
in 1999.
Gross profit margins for our Wireless Engineering and Consulting Services
segment increased to 39.0% in 2000 from 27.4% in 1999 primarily due to increased
sales of higher margin software, and increased utilization of our engineers for
various engineering services projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $0.5 million, or 1.0%, to $54.3 million in
2000 from $54.8 million in 1999 primarily due to lower restructuring charges as
well as cost savings related to these restructuring actions, partially offset by
higher commissions and incentive compensation costs. Special charges associated
with restructuring actions were $5.9 million in 1999. Excluding special charges,
these expenses would have been $54.4 million, or 13.9% of sales, in 2000 and
$48.9 million, or 14.6% of sales, in 1999.
Selling, general and administrative expenses for our Wireless
Communications Equipment segment declined $2.4 million, or 5.5%, in 2000 from
1999 primarily due to lower restructuring charges. Special charges associated
with restructuring actions were $5.9 million in 1999. As a percentage of sales,
excluding special charges, these expenses declined to 11.3% in 2000 from 12.1%
in 1999 due to savings resulting from restructuring actions and general cost
controls as sales increased.
Selling, general and administrative expenses for our Wireless Engineering
and Consulting Services segment increased $0.2 million, or 4.0%, in 2000 from
1999. As a percentage of sales, these expenses declined to 21.3% in 2000 from
22.8% in 1999 as a result of increased sales with continuing cost controls.
Research and Development and Product Engineering Costs. Research and
development and product engineering costs decreased $2.5 million, or 9.0%, to
$25.4 million in 2000 from $27.9 million in 1999 primarily due to the
divestiture of Signal Science Inc., or SSI, in October 1999. SSI primarily
provided contract research and development services to the U.S. government.
Excluding $3.2 million of research and development costs related to SSI in 1999,
these costs increased $0.7 million, or 2.7%, in 2000 from 1999. As a percentage
of sales, these costs, excluding expenses related to SSI, remained relatively
constant at approximately 7% in 2000 and 1999. Our research and development and
product engineering costs in 1999 and 2000 related exclusively to our Wireless
Communications Equipment segment.
Amortization of Goodwill. Goodwill amortization increased $0.8 million, or
11.4%, to $7.8 million in 2000 from $7.0 million in 1999 primarily due to the
acquisition of minority interests in certain of our European subsidiaries during
2000 and 1999.
20
Net Interest Expense. Net interest expense increased $0.9 million, or
10.9%, to $9.0 million in 2000 from $8.1 million in 1999. This increase in net
interest expense is primarily due to increased debt levels and higher borrowing
costs. The increased debt levels were due to increased working capital needs,
higher capital expenditures, as well as acquisitions of minority interests in
certain of our European subsidiaries during 1999 and 2000, partially offset by
proceeds from the sale of investments and discontinued operations.
Income Taxes. Income tax expense increased $9.3 million to $7.5 million in
2000 from a tax benefit of $1.8 million in 1999. The effective tax rate of 41.0%
in 2000 is higher than the federal statutory rate of 35.0% primarily as a result
of goodwill amortization of $7.7 million that is not deductible for tax
purposes.
Minority Interests. Minority interests expense decreased $1.6 million to
$0.1 million in 2000 from $1.7 million in 1999 primarily due to the acquisition
of the remaining minority interests in certain of our European subsidiaries in
2000 and 1999.
Special Charges. With respect to restructuring actions which commenced in
1999, we incurred additional charges and gains in 2000, which resulted in a
$35,000 net gain, including the following: (i) a pretax charge of $1.7 million
primarily related to termination costs of employees, relocation costs, asset
write-offs, and other termination related benefits which were not accruable at
the time of the 1999 restructuring; (ii) a non-cash pretax gain of $1.2 million
with respect to a pension curtailment gain resulting from the workforce
reduction; and (iii) a gain of $0.5 million in the form of an adjustment to the
loss accrual for the disposal of a facility sold in January 2001. Of this
$35,000 net gain, a $106,000 charge was recorded in cost of sales and a gain of
$141,000 was recorded in selling, general and administrative expenses. Please
refer to Note 12 of the Notes to Consolidated Financial Statements for
additional information regarding special charges in 1999 and 2000.
Impact of New Accounting Pronouncements. In June 2001, the Financial
Accounting Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 141 (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 implemented
SFAS No. 141 for acquisitions (Bartley) subsequent to June 30, 2001.
In June 2001, the FASB 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. We are required to implement SFAS No. 142 on January 1, 2002 and
have not determined, in all cases, the impact that this statement will have on
our consolidated financial position or results of operations. Earnings per
common share for the periods ending December 31, 1999, 2000 and 2001 would have
increased by approximately $.26 per share in 1999 and $.28 per share in 2000 and
2001 as a result of excluding the amortization of goodwill, which will be
eliminated in 2002 when the new Standard goes into effect.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-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) normal operation of a long-lived
asset. SFAS 143 is effective at the beginning January 1, 2003. We believe the
adoption of SFAS 143 will not, at this time, have a material impact on our
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 SFAS 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
21
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. We will adopt SFAS
No. 144 on January 1, 2002, as required; however, adoption of the statement is
not expected to have a material impact on our consolidated financial position or
results of operations, if any, at this time.
Critical Accounting Policies: We believe there are three important
accounting policies which could significantly impact our results of operation
and financial position in the future. The first pertains to the recognition of
the deferred tax asset with respect to net operating loss carryforwards in the
United States, the second relates to our accounting for slow moving and obsolete
inventory, and the third relates to revenue recognition.
At December 31, 2001, we had a net operating loss carryforward in the U.S.
of approximately $94.4 million (see Note 7 of the Notes to Consolidated
Financial Statements) and recorded a deferred tax asset with respect to such net
operating loss carryforward, together with net deductible temporary differences
and tax credits, in the total amount of $41.8 million. This deferred tax asset
increased $9.2 million from $32.6 million at December 31, 2000, primarily due to
an increase in the net operating loss carryforward in the United States caused
by the tax effects of a U.S. loss of approximately $21.2 million and tax credits
in 2001. We have not recorded a valuation reserve with respect to this deferred
tax asset because we believe the eventual realization of the asset is more
likely than not. This determination is based primarily on our expectation that
future U.S. operations will be sufficiently profitable (notwithstanding recent
losses) to utilize the operating loss carryforwards before they expire, and
various tax, business and other planning strategies available to us. It is
possible that operating results could continue to generate losses in the U.S. if
sales do not improve over current levels, and it is possible that the various
tax planning strategies available to us will be insufficient to fully utilize
the net operating loss carryforward. If that were the case, the Company would
record a valuation reserve relating to the deferred tax asset.
We have $17.0 million of reserves for slow moving and obsolete inventory at
December 31, 2001 compared to $14.0 million of inventory reserves at December
31, 2000. We regularly and routinely examine the need for such inventory
reserves at each of our businesses and make adjustments accordingly. We
consider, among other things, the amount of inventory on hand, as compared to
historical and projected usage of such inventory, when considering the
appropriate level of reserves. Our businesses are in the wireless
telecommunications industry, which is characterized by rapid technological
changes, which in turn result in rapid product design changes and new product
introductions. These rapid changes in technology and new product introductions
result, from time to time, in inventory obsolescence and the requirement for
inventory valuation reserves.
Our normal practice for recognizing revenue is at the time products are
shipped or services are performed. We also have limited amounts of sales of
software, engineering services and maintenance agreements which require us to
consider additional accounting rules as to when revenue should be recognized. As
described in Note 1 of the Notes to Consolidated Financial Statements, our
revenue recognition policies are in compliance with American Institute of
Certified Public Accountants Statement of Position 97-2 on software revenue
recognition. Sales of licensed products are recorded when shipped. Maintenance
revenue which is derived under separate contract, is recognized ratably over the
contract period. Our sales of services, including software, wireless
engineering, consulting and maintenance services, were less than 10% of
consolidated revenues and, accordingly, these service sales are not separately
stated in our Consolidated Statements of Operations.
22
QUARTERLY RESULTS OF OPERATIONS
The following are our unaudited quarterly consolidated statements of
operations for 2001 and 2000. We have prepared this unaudited information on a
basis consistent with the audited consolidated financial statements and have
included all adjustments, consisting only of normal recurring adjustments, that
we considered necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should read this quarterly
financial data in conjunction with the historical Condensed Consolidated
Financial Statements and the related notes thereto included in our Quarterly
Reports on Form 10-Q filed with the Securities and Exchange Commission. In 2000
and 2001, we recorded several non-recurring items that impacted the
comparability of quarterly financial results, including restructuring charges.
Please refer to Note 13 of the Notes to Consolidated Financial Statements for
additional information regarding these items.
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
2000 2000 2000 2000 2001 2001 2001 2001
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
Sales......................... $88,859 $89,175 $107,690 $106,884 $108,543 $105,094 $91,319 $89,645
Cost of sales................. 63,477 61,591 75,760 76,838 78,639 77,983 69,877 69,843
------- ------- -------- -------- -------- -------- ------- -------
Gross profit................ 25,382 27,584 31,930 30,046 29,904 27,111 21,442 19,802
Operating expenses:
Selling, general and
administrative expenses... 14,343 13,137 13,373 13,418 14,365 13,988 13,864 14,559
Research and development and
product engineering
costs..................... 6,186 6,381 6,924 5,951 6,900 7,170 5,908 6,108
Amortization of goodwill.... 1,918 1,943 1,980 1,981 1,980 1,987 1,968 1,966
------- ------- -------- -------- -------- -------- ------- -------
Operating income (loss)..... 2,935 6,123 9,653 8,696 6,659 3,966 (298) (2,831)
Net interest expense.......... 1,961 2,208 2,369 2,495 2,595 2,510 2,375 2,767
------- ------- -------- -------- -------- -------- ------- -------
Income (loss) before taxes
and minority interest..... 974 3,915 7,284 6,201 4,064 1,456 (2,673) (5,598)
(Provision for) benefit from
income taxes................ (391) (1,634) (2,966) (2,539) (1,585) (565) 1,040 2,183
Minority interest............. (13) (39) (33) (6) (42) (45) (29) (29)
------- ------- -------- -------- -------- -------- ------- -------
Income (loss) from
continuing operations..... 570 2,242 4,285 3,656 2,437 846 (1,662) (3,444)
Discontinued operations....... 1,300 -- -- -- -- -- -- --
------- ------- -------- -------- -------- -------- ------- -------
Net income (loss)........... $ 1,870 $ 2,242 $ 4,285 $ 3,656 $ 2,437 $ 846 $(1,662) $(3,444)
======= ======= ======== ======== ======== ======== ======= =======
LIQUIDITY AND CAPITAL RESOURCES
As set forth in the Consolidated Statements of Cash Flows, $0.5 million of
cash was used by operations for the year ended December 31, 2001 as compared to
$2.6 million of cash used in the comparable 2000 period. This improvement in
cash usage is due primarily to collection of accounts receivable and a
deceleration of the increase in inventory, partially offset by lower income and
lower trade payables. From December 31, 1999 through March 31, 2001, our
consolidated inventory increased $60.0 million to $142.7 million, primarily to
support increasing sales levels and customer requirements for continued sales
growth beyond March 31, 2001. Our sales peaked in the first quarter 2001, and we
have had sequential quarterly declines in sales throughout the balance of 2001.
As a response to this decline in customer demand, we cut back production levels,
scaled back material receipts and reduced headcount. As a result of these
actions, our inventory declined by $24.8 million from March 31, 2001 to December
31, 2001, excluding the impact of the inventories received in the Bartley
acquisition in December 2001. We plan to continue to reduce inventory levels in
2002, but we expect the inventory decline in 2002 to be more modest than the
nine-month inventory reduction ending December 31, 2001.
23
We used $13.1 million in investing activities in 2001, due principally to
$10.0 million of capital expenditures and our acquisition of Bartley, offset, in
part, by proceeds from the sale of an unused facility. For the year 2000, $26.1
million of cash was used for investing activities, including $15.0 million of
capital expenditures and $8.5 million for the purchase of minority interests in
subsidiaries. We plan to spend up to $14.0 million for capital expenditures in
2002, and at December 31, 2001, $0.9 million of such expenditures is committed.
Cash used by financing activities for the year 2001 was $2.3 million, which
includes the repayment of borrowings offset, in part, by $4.9 million of cash
generated from a sale and leaseback transaction, as more fully described in Note
2 of the Notes to Consolidated Financial Statements. In 2000, cash generated by
financing activities was $20.8 million, resulting primarily from increased
borrowings. We changed the fiscal year-end of certain of our foreign
subsidiaries effective January 1, 2001. The Consolidated Statements of Cash
Flows for 2001 now includes these operations for the twelve-month period ended
December 31, 2001. The net cash flow for the two-month period ended December 31,
2000 of $20.4 million was primarily attributable to a $16.8 million increase in
borrowings and is shown separately in the Statements of Cash Flows. Note 1 of
the Notes to Consolidated Financial Statements includes the components of this
$20.4 million increase in cash.
At December 31, 2001, we had a total of $152.4 million lines of credit (see
the table below), and available unused worldwide lines of credit of $71.4
million, as compared with $63.9 million of available unused lines of credit at
December 31, 2000. Of the $71.4 million of available unused credit lines at
December 31, 2001, approximately $47.4 million of such lines are with various
European banks and expire in 2002. It is our intention to renew these credit
lines in 2002 for an additional one-year term. At December 31, 2001, we entered
into an amendment to our $105.0 million domestic revolving credit facility,
which expires December 31, 2003, that modified the financial covenants to levels
we believe can be achieved under current market conditions, and which provided
for enhanced collateralization of certain assets (see Note 2 of the Notes to
Consolidated Financial Statements).
AMOUNT OF COMMITMENT EXPIRATION PER PERIOD (AMOUNTS IN THOUSANDS)
--------------------------------------------------------------------
TOTAL AMOUNTS LESS THAN ONE TO THREE FOUR TO FIVE AFTER FIVE
OTHER COMMERCIAL COMMITMENTS (A) COMMITTED ONE YEAR YEARS YEARS YEARS
-------------------------------- ------------- --------- ------------ ------------ ----------
Lines of Credit..................... $152,400 $47,400 $105,000 -- --
Standby Letters of Credit (B)....... -- -- -- -- --
-------- ------- -------- --- ---
Total Commercial Commitments........ $152,400 $47,400 $105,000 -- --
======== ======= ======== === ===
---------------
(A) We have no guarantees, standby repurchase obligations or other commercial
commitments at December 31, 2001.
(B) Up to $25.0 million of standby letters of credit availability is included in
the lines of credit commitment.
The following is a summary of the timing of payments due for various
contractual obligations at December 31, 2001 including long-term debt, capital
lease obligations and operating leases. During 2003, approximately $67.0 million
of debt outstanding at December 31, 2001 under the Company's domestic revolving
credit agreement becomes due. It is the Company's intention to refinance these
borrowings under a similar agreement prior to the expiration of this revolving
credit agreement at December 31, 2003.
PAYMENTS DUE BY PERIOD (AMOUNTS IN THOUSANDS)
------------------------------------------------------------
LESS THAN ONE TO FOUR TO AFTER
CONTRACTUAL OBLIGATIONS (A) TOTAL ONE YEAR THREE YEARS FIVE YEARS FIVE YEARS
--------------------------- -------- --------- ----------- ---------- ----------
Long-Term Debt.......................... $148,542 $11,490 $ 87,396 $17,539 $32,117
Capital Lease Obligations............... 6,652 1,174 1,907 1,435 2,136
Operating Leases........................ 40,505 7,155 13,030 7,880 12,440
-------- ------- -------- ------- -------
Total Contractual Cash Obligations...... $195,699 $19,819 $102,333 $26,854 $46,693
======== ======= ======== ======= =======
---------------
(A) We have no unconditional purchase obligations or other long-term obligations
at December 31, 2001.
24
We have entered into a program to lease some of our test equipment and
computer workstation equipment. The program is expected to improve our economics
and cash flow when compared to purchasing this equipment directly. We leased
approximately $5.0 million of equipment in 2001 under this program and expect to
lease approximately $1.0 million in 2002. These lease transactions are being
recorded as operating leases in our consolidated financial statements.
In December 2001, we acquired substantially all the assets and certain
liabilities of Bartley. The cost of the acquisition includes the issuance of
approximately 2.3 million common shares of Allen Telecom Inc. common stock, as
well as $0.4 million of cash payments to Bartley and the repayment of $3.2
million of debt, as more fully described in Note 9 of the Notes to Consolidated
Financial Statements.
We examine, from time to time, various strategic acquisitions in order to
accelerate growth in our product lines. In addition, our geolocation product
line has the potential for significant sales growth if additional carriers
choose us for network-based geolocation systems. Were we to invest in strategic
acquisitions or require a significant investment in working capital resulting
from the rapid expansion of our E 911 geolocation products business, we may need
to consider the need for additional financing. We have filed a Registration
Statement with the Securities and Exchange Commission to register one million
shares of convertible preferred stock, with an aggregate offering price of $50.0
million. The Registration Statement also covers the additional shares to be
issued if the underwriters exercise the over allotment option to purchase up to
an additional 150,000 shares. Most of the proceeds from this offering will be
used to repay a portion of the indebtedness outstanding under our domestic
revolving credit facility and will provide for additional flexibility under our
credit lines for financing working capital growth or strategic investments. Our
domestic revolving credit facility of $105.0 million is subject to a reduction
in commitment levels by the lesser of $30.0 million or 60% of the net proceeds
from this offering.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure relating to derivatives results from the
use of foreign currency forward contracts to offset the impact of currency rates
against accounts receivable. There were no open contracts related to accounts
receivable as of December 31, 2001. We entered into several foreign currency
forward contracts in 2001 to offset the impact of currency rate change with
regard to certain intercompany payable obligations which were still open at
December 31, 2001. We do not enter into derivative instrument transactions for
trading or speculative purposes.
Our on-balance sheet instruments that are subject to interest rate
fluctuations are various components of long-term debt. We believe the risks are
minimal. As of December 31, 2001, 48.7% of our long-term debt is fixed rate debt
and not subject to interest rate fluctuation. The variable rate debt is
primarily made up of our domestic revolving credit facility and industrial
revenue bonds. The domestic revolving credit debt interest is determined on a
LIBOR or prime rate basis, at our option. The industrial development bonds carry
interest rates that are established based on the low yield, tax free bond
market.
The tables below provide information about our derivative transactions and
other financial instruments that are sensitive to changes in exchange and
interest rates. For derivative instruments, the table presents December 31, 2001
and December 31, 2002 contract amounts and related average contractual exchange
rates by expected maturity date. For debt obligations at December 31, 2001, the
table presents principal payments and related weighted average interest rates by
expected maturity dates.
25
CONTRACT VALUE FAIR VALUE
AT DATES MATURING IN AT DATES MATURING IN
--------------------- ---------------------
ANTICIPATED TRANSACTIONS AND RELATED DERIVATIVES 2001 2002 2001 2002
(U.S. $ EQUIVALENT IN THOUSANDS) --------- --------- --------- ---------
Canadian Dollar Functional Currency (CAD)
Foreign Exchange Agreements:
Receive U.S. dollars/Pay Canadian dollars
Contract Amount............................... -- $ 325.4 -- $ 324.5
Avg. Contractual Exchange Rate................ -- 1.5862 -- 1.5917
Euro Functional Currency (EURO)
Foreign Exchange Agreements:
Receive U.S. dollars/Pay Euros
Contract Amount............................... $ 988.6 -- $1,036.4 --
Avg. Contractual Exchange Rate................ 1.1127 -- 1.0613 --
Receive Euros/Pay U.S. dollars
Contract Amount............................... -- $2,004.2 -- $2,047.9
Avg. Contractual Exchange Rate................ -- 0.8714 -- 0.8904
German Mark Functional Currency (DM)
Foreign Exchange Agreements:
Receive DM/Pay U.S. dollars
Contract Amount............................... $1,784.7 -- $1,929.8 --
Avg. Contractual Exchange Rate................ 0.4462 -- 0.4825 --
EXPECTED MATURITY DATE
---------------------------------------------------------- FAIR
DEBT OBLIGATIONS 2002 2003 2004 2005 2006 THEREAFTER TOTAL VALUE
(U.S. $ EQUIVALENT IN THOUSANDS) ------- ------- ------- ------ ------ ---------- ------- -------
Long Term Debt:
Fixed Rate (US)............ $10,975 $10,979 $ 7,986 $7,980 $7,975 $17,168 $63,063 $63,063
Avg. interest rate....... 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% 6.6%
Fixed Rate (EURO).......... $ 1,343 $ 1,628 $ 1,048 $1,220 $1,240 $ 5,419 $11,898 $11,898
Avg. interest rate....... 5.7% 5.0% 4.1% 3.8% 3.7% 3.2% 3.9% 3.9%
Variable Rate (US)......... -- $67,005 -- -- -- $11,900 $78,905 $78,905
Avg. interest rate....... -- 6.0% -- -- -- 2.6% 5.5% 5.5%
Variable Rate (EURO)....... -- $ 33 -- -- -- -- $ 33 $ 33
Avg. interest rate....... -- 6.1% -- -- -- -- 6.1% 6.1%
26
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this Item is submitted herein on pages 25 to 26
in this Annual Report on Form 10-K.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements, together with notes and the report of
Deloitte & Touche LLP, independent accountants, are listed in Item 14(a) and
included herein beginning on page F-1.
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10 -- DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item relating to the Company's executive
officers is included on page 13 hereof under "EXECUTIVE OFFICERS OF THE
REGISTRANT" and is incorporated herein by reference to "EXECUTIVE COMPENSATION
AND TRANSACTIONS WITH MANAGEMENT -- Employment, Termination of Employment and
Change of Control Arrangements" set forth in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to
Section 14(a) of the Securities Act of 1934. Other information required by this
Item is incorporated herein by reference to "ELECTION OF DIRECTORS --
Information Regarding Nominees" and to "Compliance with Section 16(a) of the
Securities Exchange Act", set forth in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to
Section 14(a) of the Securities Exchange Act of 1934.
ITEM 11 -- EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
to "ELECTION OF DIRECTORS -- Compensation of Directors" and to "EXECUTIVE
COMPENSATION AND TRANSACTIONS WITH MANAGEMENT" set forth in the Registrant's
definitive proxy statement to be filed with the Securities and Exchange
Commission pursuant to Section 14(a) of the Securities Exchange Act of 1934.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
to "STOCK OWNERSHIP" set forth in the Registrant's definitive proxy statement to
be filed with the Securities and Exchange Commission pursuant to Section 14(a)
of the Securities Exchange Act of 1934.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
to "EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT -- Transactions with
Executive Officers and Directors" set forth in the Registrant's definitive proxy
statement to be filed with the Securities and Exchange Commission pursuant to
Section 14(a) of the Securities Exchange Act of 1934.
27
PART IV
ITEM 14 -- EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Report:
(1) INDEX TO FINANCIAL STATEMENTS AND INDEPENDENT ACCOUNTANT'S REPORT.
The financial statements required by this Item are submitted on page F-1 of
this Annual Report on Form 10-K.
PAGE
----
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 2000 and
2001...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 2000 and 2001.......................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001.......................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 1999, 2000 and 2001.................. F-6
Notes to Consolidated Financial Statements.................. F-7
(2)FINANCIAL STATEMENT SCHEDULES
The following additional information should be read in conjunction with the
Consolidated Financial Statements of the Registrant described in Item 14(a)(1)
above:
FINANCIAL STATEMENT SCHEDULES OF THE REGISTRANT
Valuation and Qualifying Accounts Schedule, on page F-30 of this Annual
Report on Form 10-K
Schedules other than the schedule listed above are omitted because they are
not required, are not applicable or are included elsewhere in the Notes to
Consolidated Financial Statement beginning on page F-7 of this Annual Report on
10-K.
(3) EXHIBITS*
The information required by this Item relating to Exhibits to this Annual
Report on Form 10-K is included in the Exhibit Index on pages 32 to 39 hereof.
(b) REPORTS ON FORM 8-K
None.
---------------
* A copy of any of the Exhibits to this Annual Report will be furnished to
persons who request a copy upon the payment of a fee of $.25 per page to cover
the Company's duplication and handling expenses.
28
SAFE HARBOR CAUTIONARY STATEMENT
Statements included in this Annual Report on Form 10-K, 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 incurred, savings realized and timing
of the integration of acquisitions, such as the integration of Bartley R.F.
Systems and the consolidation of the Company's Nevada facility into Bartley's
Amesbury, MA facility; the cost, success and timetable for new product
development including, for example, products for 3G, E 911 and power
amplification; the health, economic stability and relative currency valuations
in world and national markets; the cost and outcome of litigation, including,
for example, a lawsuit filed by a competitor in the E 911 geolocation business
claiming infringement by the Company of intellectual property rights; the cost
and availability of capital and financing to the Company and its customers; 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;
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 ability of the company to generate future U.S. profits or to
implement other tax planning strategies needed to utilize the Company's tax loss
carry forwards; 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; 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. Allen Telecom Inc.'s Quarterly
Reports on Form 10-Q may contain additional factors.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/ ROBERT A. YOUDELMAN
------------------------------------
Robert A. Youdelman
Executive Vice President
Chief Financial Officer and
Assistant Secretary
Date: February 28, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE DATE
--------- ----
/s/ ROBERT G. PAUL February 28, 2002
-----------------------------------------------------
Robert G. Paul, President, Chief Executive
Officer and Director (Principal Executive Officer)
/s/ ROBERT A. YOUDELMAN February 28, 2002
-----------------------------------------------------
Robert A. Youdelman, Executive Vice President
Chief Financial Officer (Principal Financial
Officer)
/s/ JAMES L. LEPORTE III February 28, 2002
-----------------------------------------------------
James L. LePorte III, Vice President-Finance
(Principal Accounting Officer)
/s/ PHILIP WM. COLBURN February 28, 2002
-----------------------------------------------------
Philip Wm. Colburn, Chairman of the Board
and Director
/s/ J. CHISHOLM LYONS February 28, 2002
-----------------------------------------------------
J. Chisholm Lyons, Vice Chairman of the Board and
Director
/s/ SHELDON I. AUSMAN February 28, 2002
-----------------------------------------------------
Sheldon I. Ausman, Director
30
SIGNATURE DATE
--------- ----
/s/ JOHN F. MCNIFF February 28, 2002
-----------------------------------------------------
John F. McNiff, Director
/s/ CHARLES W. ROBINSON February 28, 2002
-----------------------------------------------------
Charles W. Robinson, Director
/s/ MARTYN F. ROETTER February 28, 2002
-----------------------------------------------------
Martyn F. Roetter, Director
/s/ GARY B. SMITH February 28, 2002
-----------------------------------------------------
Gary B. Smith, Director
/s/ KATHLEEN M. H. WALLMAN February 28, 2002
-----------------------------------------------------
Kathleen M. H. Wallman, Director
31
EXHIBIT INDEX
EXHIBIT NUMBERS
---------------
(3) Certificate of Incorporation and By Laws --
(a) Second Restated Certificate of Incorporation (filed as
Exhibit Number 4(a) to Registrant's Registration Statement
on Form S-8, Registration No. 333-51739, filed on May 4,
1998 (Commission file number 1-6016) and incorporated herein
by reference)
(b) Certificate of Designation, Preferences and Rights of Series
C Junior Participating Preferred Stock (filed as Exhibit
Number 4(c) to Registrant's Registration Statement on Form
S-8 Registration No. 333-51739, filed on May 4, 1998
(Commission file number 1-6016) and incorporated herein by
reference)
(c) By-Laws, as amended through February 16, 1999, filed as
Exhibit Number 3(c) to Registrant's Form 10-K Annual Report
for the fiscal year ended December 31, 1998 (Commission file
number 1-6016 and incorporated herein by reference)
(4) Instruments defining the rights of security holders --
(a) Rights Agreement, dated as of January 20, 1998, between the
Registrant and Harris Trust Company of New York, as Rights
Agent (filed as Exhibit Number 4.1 to Registrant's Form 8-K
Registration Statement on Form 8-A, filed on January 9, 1998
(Commission file number 1-6016) and incorporated herein by
reference)
(b) Credit Agreement, dated as of December 31, 1998, among the
Registrant, the Banks signatories thereto, NBD Bank, as
Documentation Agent, and Key Bank National Association, as
Swing Line Lender, Syndication Agent and Administrative
Agent filed as Exhibit 4(b) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1998
(Commission file number 1-6016 and incorporated herein by
reference)
(c) Amendment dated as of July 30, 1999 to the Credit Agreement
dated as of December 31, 1998 among Registrant, the Banks
signatories thereto, NBD Bank, as Documentation Agent, and
Key Bank National Association, as Swing Line Lender,
Syndication Agent and Administrative Agent (filed as Exhibit
4(c) to Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1999 (Commission File Number 1-6016)
and incorporated herein by reference)
(d) Amendment No. 2, dated as of April 19, 2000, to Credit
Agreement dated as of December 31, 1998 among the
Registrant, the Banks signatories thereto, NBD Bank, as
Documentation Agent, and Key Bank National Association, as
Swing Line Lender, Syndication Agent and Administrative
Agent (filed as Exhibit 10(a) to Registrant's Form 10-Q
Quarterly Report for the quarter ended March 31, 2000
(Com-mission file number 1-6016) and incorporated herein by
reference)
(e) Amendment No. 3, dated as of November 15, 2000 to Credit
Agreement dated as of December 31, 1998 among the
Registrant, the Banks signatories thereto, NBD Bank, as
Documentation Agent, and Key Bank National Association, as
Swing Line Lender, Syndication Agent and Administrative
Agent (filed as Exhibit 4(e) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 2000
(Commission File Number 1-6016) and incorporated herein by
reference)
(f) Amendment No. 4, dated as of June 19, 2001, to Credit
Agreement dated as of December 31, 1998 among the
Registrant, the Banks signatories thereto, NBD Bank as
Documentation Agent, and KeyBank National Association, as
Swingline Lender, Syndication Agent and Administrative Agent
(filed as Exhibit 4.1 to Registrant's Form 10-Q Quarterly
Report for the quarter ended June 30, 2001 (Commission file
number 1-6016) and incorporated herein by reference)
32
EXHIBIT NUMBERS
---------------
(g) Amendment No. 5, dated as of September 28, 2001, to Credit
Agreement dated as of December 31, 1998 among the
Registrant, the Banks signatories thereto, NBD Bank as
Documentation Agent, and KeyBank National Association as
Swingline Lender, Syndication Agent and Administrative Agent
(filed as Exhibit 4.1 to Registrant's Form 10-Q Quarterly
Report for the quarter ended September 30, 2001 (Commission
file number 1-6016) and incorporated herein reference)
(h) Amendment No. 6, dated as of November 15, 2001, to Credit
Agreement dated as of December 31, 1998 among the
Registrant, the Banks signatories thereto, NBD Bank, as
Documentation Agent, and KeyBank National Association, as
Swingline Lender, Syndication Agent and Administrative Agent
(i) Amendment No. 7, dated as of December 31, 2001, to Credit
Agreement dated as of December 31, 1998 among the
Registrant, the Banks signatories thereto, NBD Bank, as
Documentation Agent, and KeyBank National Association as
Swingline Lender, Syndication Agent and Administrative Agent
(j) Note Purchase Agreement, dated as of November 1, 1997, among
the Registrant and the insurance companies signatories
thereto (filed as Exhibit Number 4(c) to Registrant's Form
10-K Annual Report for the fiscal year ended December 31,
1997 (Commission file number 1-6016) and incorporated herein
by reference)
Additional information concerning Registrant's long-term
debt is set forth in Note 2, "Financing," of the Notes to
Consolidated Financial Statements on page 17 of Registrant's
2000 Annual Report to Stockholders, a copy of which is filed
as Exhibit 13 to this Report. Other than the Credit
Agreement and Note Purchase Agreement referred to above, no
instrument defining the rights of holders of such long-term
debt relates to securities having an aggregate principal
amount in excess of 10% of the consolidated assets of
Registrant and its subsidiaries; therefore, in accordance
with paragraph (iii) of Item 4 of Item 601(b) of Regulation
S-K, the other instruments defining the rights of holders of
long-term debt are not filed herewith. Registrant hereby
agrees to furnish a copy of any such other instrument to the
Securities and Exchange Commission upon request.
(10) Material contracts (Other than Exhibit 10(a), all of the exhibits
listed as material contracts hereunder are management contracts or
compensatory plans or arrangements required to be filed as exhibits to
this Report pursuant to Item 14(c) of this Report.)
(a) Allen Telecom Inc. 1982 Stock Plan, as amended through
November 3, 1987 (filed as Exhibit Number 10(c) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1987 (Commission file number 1-6016) and
incorporated herein by reference)
(b) Amendment, dated as of December 4, 1990, to the Allen
Telecom Inc. 1982 Stock Plan, as amended (filed as Exhibit
Number 10(d) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1990 (Commission file number
1-6016) and incorporated herein by reference)
(c) Amendment, dated as of June 14, 1995, to the Allen Telecom
Inc. 1982 Stock Plan, as amended (filed as Exhibit Number
10.1 to Registrant's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 1995 (Commission file number
1-6016) and incorporated herein by reference)
(d) Amendment, dated as of February 28, 1997, to the Allen
Telecom Inc. 1982 Stock Plan, as amended (filed as Exhibit
Number 10(e) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1996 (Commission file number
1-6016) and incorporated herein by reference)
33
EXHIBIT NUMBERS
---------------
(e) Amendment, dated as of April 28, 2000, to the Allen Telecom
Inc. 1982 Stock Plan, as amended (filed as Exhibit Number
10(a) to Registrant's Form 10-Q Quarterly Report for the
quarterly period ended June 30, 2000 (Commission file number
1-6016) and incorporated herein by reference)
(f) Form of Restricted Stock Agreement pursuant to the Allen
Telecom Inc. 1982 Stock Plan, as amended (filed as Exhibit
Number 10(e) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1990 (Commission file number
1-6016) and incorporated herein by reference)
(g) Allen Telecom Inc. 1992 Stock Plan, as amended and restated
as of May 1, 1998 (filed as Exhibit Number 4(e) to
Registrant's Registration Statement on Form S-8,
Registration No. 333-51739, filed on May 4, 1998 (Commission
file number 1-6016) and incorporated herein by reference)
(h) Amendment, dated July 11, 2001, to the Allen Telecom Inc.
1992 Stock Plan, as amended (filed as Exhibit 10.1 to
Registrant's Form 10-Q Quarterly Report for the quarter
ended June 30, 2001 (Commission file number 1-6016) and
incorporated herein by reference)
(i) Form of Restricted Stock Agreement pursuant to Allen Telecom
Inc. 1992 Stock Plan (Salary Increase Deferral), dated April
28, 1992, entered into by the Registrant with certain
executive and divisional officers (filed as Exhibit Number
10(g) to Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1992 (Commission file number 1-6016)
and incorporated herein by reference)
(j) Form of Restricted Stock Agreement pursuant to Allen Telecom
Inc. 1992 Stock Plan (Salary Increase Deferral), dated
November 30, 1993, entered into by the Registrant with
certain executive and divisional officers (filed as Exhibit
Number 10(g) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1993 (Commission file number
1-6016) and incorporated herein by reference)
(k) Amendment to Restricted Stock Agreements pursuant to 1992
Stock Plan (Salary Increase Deferral), dated February 22,
1995 (filed as Exhibit Number 10(l) to Registrant's Form
10-K Annual Report for the fiscal year ended December 31,
1994 (Commission file number 1-6016) and incorporated herein
by reference)
(l) Amendment to Restricted Stock Agreements pursuant to 1992
Stock Plan (Salary Increase Deferral), dated April 25, 1997
(filed as Exhibit Number 10 to Registrant's Form 10-Q
Quarterly Report for the quarter ended March 31, 1997
(Commission file number 1-6016) and incorporated herein by
reference)
(m) Amendment to 1992 Restricted Stock Agreements pursuant to
1992 Stock Plan (Salary Increase Deferral), dated February
17, 1998 (filed as Exhibit Number 10(q) to Registrant's Form
10-K Annual Report for the fiscal year ended December 31,
1997 (Commission file number 1-6016) and incorporated herein
reference)
(n) Form of Restricted Stock Agreement pursuant to Allen Telecom
Inc. 1992 Stock Plan (Salary Increase Deferral), dated
January 12, 1999, entered into by the Registrant with
certain executive and divisional officers (filed as Exhibit
Number 10(l) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1998 (Commission file number
1-6016) and incorporated herein by reference)
(o) Form of Non-Qualified Option to Purchase Stock granted to
certain directors of the Registrant on September 12, 1989
(filed as Exhibit Number 10(e) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1989
(Commission file number 1-6016) and incorporated herein by
reference)
34
EXHIBIT NUMBERS
---------------
(p) Form of Non-Qualified Option to Purchase Stock granted to
certain directors of the Registrant on February 19, 1997
(filed as Exhibit Number 10(q) to Registrant's Form 10-K
Annual Report for the Fiscal year ended December 31, 1996
(Commission filed number 1-6016) and incorporated herein by
reference)
(q) Allen Telecom Inc. 1994 Non-Employee Directors Stock Option
Plan (filed as Exhibit A to Registrant's Proxy Statement
dated March 17, 1994 (Commission file number 1-6016) and
incorporated herein by reference)
(r) First Amendment, dated as of February 28, 1997, to the Allen
Telecom Inc. 1994 Non-Employee Directors Stock Option Plan
(filed as Exhibit Number 10(s) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1996
(Commission file number 1-6016) and incorporated herein by
reference)
(s) Second Amendment, dated as of February 17, 1998, to the
Allen Telecom Inc. 1994 Non-Employee Directors Stock Option
Plan (filed as Exhibit Number 10(r) to Registrant's Form
10-K Annual Report for the fiscal year ended December 31,
1997 (Commission file number 1-6016) and incorporated herein
by reference)
(t) Amended and Restated Allen Telecom Inc. 1994 Non-Employee
Directors Stock Option Plan adopted by shareholders on April
27, 2001 (filed as Exhibit A to the Registrant's Proxy
Statement dated March 16, 2001 (Commission file number
1-6016) and incorporated herein by reference)
(u) Form of Non-Qualified Option to Purchase Stock pursuant to
the Allen Telecom Inc. 1994 Non-Employee Directors Stock
Option Plan (filed as Exhibit Number 10(o) to Registrant's
Form 10-K Annual Report for the fiscal year ended December
31, 1994 (Commission file number 1-6016) and incorporated
herein by reference)
(v) Allen Telecom Inc. Amended and Restated Key Management
Deferred Bonus Plan (incorporating all amendments through
February 27, 1992) (filed as Exhibit Number 10(i) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1992 (Commission file number 1-6016) and
incorporated herein by reference)
(w) Amendment, dated as of February 28, 1997, to the Allen
Telecom Inc. Amended and Restated Key Management Deferred
Bonus Plan (filed as Exhibit Number 10(v) to Registrant's
Form 10-K Annual Report for the fiscal year ended December
31, 1996 (Commission file number 1-6016) and incorporated
herein by reference)
(x) Form of Restricted Stock Agreement pursuant to the Allen
Telecom Inc. 1992 Stock Plan and Key Management Deferred
Bonus Plan (filed as Exhibit Number 10(j) to Registrant's
Form 10-K Annual Report for the fiscal year ended December
31, 1992 (Commission file number 1-6016) and incorporated
herein by reference)
(y) Form of Severance Agreement, dated as of September 8, 1999,
entered into by the Registrant with certain executive
officers, officers and division presidents (filed as Exhibit
Number 10(v) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1999 (Commission file number
1-6016) and incorporated herein by reference)
(z) Allen Telecom Inc. Master Discretionary Severance Pay Plan,
effective January 1, 1993 (filed as Exhibit Number 10(t) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1994 (Commission file number 1-6016) and
incorporated herein by reference)
(aa) First Amendment, dated as of February 28, 1997, to the Allen
Telecom Inc. Master Discretionary Severance Pay Plan (filed
as Exhibit Number 10(aa) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1996
(Commission file number 1-6016) and incorporated herein by
reference)
35
EXHIBIT NUMBERS
---------------
(bb) Allen Telecom Inc. Key Employee Severance Policy adopted by
the Registrant on November 3, 1987 (filed as Exhibit Number
10(h) to Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1987 (Commission file number 1-6016)
and incorporated herein by reference)
(cc) Amendment, dated May 14, 1991, to the Allen Telecom Inc. Key
Employee Severance Policy adopted by the Registrant on
November 3, 1987 (filed as Exhibit Number 10(n) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1992 (Commission file number 1-6016) and
incorporated herein by reference)
(dd) Amendment No. 2, dated February 22, 1996, to the Allen
Telecom Inc. Key Employee Severance Policy (filed as Exhibit
Number 10(x) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1995 (Commission file number
1-6016) and incorporated herein by reference)
(ee) Amendment No. 3, dated as of September 12, 1996, to the
Allen Telecom Inc. Key Employee Severance Policy (filed as
Exhibit Number 10 to Registrant's Form 10-Q Quarterly Report
for the quarter ended September 30, 1996 (Commission file
Number 1-6016) and incorporated herein by reference)
(ff) Amendment No. 4, dated as of February 28, 1997, to the Allen
Telecom Inc. Key Employee Severance Policy (filed as Exhibit
Number 10(ff) to Registrant's Form 10-K Annual Report for
the fiscal year ended December 31, 1996 (Commission file
number 1-6016) and incorporated herein by reference)
(gg) Amendment No. 5, dated as of February 24, 2000, to the Allen
Telecom Inc. Key Employee Severance Policy (filed as Exhibit
Number 10(b) to Registrant's Form 10-Q Quarterly Report for
the quarter ended March 31, 2000 (Commission file number
1-6016) and incorporated herein by reference)
(hh) Employment Agreement, dated June 28, 1988, between the
Registrant and Philip Wm. Colburn (filed as Exhibit Number
10(m) to Registrant's Form 10-K Annual Report for the fiscal
year ended December 31, 1988 (Commission file number 1-6016)
and incorporated herein by reference)
(ii) Amendment, dated as of February 27, 1992, of Employment
Agreement, dated June 28, 1988, between the Registrant and
Philip Wm. Colburn (filed as Exhibit Number 10(p) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1992 (Commission file number 1-6016) and
incorporated herein by reference)
(jj) Amendment, dated as of February 26, 1991, of Employment
Agreement, dated June 28, 1988, between the Registrant and
Philip Wm. Colburn (filed as Exhibit Number 10(n) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1990 (Commission file number 1-6016) and
incorporated herein by reference)
(kk) Amended and Restated Post Employment Consulting Agreement,
dated as of December 20, 1990, between the Registrant and
Philip Wm. Colburn (filed as Exhibit Number 10(o) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1990 (Commission file number 1-6016) and
incorporated herein by reference)
(ll) First Amendment to Amended and Restated Post Employment
Consulting Agreement, dated as of February 19, 1997, between
the Registrant and Philip Wm. Colburn (filed as Exhibit
Number 10(kk) to Registrant's Form 10-K Annual Report for
the fiscal year ended December 31, 1996 (Commission file
number 1-6016) and incorporated herein by reference)
36
EXHIBIT NUMBERS
---------------
(mm) Amended and Restated Supplemental Pension Benefit Agreement,
dated as of December 20, 1990, between the Registrant and
Philip Wm. Colburn (filed as Exhibit Number 10(p) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1990 (Commission file number 1-6016) and
incorporated herein by reference)
(nn) Amendment, dated as of August 1, 1997, of Amended and
Restated Supplemental Pension Benefit Agreement, dated as of
December 20, 1990, between the Registrant and Philip Wm.
Colburn (filed as Exhibit Number 10(pp) to Registrant's Form
10-K Annual Report for the fiscal year ended December 31,
1997 (Commission file number 1-6016) and incorporated herein
by reference)
(oo) Split Dollar Insurance Agreement, dated as of July 1, 1991,
between the Registrant and Philip Wm. Colburn (filed as
Exhibit Number 10(u) to Registrant's Form 10-K Annual Report
for the fiscal year ended December 31, 1992 (Commission file
number 1-6016) and incorporated herein by reference)
(pp) Change in Control Agreement dated as of September 8, 1999,
between the Registrant and Philip Wm. Colburn (filed as
Exhibit Number 10(ll) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1999
(Commission file number 1-6016) and incorporated herein by
reference)
(qq) Supplemental Pension Benefit Agreement, dated as of December
6, 1983, between the Registrant and J. Chisholm Lyons (filed
as Exhibit Number 10 (r) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1983
(Commission file number 1-6016) and incorporated herein by
reference)
(rr) Amendment, dated as of December 20, 1990, of Supplemental
Pension Benefit Agreement, dated as of December 6, 1983,
between the Registrant and J. Chisholm Lyons (filed as
Exhibit Number 10(s) to Registrant's Form 10-K Annual Report
for the fiscal year ended December 31, 1990 (Commission file
number 1-6016) and incorporated herein by reference)
(ss) Amendment, dated as of August 1, 1997 of Supplemental
Pension Benefit Agreement, dated as of December 6, 1983
between the Registrant and J. Chisholm Lyons (filed as
Exhibit No. 10(uu) to Registrant's Form 10-K Annual Report
for the fiscal year ended December 31, 1997 (Commission file
number 1-6016) and incorporated hereby reference)
(tt) Post Employment Consulting Agreement, dated as of September
12, 1989, between the Registrant and J. Chisholm Lyons
(filed as Exhibit Number 10(s) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1989
(Commission file number 1-6016) and incorporated herein by
reference)
(uu) Amendment, dated as of December 20, 1990, of Post Employment
Consulting Agreement, dated as of September 12, 1989 between
the Registrant and J. Chisholm Lyons (filed as Exhibit
Number 10(u) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1990 (Commission file number
1-6016) and incorporated herein by reference)
(vv) Change in Control Agreement dated as of September 8, 1999
between the Registrant and J. Chisholm Lyons (filed as
Exhibit Number 10(rr) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1999
(Commission file number 1-6016) and incorporated herein by
reference)
(ww) Employment Agreement, dated June 25, 1991, between the
Registrant and Robert G. Paul (filed as Exhibit Number 10(x)
to Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1991 (Commission file number 1-6016) and
incorporated herein by reference)
37
EXHIBIT NUMBERS
---------------
(xx) Supplemental Target Pension Benefit Agreement, dated as of
January 1, 1996, between the Registrant and Robert G. Paul
(filed as Exhibit Number (kk) to Registrant's Form 10-K
Annual Report for the fiscal year ended December 31, 1995
(Commission file number 1-6016) and incorporated herein by
reference)
(yy) Amendment, dated as of August 1, 1997, of Supplemental
Target Pension Benefit Agreement, dated as of January 1,
1996, between the Registrant and Robert G. Paul (filed as
Exhibit Number 10(zz) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1997
(Commission file number 1-6016) and incorporated herein by
reference)
(zz) Form of Split Dollar Insurance Agreement, dated as of
November 1, 1991, entered into by the registrant with
certain executive and divisional officers (filed as Exhibit
Number 10(bb) to Registrant's Form 10-K Annual Report for
the fiscal year ended December 31, 1992 (Commission file
number 1-6016) and incorporated herein by reference)
(aaa) Allen Telecom Inc. Deferred Compensation Plan, effective
December 1, 1995 (filed as Exhibit Number 10(mm) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1995 (Commission file number 1-6016) and
incorporated herein by reference)
(bbb) First Amendment to the Allen Telecom Inc. Deferred
Compensation Plan dated as of February 28, 1997 (filed as
Exhibit Number 10(ww) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1996
(Commission file number 1-6016) and incorporated herein by
reference)
(ccc) Allen Telecom Inc. Restoration Plan, effective January 1,
1996 (filed as Exhibit Number 10(nn) to Registrant's Form
10-K Annual Report for the fiscal year ended December 31,
1995 (Commission file number 1-6016) and incorporated herein
by reference)
(ddd) First Amendment to the Allen Telecom Inc. Restoration Plan,
dated as of February 28, 1997 (filed as Exhibit Number
10(yy) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1996 (Commission file number
1-6016) and incorporated herein by reference)
(eee) Comsearch Division Supplemental Savings Plan, effective
January 1, 1995 (filed as Exhibit Number 10(oo) to
Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1995 (Commission file number 1-6016) and
incorporated herein by reference)
(fff) First Amendment to the Comsearch Division Supplemental
Savings Plan, dated as of February 28, 1997 (filed as
Exhibit Number 10(aaa) to Registrant's Form 10-K Annual
Report for the fiscal year ended December 31, 1996
(Commission file number 1-6016) and incorporated herein by
reference)
(ggg) Amendment No. 2 to Comsearch Division Supplemental Savings
Plan, effective as of January 1, 2000 (filed as Exhibit
Number 10(ccc) to Registrant's Form 10-K Annual Report for
the fiscal year ended December 31, 1999 (Commission file
number 1-6016) and incorporated herein by reference)
(hhh) Form of Supplemental Target Pension Benefit Agreement, dated
as of January 1, 1996, entered into by the Registrant with
certain executive and divisional officers (filed as Exhibit
Number 10(pp) to Registrant's Form 10-K Annual Report for
the fiscal year ended December 31, 1995 (Commission file
number 1-6016) and incorporated herein by reference)
(iii) Form of Amendment, dated as of August 1, 1997, of
Supplemental Target Pension Benefit Agreement, dated as of
January 1, 1996, entered into by the Registrant with certain
executive and divisional officers (filed as Exhibit Number
10(kkk) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1997 (Commission file number
1-6016) and incorporated herein by reference)
38
EXHIBIT NUMBERS
---------------
(jjj) Allen Telecom Inc. Executive Benefit Plan, as amended and
restated effective October 15, 1997 (filed as Exhibit Number
10(jjj) to Registrant's Form 10-K Annual Report for the
fiscal year ended December 31, 1997 (Commission file number
1-6016) and incorporated herein by reference)
(kkk) Allen Telecom Inc. Executive Benefit Plan, as amended and
restated effective June 16, 1999 (filed as Exhibit 10(ggg)
to Registrant's Form 10-K Annual Report for the fiscal year
ended December 31, 1999 (Commission file number 1-6016) and
incorporated herein by reference)
(21) Subsidiaries of the Registrant
(23) Consent of Deloitte & Touche LLP
A copy of any of these Exhibits will be furnished to persons who request a
copy upon the payment of a fee of $.25 per page to cover the Company's
duplication and handling expenses.
39
ALLEN TELECOM INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 2000 and
2001................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 2000 and 2001....................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001....................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 2000 and 2001........... F-6
Notes to Consolidated Financial Statements................ F-7
Schedule II Valuation and Qualifying Accounts............. F-30
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Allen Telecom Inc.
We have audited the accompanying consolidated financial statements of Allen
Telecom Inc. and its subsidiaries (the "Company") as of December 31, 2000 and
2001, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2001. Our audits also included the financial statement schedule listed in
the Index at Item (14). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Allen Telecom Inc. and its
subsidiaries at December 31, 2000 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2001, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Cleveland, Ohio
February 13, 2002
F-2
ALLEN TELECOM INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
----------------------
2000 2001
--------- ---------
(AMOUNTS IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents.............................. $ 10,539 $ 16,368
Accounts receivable, less allowance for doubtful
accounts -- 2000 - $4,739; 2001 - $3,338.............. 93,815 92,291
Inventories............................................ 101,640 124,026
Deferred income taxes.................................. 3,820 2,660
Recoverable income taxes............................... 5,643 20,169
Other current assets................................... 1,668 2,416
-------- --------
Total Current Assets.............................. 217,125 257,930
-------- --------
Property, Plant and Equipment............................. 41,279 41,290
Excess of Cost Over Net Assets of Businesses Acquired..... 129,190 140,995
Deferred Income Taxes..................................... 44,295 39,401
Other Assets.............................................. 41,133 32,340
-------- --------
TOTAL ASSETS................................................ $473,022 $511,956
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current maturities of long-term
debt.................................................. $ 3,796 $ 12,318
Accounts payable....................................... 45,181 40,355
Accrued expenses (including accrued wages and
commissions -- 2000 - $12,107; 2001 - $11,614)........ 26,305 27,827
Income taxes payable................................... 3,922 4,781
Deferred income taxes.................................. 5,290 9,852
-------- --------
Total Current Liabilities......................... 84,494 95,133
-------- --------
Long-Term Debt............................................ 134,639 140,530
Deferred Income Taxes..................................... 9,168 2,164
Other Liabilities......................................... 9,740 15,772
-------- --------
Total Liabilities................................. 238,041 253,599
-------- --------
Commitments and Contingencies (Note 5).................... -- --
-------- --------
Stockholders' Equity:
Common stock, par value $1.00; authorized -- 50,000
shares; issued -- 2000 - 30,092; 2001 - 32,500;
outstanding -- 2000 - 28,022; 2001 - 30,425......... 30,092 32,500
Paid-in capital...................................... 184,066 203,548
Retained earnings.................................... 69,067 69,676
Accumulated other comprehensive loss................. (31,948) (30,671)
Less: Treasury stock -- common shares, at cost,
2000 - 2,070; 2001 - 2,075 shares.............. (14,730) (15,440)
Unearned compensation.......................... (1,566) (1,256)
-------- --------
Total Stockholders' Equity........................ 234,981 258,357
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $473,022 $511,956
======== ========
The accompanying notes are an integral part of these financial statements.
F-3
ALLEN TELECOM INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
--------------------------------
1999 2000 2001
-------- -------- --------
(AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
SALES...................................................... $336,213 $392,608 $394,601
Cost of sales.............................................. 247,064 277,666 296,342
-------- -------- --------
Gross profit............................................... 89,149 114,942 98,259
Operating Expenses:
Selling, general and administrative expenses............. 54,819 54,271 56,776
Research and development and product engineering costs... 27,946 25,442 26,086
Amortization of goodwill................................. 7,020 7,822 7,901
-------- -------- --------
Operating (loss) income.................................... (636) 27,407 7,496
Other income, net.......................................... 3,370 -- --
Interest and financing expenses:
Interest expense......................................... (9,632) (11,022) (11,281)
Interest income.......................................... 1,486 1,989 1,034
-------- -------- --------
(Loss) income before taxes and minority interests.......... (5,412) 18,374 (2,751)
Benefit from (provision for) income taxes.................. 1,844 (7,530) 1,073
-------- -------- --------
(Loss) income before minority interests.................... (3,568) 10,844 (1,678)
Minority interests......................................... (1,650) (91) (145)
-------- -------- --------
(LOSS) INCOME FROM CONTINUING OPERATIONS................... (5,218) 10,753 (1,823)
Discontinued operations -- gain from emission testing
business................................................. 2,363 1,300 --
-------- -------- --------
NET (LOSS) INCOME.......................................... $ (2,855) $ 12,053 $ (1,823)
======== ======== ========
EARNINGS (LOSS) PER COMMON SHARE:
Basic and Diluted:
(Loss) income from continuing operations.............. $ (0.19) $ 0.38 $ (0.06)
Discontinued emission testing business................ 0.09 0.05 --
-------- -------- --------
Net (loss) income........................................ $ (0.10) $ 0.43 $ (0.06)
======== ======== ========
Weighted Average Shares Outstanding:
Basic................................................. 27,480 27,820 28,090
Diluted............................................... 27,480 28,270 28,090
The accompanying notes are an integral part of these financial statements.
F-4
ALLEN TELECOM INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------
1999 2000 2001
-------- -------- --------
(AMOUNTS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
(Loss) income from continuing operations................. $ (5,218) $ 10,753 $ (1,823)
Adjustments to reconcile (loss) income to operating cash
flow:
Depreciation.......................................... 14,914 13,353 13,313
Amortization of goodwill.............................. 7,020 7,822 7,901
Amortization of capitalized software.................. 2,776 2,532 4,022
Other amortization.................................... 220 313 310
Deferred income taxes................................. 172 5,676 2,439
Non-cash loss on write-off of capital assets.......... 3,983 385 --
Gain on sale of investments........................... (3,378) -- --
Non-cash pension gain................................. -- (1,160) --
Changes in operating assets and liabilities:
Receivables........................................... (10,350) (16,702) 4,381
Inventories........................................... (1,370) (29,155) (5,659)
Accounts payable and accrued expenses................. 7,344 16,680 (22,401)
Income taxes payable.................................. (10,717) (9,617) (5,945)
Other, net............................................ (520) (3,465) 2,993
-------- -------- --------
Cash provided (used) by operating activities............... 4,876 (2,585) (469)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (9,491) (15,082) (10,044)
Investments in wireless communications subsidiaries (net
of cash acquired)..................................... (9,042) (8,512) (5,689)
Capitalized software product costs....................... (1,927) (4,088) (2,191)
Sales and retirements of fixed assets.................... 504 1,631 4,864
Sale of investments...................................... 9,686 -- --
Sale of discontinued emissions testing business.......... 9,387 -- --
-------- -------- --------
Cash used by investing activities.......................... (883) (26,051) (13,060)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayment of) proceeds from long-term borrowings........ (3,214) 16,531 (8,737)
Proceeds from sale and leaseback transaction............. -- -- 4,869
Exercise of stock options................................ 1,059 764 939
Collection on installment notes receivable............... -- 2,900 1,000
Treasury stock sold to employee benefit plans............ 871 752 910
Acquisition of common stock treasury shares.............. -- (179) (1,315)
-------- -------- --------
Cash (used) provided by financing activities............... (1,284) 20,768 (2,334)
-------- -------- --------
Net cash flow provided by discontinued operations.......... 1,810 -- --
-------- -------- --------
NET CASH PROVIDED (USED)................................... 4,519 (7,868) (15,863)
Effect of exchange rate changes on cash.................... (2,334) (3,678) 1,261
Net cash flow from change in year-end of subsidiaries...... -- -- 20,431
Cash and cash equivalents at beginning of year............. 19,900 22,085 10,539
-------- -------- --------
Cash and cash equivalents at end of year................... $ 22,085 $ 10,539 $ 16,368
======== ======== ========
The accompanying notes are an integral part of these financial statements.
F-5
ALLEN TELECOM INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
ACCUMULATED
OTHER
COMPREHENSIVE COMPREHENSIVE
COMMON PAID-IN INCOME RETAINED INCOME TREASURY UNEARNED
TOTAL STOCK CAPITAL (LOSS) EARNINGS (LOSS) STOCK COMPENSATION
-------- ------- -------- ------------- -------- ------------- -------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT COMMON SHARE DATA)
BALANCE, DECEMBER 31, 1998... $250,081 $29,759 $180,604 $59,869 $ (2,255) $(15,985) $(1,911)
Comprehensive loss:
Net loss................... (2,855) -- -- $ (2,855) (2,855) -- -- --
--------
Other comprehensive income
(loss):
Minimum pension liability
adjustment............. 240 -- -- 240 -- -- -- --
Foreign currency
translation
adjustments............ (8,670) -- -- (8,670) -- -- -- --
--------
Other comprehensive
loss................... -- -- -- (8,430) -- (8,430) -- --
--------
Comprehensive loss..... -- -- -- $(11,285) -- -- -- --
========
Exercise of stock options.... 1,059 219 765 -- -- 75 --
Employee stock plans tax
benefits................... 414 -- 414 -- -- -- --
Treasury stock reissued,
131,285 common shares...... 871 -- (61) -- -- 932 --
Restricted stock, net........ (619) 32 (387) -- -- -- (264)
Amortization of unearned
compensation............... 391 -- -- -- -- -- 391
-------- ------- -------- ------- -------- -------- -------
BALANCE, DECEMBER 31, 1999... 240,912 30,010 181,335 57,014 (10,685) (14,978) (1,784)
Comprehensive loss:
Net income................. 12,053 -- -- $ 12,053 12,053 -- -- --
Other comprehensive loss:
Foreign currency
translation
adjustments............ (21,263) -- -- (21,263) -- (21,263) -- --
--------
Comprehensive loss....... -- -- -- $ (9,210) -- -- -- --
========
Exercise of stock options.... 764 74 656 -- -- 34 --
Employee stock plans tax
benefits................... 1,630 -- 1,630 -- -- -- --
Treasury stock reissued,
43,941 common shares....... 573 -- 359 -- -- 214 --
Restricted stock, net........ (1) 8 86 -- -- -- (95)
Amortization of unearned
compensation............... 313 -- -- -- -- -- 313
-------- ------- -------- ------- -------- -------- -------
BALANCE, DECEMBER 31, 2000... 234,981 30,092 184,066 69,067 (31,948) (14,730) (1,566)
Net income from change in
fiscal year-end of
subsidiaries............... 2,432 -- -- 2,432 -- -- --
Comprehensive income (loss):
Net loss................... (1,823) -- -- $ (1,823) (1,823) -- -- --
--------
Other comprehensive income
(loss):
Foreign currency
translation
adjustments............ 3,896 -- -- 3,896 -- 3,896 -- --
Minimum pension liability
adjustment............. (2,664) -- -- (2,664) -- (2,664) -- --
Derivative instruments... 45 -- -- 45 -- 45 -- --
--------
Other comprehensive
income................. -- -- -- 1,277 -- -- -- --
--------
Comprehensive loss....... -- -- -- $ (546) -- -- -- --
========
Acquisition of subsidiary.... 20,233 2,271 17,962 -- -- -- --
Exercise of stock options.... 939 137 802 -- -- -- --
Employee stock plans tax
benefits................... 413 -- 413 -- -- -- --
Treasury stock acquired, net
4,720 common shares........ (405) -- 305 -- -- (710) --
Amortization of unearned
compensation............... 310 -- -- -- -- -- 310
-------- ------- -------- ------- -------- -------- -------
BALANCE, DECEMBER 31, 2001... $258,357 $32,500 $203,548 $69,676 $(30,671) $(15,440) $(1,256)
======== ======= ======== ======= ======== ======== =======
The accompanying notes are an integral part of these financial statements.
F-6
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1999, 2000 AND 2001
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies followed by the Company that materially affect the
determination of financial position and results of operations are described
below.
Accounting Estimates: The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Basis of Consolidation: 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
are included in the consolidated financial statements on a two-month delayed
basis for fiscal years 1999 and 2000. 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 operations for 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 December 31, 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 thousands):
Net income from operations.................................. $ 2,432
Increase in inventories..................................... (8,491)
Decrease in receivables..................................... 3,129
Increase in accounts payable................................ 13,892
Decrease in taxes payable................................... (5,946)
Net increase in fixed assets................................ (1,201)
Borrowings.................................................. 16,836
Other....................................................... (220)
-------
Increase in cash and cash equivalents..................... $20,431
=======
Revenue Recognition: Sales are recognized when products are shipped or
services are performed. Our Wireless Engineering and Consulting Services segment
provides engineering services and software to major telecommunication vendors
and system operators. These services and products are sold and/or licensed and
are separately stated in a given sales contract, or in separate agreements, and
therefore do not constitute multiple-element arrangements. In accordance with
Statement of Position 97-2, "Software Revenue Recognition", revenue relating to
the software licenses, which do not require significant production,
modification, or customization, is recognized when all of the following criteria
are met: persuasive evidence of an arrangement exists, delivery has occurred,
the fee is fixed or determinable and collectibility is probable. Engineering
services revenue, which excludes customer maintenance and support, is recognized
when services are performed. Other engineering services revenue which includes
items such as ongoing customer maintenance and support is recognized ratably
over the given contract period.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
F-7
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
statements. SAB 101 was adopted in June 2000. The provisions of SAB 101 are
being followed and did not require any change in the Company's revenue
recognition policies and practices.
Cash and Cash Equivalents: Cash equivalents consist of temporary bank
deposits and money market instruments with an original maturity of three months
or less at the date of purchase. The Company invests its excess cash in bank
deposits, money market, and tax-exempt securities, which are afforded one of the
two highest ratings by nationally recognized ratings firms.
Valuation of Inventories: The Company values inventories including
materials, labor and overhead at the lower of cost (first-in, first-out) or
market. Inventories consisted of the following at December 31, 2000 and 2001,
net of reserves (amounts in thousands):
2000 2001
-------- --------
Raw material........................................... $ 56,366 $ 66,957
Work-in-process........................................ 25,674 23,639
Finished goods......................................... 19,600 33,430
-------- --------
$101,640 $124,026
======== ========
Certain of these inventories pertain to the production of sophisticated
equipment that could be subject to technological obsolescence. The Company
maintains and periodically revises reserves for excess inventory based on the
most current information available of anticipated usage requirements.
Property, Plant and Equipment: Property, plant and equipment is recorded
at cost, less accumulated depreciation and amortization. Land improvements,
buildings and machinery and equipment are depreciated over their estimated
useful lives under the straight-line method. The provision for amortization of
leasehold improvements is based on the term of the related lease or the
estimated useful lives, whichever is shorter. Maintenance, repairs and minor
renewals and betterments are charged to expense. Property, plant and equipment
consisted of the following at December 31, 2000 and 2001 (amounts in thousands):
2000 2001
-------- --------
Land and improvements.................................. $ 1,663 $ 1,565
Buildings.............................................. 16,568 14,951
Machinery and equipment................................ 80,462 92,483
Leasehold improvements................................. 5,967 7,120
-------- --------
104,660 116,119
Less accumulated depreciation and amortization......... (63,381) (74,829)
-------- --------
$ 41,279 $ 41,290
======== ========
The Company's estimated useful lives of property, plant and equipment are
as follows:
Land improvements...................................... 5 to 40 years
Buildings.............................................. 20 to 40 years
Machinery and equipment................................ 3 to 10 years
Leasehold improvements................................. Term of lease
(currently not longer
than 25 years)
Computer Software Costs: The Company's policy is to capitalize costs
incurred in creating computer software products once technological feasibility
is established and to amortize such costs over periods ranging from three to ten
years. The Company also capitalizes costs incurred in the development of
F-8
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
computerized databases, which are amortized over periods of three to twenty
years. The Company reviews the amounts capitalized for impairment whenever
events or changes in circumstances indicate that the carrying amounts of the
assets may not be recoverable. In 1999, 2000 and 2001, approximately $1,927,000,
$4,088,000 and $2,191,000, respectively, of these costs were capitalized and
approximately $2,776,000, $2,532,000 and $4,022,000, respectively, were
amortized.
Excess of Cost Over Net Assets of Businesses Acquired (Goodwill): The
excess of investments in consolidated subsidiaries over the fair value of assets
at acquisition is being amortized on a straight-line basis over periods not
exceeding forty years. The Company's policy is to evaluate goodwill for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. For purposes of determining impairment
and recoverability, the Company periodically reviews the operating results and
cash flows of individual business units and would re-evaluate goodwill, when
required, based on an undiscounted operating cash flow basis. An impairment
loss, if required, would be recorded in the period such determination is made.
Goodwill is net of accumulated amortization of $32,927,000 and $41,682,000 as of
December 31, 2000 and 2001, respectively. See Impact of New Accounting
Pronouncements below.
Foreign Currency Translation: Assets and liabilities of the Company's
foreign subsidiaries are translated into U.S. dollars at the current rate of
exchange, while sales and expenses are translated at the average exchange rate
during the year. Adjustments from translating foreign subsidiaries' financial
statements are excluded from the results of operations and are reported as a
component of Accumulated other comprehensive loss.
The company's policy for transactions denominated in a currency other than
the functional currency is to expense gains and losses as incurred. The net gain
or (loss) included in selling, general and administrative expenses is $754,000
in 1999, ($181,000) in 2000 and $286,000 in 2001.
Research and Development Costs: Expenditures relating to the development
of new products and processes, including significant improvements to existing
products, are expensed as incurred. Research and development expenses were
$26,317,000, $25,442,000 and $26,086,000 in 1999, 2000 and 2001, respectively.
In addition, the Company incurred other engineering expenses relating to product
development (that do not meet the accounting definition of "Research and
Development") in the amount of $1,629,000 in 1999. There were no such other
engineering costs in 2000 and 2001.
Stock Based Compensation: The Company accounts for stock based
compensation awards pursuant to Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and its related interpretations
which prescribe the use of the intrinsic value based method. Accordingly, no
compensation cost has been recognized for its fixed stock option plans since the
exercise price of the employee stock options equals the market price of the
underlying stock on the date of option grant. The Company presents the
disclosure requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation." See Note 4 for additional
information.
Income Taxes: A deferred tax asset and/or liability is computed for both
the expected future impact of differences between the financial statements and
tax bases of assets and liabilities and for the expected future tax benefit to
be derived from tax loss and tax credit carryforwards.
Earnings Per Common Share: Basic earnings per share are based on the
weighted average number of common shares outstanding during the period. Diluted
earnings per common share are based on the weighted average number of common
shares outstanding during the period plus, if dilutive, the incremental number
of common shares issuable on a pro forma basis upon the exercise of employee
stock options,
F-9
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assuming the proceeds are used to repurchase outstanding shares at the average
market price during the year. A reconciliation of the Basic and Diluted shares
is provided below (in thousands):
1999 2000 2001
------ ------ ------
Weighted average common shares outstanding -- Basic...... 27,480 27,820 28,090
Additional common shares issuable for stock options...... -- 450 --
------ ------ ------
Common shares -- Diluted................................. 27,480 28,270 28,090
====== ====== ======
For the years ended December 31, 1999 and 2001, approximately 186,000 and
253,000 shares, respectively, attributable to outstanding stock options, were
excluded from the calculation of diluted earnings per common share because the
effect was antidilutive.
Derivative Financial Instruments: The Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No.
133, "Accounting for Derivative Instruments and Hedging Activities," in June
1998. 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.
Reclassifications: Certain amounts in the 1999 and 2000 financial
statements have been reclassified to conform to the 2001 presentation.
Impact of New Accounting Pronouncements: 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 implemented SFAS No. 141 for all
acquisitions subsequent to June 30, 2001.
In June 2001, the FASB 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 the years ending December 31, 1999, 2000 and 2001
would have increased by approximately $.26 per share in 1999 and $.28 per share
in 2000 and 2001, as a result of excluding the amortization of goodwill, which
will be eliminated in 2002 when the new Standard goes into effect.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations", which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long 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) normal operation of a long-lived
asset. SFAS No. 143 is effective for the Company at the 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 SFAS 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
F-10
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
NOTE 2: FINANCING
Long-term obligations consisted of the following (amounts in thousands):
2000 2001
-------- --------
Credit agreement borrowings............................ $ 62,431 $ 73,677
Floating rate industrial revenue bonds due 2012-2025... 11,900 11,900
Senior notes payable due 2002-2007..................... 65,000 62,000
Capital lease obligations (See Note 5)................. -- 5,357
Other.................................................. 90 965
Unamortized debt expense............................... (986) (1,051)
-------- --------
138,435 152,848
Less current maturities................................ (3,796) (12,318)
-------- --------
$134,639 $140,530
======== ========
In 2001, the Company amended its domestic revolving credit agreement which
expires on December 31, 2003. The amendments provided for the approval of the
acquisition of Bartley R.F. Systems, Inc. and an adjustment of the Company's
covenant requirements. This domestic revolving credit agreement totals
$105,000,000 of commitments. One such amendment provides that the domestic
revolving credit facility will be permanently reduced by the lesser of
$30,000,000 or 60% of the net proceeds of an equity offering. Of the total
$105,000,000 commitment at December 31, 2001, $14,015,000 has been utilized for
the issuance of letters of credit relating principally to the Company's
industrial revenue bonds. The outstanding borrowings under this domestic
revolving credit agreement totaled $67,005,000 at December 31, 2001. The balance
of funds available under this revolving credit agreement may be utilized for
borrowings or other letters of credit; however, a maximum of $25,000,000 may be
allocated to such letters of credit. At December 31, 2001, $23,980,000 was
available under this agreement. This obligation is collateralized by
substantially all domestic assets. The Company has also pledged 65% of the stock
of applicable foreign subsidiaries and a guarantee is provided by certain
domestic subsidiaries in support of this obligation. Interest may be determined
on a LIBOR or prime rate basis at the Company's option. The Company has agreed
to pay a facility fee in the range of 0.375% to 0.5% per annum on the total
amount of the commitment. During 2001, the average interest rate for all
domestic credit agreement borrowings was 6.0%.
The Company also has $47,364,000 of short-term credit lines which may be
utilized by certain of its European subsidiaries. At year end, there were no
direct borrowings under these agreements. Foreign long-term debt includes
long-term arrangements at fixed and variable rates with the Industry Ministry of
Italy totaling $2,715,000 (due 2002-2013), and variable rate borrowings with
various international banks of $3,957,000 (due 2002-2008). These arrangements
bear interest based on LIBOR. European long-term debt also includes a capital
lease obligation of $4,527,000 at December 31, 2001, which results from the sale
F-11
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and leaseback of a building during the second quarter 2001, at one of our
European subsidiaries. During 2001, the average interest rate for all foreign
credit arrangements approximated 2.3%.
The floating rate industrial revenue bonds bear interest at rates based
upon a short-term tax exempt bond index, as defined in the agreements, which
approximated 1.6% at December 31, 2001. During 2001, the average interest rate
for all industrial revenue borrowings approximated 2.6%.
In 1997, the Company issued $65,000,000 of notes in a private placement
transaction. The outstanding balance of $62,000,000 at December 31, 2001 is due
in years 2002-2007. These notes originally had a weighted average life of 7 1/2
years and have a weighted average interest rate of 6.65%. The notes are
collateralized and rank equally with the Company's other secured indebtedness.
The aggregate maturities of long-term obligations for the years 2002
through 2006 are as follows (amounts in thousands):
2002........................................................ $12,318
2003........................................................ 79,645
2004........................................................ 9,033
2005........................................................ 9,200
2006........................................................ 9,214
The Company's domestic borrowing agreements include various restrictive
covenants as to the amount and type of indebtedness, investments and guarantees,
maintenance of net worth, liquidity, earnings before interest, taxes,
depreciation and amortization, the purchase or redemption of the Company's
shares, the disposition of assets of the Company not in the ordinary course of
business and acquisitions. The Company was in compliance with these revised
covenants at December 31, 2001. The Company's debt agreements restrict, under
limited circumstances, its ability to pay cash dividends, without the bank's
consent. Further, the Company's ability to pay cash dividends may be dependent,
in part, on its subsidiaries' ability to make cash dividends and other payments
to the Company.
NOTE 3: OTHER ASSETS, LIABILITIES AND INCOME
Other assets consisted of the following (amounts in thousands):
2000 2001
------- -------
Capitalized computer software and database files, net of
accumulated amortization of $2,532 and $3,818,
respectively........................................... $ 8,244 $ 7,446
Insurance deposits....................................... 9,238 9,368
Other.................................................... 23,651 15,526
------- -------
$41,133 $32,340
======= =======
Other liabilities consisted of the following (amounts in thousands):
2000 2001
------- -------
Minority interests....................................... $ 117 $ 287
Long-term pension and postretirement benefits............ 6,214 10,158
Other.................................................... 3,409 5,327
------- -------
$ 9,740 $15,772
======= =======
F-12
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of Other income, net in 1999, pertain principally to gains
and losses from communications investments and is comprised of the following
(amounts in thousands):
1999
------
RF Micro Devices Inc........................................ $ (165)
NextWave Telecom Inc. (gain on sale)........................ 3,500
Other....................................................... 35
------
$3,370
======
NOTE 4: CAPITAL STOCK AND STOCK COMPENSATION PLANS
The Company is authorized to issue up to 50,000,000 shares of common stock,
$1.00 par value, and 3,000,000 shares of preferred stock, without par value, in
one or more series. In addition, 500,000 shares of Series C Junior Participating
Preferred Stock are authorized for issuance under the Company's Stockholder
Rights Plan. The Company can fix the powers, designations, preferences and
rights of each of the preferred stock series. See also Note 14, "Subsequent
Event."
The Company has two active stock option plans, the 1992 Stock Plan and the
1994 Non-Employee Directors Stock Option Plan. The 1982 Stock Plan, under which
options still remain outstanding, was terminated in 1992.
The Company's 1992 Stock Plan provides for the granting of options (and
restricted shares as discussed below) to key employees as determined by the
Management Compensation Committee of the Board of Directors. The total number of
shares for which the Company may grant options and award restricted shares of
common stock under the 1992 Stock Plan cannot exceed 3,528,221 shares, subject
to certain adjustments. Options are awarded at a price not less than the fair
market value on the date the option is granted, have a ten-year term whereby 50%
of the option shares vest after two years and an additional 25% in each of years
three and four. Options may contain stock appreciation rights under which the
Company, upon request of the optionee, may, at its discretion, purchase the
exercisable portion of an option for cash and/or shares at a price equal to the
difference between the option price and the market price of the shares covered
by such portion of the option in lieu of issuing shares upon exercise. There
were no exercises of stock appreciation rights in 1999, 2000 and 2001.
Pursuant to the 1994 Non-Employee Directors Stock Option Plan, the total
number of shares to be issued may not exceed 500,000 shares. Each Non-Employee
Director (other than the Chairman or Vice Chairman) automatically receives an
option to purchase 3,000 shares of common stock per year ("Formula Awards").
Each new Non-Employee Director automatically receives an option to purchase
4,000 shares of common stock on the date such new director joins the Board of
Directors. The Plan also permits discretionary grants to directors who are not
receiving Formula Awards. Formula awards and discretionary awards granted under
the 1994 Stock Plan have a ten-year term and vest in the same manner as the 1992
Stock Plan, subject to certain accelerated vesting upon the cessation of
service.
In addition to the foregoing, certain Non-Employee Directors may receive
non-qualified discretionary awards of options to purchase shares of common stock
which are not pursuant to the 1994 Stock Plan. The options which are not
pursuant to the 1994 Stock Plan are awarded at a price not less than the fair
market value on the date the option is granted, have a ten-year term and either
vest 33 1/3% on each of the first, second and third anniversaries of the grant
or vest in the same manner as the 1992 and 1994 Stock Plans, depending upon the
grant. Additionally, the non-qualified awards are subject to certain accelerated
vesting upon cessation of service.
F-13
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the status of outstanding options as of
December 31, 2001:
STOCK OPTIONS OUTSTANDING WEIGHTED AVERAGE STOCK OPTIONS EXERCISABLE
--------------------------- --------------------- ---------------------------
RANGE OF CONTRACTUAL EXERCISE WEIGHTED AVERAGE
EXERCISE PRICES SHARES LIFE PRICE SHARES EXERCISE PRICE
--------------- --------- ----------- -------- --------- ----------------
$ 5.38 - $10.77 914,004 6.92 years $ 7.54 478,696 $ 7.56
$11.28 - $19.97 1,923,890 6.66 years $15.33 856,340 $15.86
$20.00 - $28.00 397,402 4.19 years $21.66 397,402 $21.66
--------- ---------
$ 5.38 - $28.00 3,235,296 6.43 years $13.91 1,732,438 $14.90
========= =========
Stock option activity for the three years ended December 31, 2001 is
summarized as follows:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Balance, December 31, 1998....................... 2,118,099 $14.96
Granted (weighted average fair value $4.63).... 1,032,500 $ 7.58
Exercised...................................... (246,246) $ 4.30
Terminated and cancelled....................... (280,589) $14.51
---------
Balance, December 31, 1999....................... 2,623,764 $13.10
Granted (weighted average fair value $10.52)... 613,000 $16.36
Exercised...................................... (85,838) $ 8.89
Terminated and cancelled....................... (89,965) $14.99
---------
Balance, December 31, 2000....................... 3,060,961 $13.82
Granted (weighted average fair value $8.60).... 429,450 $12.73
Exercised...................................... (136,943) $ 6.85
Terminated and cancelled....................... (118,172) $15.52
---------
Balance, December 31, 2001....................... 3,235,296 $13.91
=========
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for stock option grants: expected volatility of 56%, 60% and
65%, risk free interest rates of 5.49%, 6.09% and 5.16%, and expected lives of
7.1 years, 7.1 years and 7.4 years for 1999, 2000 and 2001, respectively. The
calculations assume no future dividend payments.
Restricted stock awards made to date under the 1992 Stock Plan were issued
at no cash cost to the recipients; however, such employees generally agreed to
forego salary increases and new stock option grants for a period of two years,
other than for exceptional promotions. The restricted shares generally vest in
25% increments in the seventh, eighth, ninth and tenth year from the year of
award. An accelerated vesting schedule may be triggered if certain performance
targets are achieved. Generally, the vesting of 50% of such shares may be
accelerated (but not sooner than three years from the award year) based upon the
average sale price of the Company's stock price during a period of 91
consecutive calendar days exceeding specified target levels. The remaining 50%
of such shares may be accelerated based on average earnings per common share
over three consecutive years exceeding specified target levels beginning with
the award year. Restricted shares are subject to forfeiture in certain
circumstances as defined in the 1992 Stock Plan.
F-14
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restricted stock activity for the three years ended December 31, 2001 is
summarized as follows:
SHARES
-------
Balance, December 31, 1998.................................. 205,250
Granted (weighted average fair value $8.00)............... 50,000
Vested.................................................... (2,517)
Terminated and cancelled.................................. (18,434)
-------
Balance, December 31, 1999.................................. 234,299
Granted (weighted average fair value $13.94).............. 15,000
Vested.................................................... (28,524)
Terminated and cancelled.................................. (6,518)
-------
Balance, December 31, 2000.................................. 214,257
Granted................................................... --
Vested.................................................... (36,419)
Terminated and cancelled.................................. --
-------
Balance, December 31, 2001.................................. 177,838
=======
Unearned compensation with respect to restricted shares, representing the
fair value of the restricted shares at the date of award, is charged to income
over a ten-year period or the period of actual vesting whichever is shorter.
Compensation expense with respect to restricted shares, net of forfeitures,
amounted to $193,000 in 1999, $313,000 in 2000 and $310,000 in 2001.
At December 31, 2000 and 2001, 3,697,011 and 3,790,737 common shares,
respectively, were reserved for outstanding stock options and for future grants
of stock options and restricted shares under all Stock Plans.
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 pro forma amounts below (amounts in thousands,
except per share data):
1999 2000 2001
------- ------- -------
Net (loss) income:
As reported................................... $(2,855) $12,053 $(1,823)
Pro forma..................................... $(5,035) $10,136 $(4,409)
(Loss) earnings per common share,
basic and diluted:
As reported................................... $ (0.10) $ 0.43 $ (0.06)
Pro forma..................................... $ (0.18) $ 0.36 $ (0.16)
NOTE 5: COMMITMENTS AND CONTINGENCIES
The Company's leases consist primarily of facilities and equipment and
expire principally between 2002 and 2010. A number of leases require that the
Company pay certain executory costs (taxes, insurance and maintenance) and
contain renewal and purchase options. Annual rental expense for operating leases
included in results from continuing operations approximated $4,400,000 in 1999,
F-15
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$4,942,000 in 2000 and $5,700,000 in 2001. Future minimum payments under
noncancellable operating and capital leases as of December 31, 2001 were as
follows (amounts in thousands):
OPERATING CAPITAL
--------- -------
2002....................................................... $ 7,155 $ 1,174
2003....................................................... 6,860 1,168
2004....................................................... 6,170 739
2005....................................................... 4,230 724
2006....................................................... 3,650 711
Thereafter................................................. 12,440 2,136
------- -------
Total minimum lease payments.......................... $40,505 6,652
=======
Less amount representing interest..................... (1,295)
-------
$ 5,357
=======
Assets recorded under capital leases at December 31, 2001 are included in
Property, Plant and Equipment as follows (amounts in thousands):
2001
--------
Land........................................................ $ 432
Buildings................................................... 5,111
Machinery and equipment..................................... 1,262
--------
6,805
Less accumulated amortization............................... (2,620)
--------
$ 4,185
========
The Company is self-insured for health care and workers' compensation up to
predetermined amounts above which third party insurance applies. The Company is
fully insured through third party insurance for general liability and product
liability. The Company is contingently liable to insurance carriers under its
workers' compensation and liability policies and has provided letters of credit
in favor of these carriers in the amount of $700,000.
On December 11, 2001, a lawsuit was filed against the Company in the United
States District Court for the District of Delaware by a competitor,
TruePosition, Inc., and its subsidiary, KSI, Inc. The plaintiffs allege that the
Company, through its Grayson Wireless Division, has infringed three patents in
connection with the Company's GEOMETRIX wireless geolocation business. The
plaintiffs seek injunctive relief, compensatory and treble damages and
attorneys' fees. In the Company's answer filed on January 18, 2002, it has
denied the plaintiffs' allegations and has asserted a counterclaim against the
plaintiffs of infringement of one of the Company's patents. The Company believes
that it has meritorious defenses against the claims asserted by the plaintiffs,
and intends to vigorously defend the lawsuit. However, the Company cannot give
assurance that it will ultimately prevail in this action. Whether the Company
ultimately wins or loses, litigation could be time-consuming and costly and
injure its reputation. If the plaintiffs prevail in this action, the Company may
be required to negotiate royalty or license agreements with respect to the
patents at issue, and may not be able to enter into such agreements on
acceptable terms. Any limitation on the Company's ability to provide a service
or product could cause it to lose revenue-generating opportunities and require
it to incur additional expenses. The Company may also be required to indemnify
customers for any expenses or liabilities resulting from the claimed
infringements.
F-16
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
These potential costs and expenses, as well as the need to pay any damages
awarded in favor of the plaintiffs, could adversely affect the Company's
business, financial position, results of operations or cash flow.
The Company is also a party to various other legal proceedings, lawsuits
and other claims arising in the ordinary course of its business involving such
matters as contract disputes, product liability, casualty claims, employment
practices and intellectual property infringement. The Company does not believe
that such other litigation, if adversely determined, would have a material
adverse effect on the Company's business, financial position, results of
operations or cash flow.
The Company is subject to federal, state and local laws designed to protect
the environment and believes that, as a general matter, its policies, practices,
and procedures are properly designed to reasonably prevent risk of environmental
damage and financial liability to the Company. The Company has identified
potential environmental damage at one formerly occupied manufacturing facility.
In this regard, the Company has engaged a contractor to evaluate the site and
determine the cost, if any, to resolve environmental damage at this site. While
the ultimate cost cannot yet be specifically determined, the Company currently
believes the costs of remediation will not exceed $350,000. The Company also
believes it is reasonably possible that environmental related liabilities may
exist with respect to one industrial site formerly occupied by the Company.
Based upon environmental site assessments, the Company believes that the cost of
any potential remediation, for which the Company may ultimately be responsible,
will not have a material adverse effect on the Company's business, financial
position, results of operations or cash flow.
NOTE 6: PENSION AND EMPLOYEE BENEFIT PLANS
The Company has noncontributory pension plans covering the majority of its
full-time domestic employees. Plans covering salaried employees provide benefits
that are based on years of service and compensation during the ten-year period
prior to retirement, while for hourly employees it typically provides benefits
based on specified amounts for each year of service. Domestic pension costs are
funded in compliance with the requirements of the Employee Retirement Income
Security Act of 1974, as amended, as employees become eligible to participate,
generally upon employment.
Net periodic pension cost for the Company's plans included the following
components (amounts in thousands):
1999 2000 2001
------- ------- -------
Service cost benefits earned during the year............ $ 1,413 $ 1,006 $ 1,081
Interest cost on the projected benefit obligation....... 2,404 2,496 2,685
Actual loss (income) on plan assets..................... (5,970) (868) 1,619
Net curtailment/settlement (gain)/loss.................. 13 (1,160) (7)
Net amortization and deferral........................... 3,395 (2,237) (4,488)
------- ------- -------
Net periodic pension cost (income)...................... $ 1,255 $ (763) $ 890
======= ======= =======
F-17
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the plans' projected benefit obligation, fair value of
plan assets, and funding status is as follows (amounts in thousands):
2000 2001
-------- --------
Projected benefit obligation:
Balance, beginning of year............................ $ 33,879 $ 35,451
Service cost.......................................... 1,006 1,081
Interest cost......................................... 2,496 2,685
Benefits paid and plan expenses....................... (2,220) (2,480)
Loss recognized....................................... 1,431 2,099
Settlements and other................................. (1,141) (102)
-------- --------
$ 35,451 $ 38,734
======== ========
Fair value of plan assets:
Balance, beginning of year............................ $ 32,526 $ 31,763
Income (loss) on assets............................... 868 (1,619)
Employer contributions................................ 589 374
Benefits paid and plan expenses....................... (2,220) (2,480)
-------- --------
$ 31,763 $ 28,038
======== ========
Funding Status:
Projected benefit obligation.......................... $(35,451) $(38,734)
Fair value of plan assets............................. 31,763 28,038
-------- --------
Unfunded obligation................................... (3,688) (10,696)
Unrecognized:
Net (gain) loss.................................... (1,051) 5,563
Prior service cost................................. 1,778 1,603
Transition assets.................................. (17) --
Additional minimum liability.......................... (195) (4,876)
-------- --------
Net accrued liability................................. $ (3,173) $ (8,406)
======== ========
Plan assets consist principally of equity securities (including 92,000
common shares of the Company).
With respect to certain of the Company's pension plans, the accumulated
pension obligation exceeds the fair value of the plan assets, as follows
(amounts in thousands):
2000 2001
------ -------
Accumulated benefit obligation............................ $4,493 $36,424
Related fair value of plan assets......................... -- $28,038
The weighted average rates used in determining pension cost for the plans
are:
2000 2001
---- ----
Discount rate............................................... 7 1/2% 7 1/4%
Expected rate of increase in compensation................... 5% 5%
Expected long-term rate of return on plan assets............ 9 3/4% 9 3/4%
F-18
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company provides health care and life insurance benefits for certain
retired employees who reach retirement age while working for the Company. The
components of the expense for post-retirement health care and life insurance
benefits are as follows (amounts in thousands):
1999 2000 2001
---- ---- ----
Service cost benefits attributed to service during period... $ 3 $ -- $ --
Interest cost on accumulated post retirement benefit
obligation................................................ 101 114 124
Amortization of (gain) loss................................. (1) (6) 4
---- ---- ----
Net post retirement health care cost........................ $103 $108 $128
==== ==== ====
The components of the accumulated post-retirement health and life insurance
benefit obligations (all of which are unfunded) are as follows (amounts in
thousands):
1999 2000 2001
------ ------ ------
Retirees................................................. $1,409 $1,641 $1,707
Fully eligible active plan participants.................. 125 80 86
Unrecognized net gain (loss)............................. 110 (32) (41)
------ ------ ------
Accumulated post retirement benefit obligations.......... $1,644 $1,689 $1,752
====== ====== ======
A reconciliation of the accumulated post-retirement health and life
insurance benefit cost is as follows (amounts in thousands):
2000 2001
------ ------
Balance as of January 1.................................... $1,644 $1,689
Net post retirement benefit cost:
Interest cost............................................ 114 124
Amortization of losses................................... (6) 4
Actual benefits paid....................................... (63) (65)
------ ------
Balance as of December 31.................................. $1,689 $1,752
====== ======
The actuarial calculation assumed a health care cost trend rate of 8.8% in
1999, 8.4% in 2000 and 8.0% in 2001. The assumed trend rate was reduced based on
the most current data. The assumed rate decreases approximately 0.4% per year
through the year 2009 to 5.0% and remains constant beyond that point. Assumed
health care cost trend rates have an effect on the amounts reported for the
health care plans. A one-percentage-point change (plus or minus) in the assumed
health care cost trend rules would have the following effects (amounts in
thousands):
PLUS MINUS
1% POINT 1% POINT
-------- --------
Effect on total of service and interest cost
components............................................. $ 5 $ (4)
Effect on post-retirement benefit obligation............. $62 $(55)
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligations was 7.75% in 1999, 7.50% in 2000 and 7.25%
in 2001.
F-19
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7: INCOME TAXES
Information with respect to income taxes in continuing operations is as
follows (amounts in thousands):
1999 2000 2001
-------- ------- -------
(Loss) income before taxes and minority interests:
Domestic........................................... $(21,804) $ 7,850 $(5,712)
Foreign............................................ 16,392 10,524 2,961
-------- ------- -------
$ (5,412) $18,374 $(2,751)
======== ======= =======
(Benefit from) provision for income taxes:
Current:
Federal......................................... $(11,779) $(6,122) $(7,707)
Foreign......................................... 9,363 7,636 3,895
State and local................................. 400 340 300
-------- ------- -------
(2,016) 1,854 (3,512)
-------- ------- -------
Deferred:
Federal......................................... (946) 5,528 678
Foreign......................................... 1,740 720 1,765
State and local................................. (622) (572) (4)
-------- ------- -------
172 5,676 2,439
-------- ------- -------
$ (1,844) $ 7,530 $(1,073)
======== ======= =======
A reconciliation of the provision for (benefit from) income taxes at the
U.S. Federal statutory rate of 35% to the reported tax is as follows (amounts in
thousands):
1999 2000 2001
------- ------- -------
Provision for (benefit from) taxes computed at the
U.S. Federal statutory rate......................... $(1,894) $ 6,431 $ (963)
State and local income taxes, net of Federal income
tax effect.......................................... 246 418 192
Net lower tax rates on foreign income................. (663) (404) (2,833)
Impact of non-deductible goodwill amortization........ 2,380 2,680 2,736
Benefit of foreign sales corporation and other tax
credits............................................. (1,025) (400) (450)
Impact of tax rate change on prior undistributed
foreign earnings.................................... (998) -- --
Other, net............................................ 110 (1,195) 245
------- ------- -------
$(1,844) $ 7,530 $(1,073)
======= ======= =======
F-20
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the total (benefit from) provision for
income taxes (amounts in thousands):
1999 2000 2001
------- ------- -------
Continuing operations................................. $(1,844) $ 7,530 $(1,073)
Discontinued operations............................... 1,403 700 --
Allocated to equity:
Employee stock plans................................ (415) (1,630) (413)
Pension gain (loss)................................. 148 -- (1,630)
------- ------- -------
$ (708) $ 6,600 $(3,116)
======= ======= =======
The components of deferred tax assets (liabilities) are comprised of the
following as of December 31, 2000 and 2001 (amounts in thousands):
2000 2001
-------- --------
Gross deferred tax assets:
Inventory............................................ $ 6,035 $ 6,372
Bad debt reserves.................................... 791 800
Pensions and deferred compensation................... 3,382 4,992
Tax credit carryforwards............................. 3,762 4,429
Plant consolidation reserves......................... 1,802 956
Net operating loss carryforwards..................... 22,935 22,541
Depreciation......................................... 340 2,226
Foreign earnings rate differential................... 5,647 --
Other................................................ 758 223
-------- --------
45,452 42,539
-------- --------
Gross deferred tax liabilities:
Intangible assets.................................... (2,334) (2,630)
Withholding taxes.................................... (3,558) (4,955)
Other................................................ (5,903) (4,909)
-------- --------
(11,795) (12,494)
-------- --------
Net deferred tax asset............................... $ 33,657 $ 30,045
======== ========
During 1999, 2000 and 2001, general business tax credits of approximately
$680,000, $620,000 and $450,000 generated in the respective years were used to
reduce the provision for income taxes. At December 31, 2001, the Company also
has available alternative minimum tax credits in the amount of $476,000
available to reduce future Federal income tax liabilities.
In general, United States income taxes or foreign withholding taxes are not
provided on undistributed earnings of the Company's foreign subsidiaries because
of the intent to reinvest these earnings. The amount of undistributed earnings
which are considered to be indefinitely reinvested is approximately $76,600,000
at December 31, 2001. While the amount of federal income taxes, if such earnings
are distributed in the future, cannot now be determined, such taxes may be
reduced by tax credits and other deductions. The Company has provided U.S.
income taxes on undistributed earnings that are not considered indefinitely
reinvested. The amount of undistributed earnings in China that is not
indefinitely reinvested is $2,000,000, for which U.S. taxes provided is
$730,000.
F-21
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has U.S. net operating loss carryforwards totaling
approximately $94,400,000 available to reduce future taxable income. Of such
carryforwards, $4,800,000 expires in 2011 and $89,600,000 in 2018 through 2021.
At December 31, 2001, the Company has recorded a net U.S. deferred tax asset
pertaining to the recognition of the benefit on the aforementioned operating
loss carryforwards, net deductible temporary differences and tax credits in the
amount of approximately $41,800,000. The Company has not provided any valuation
allowance with respect to this asset, as it believes its realization is "more
likely than not." 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 the Company. We cannot assure you that we will
be able to realize this asset or that future valuation allowances will not be
required. The failure to utilize this asset would adversely affect our results
of operations and financial position.
NOTE 8: INDUSTRY SEGMENT AND GEOGRAPHIC DATA
The Company conducts its business through two segments based on products
provided and services rendered: Wireless Communications Equipment and Wireless
Engineering and Consulting Services. Wireless Communications Equipment consists
of four product lines: Base Station Subsystems and Components, Repeaters and
In-Building Coverage Products, Base Station and Mobile Antennas and Geolocation
Products.
The Company provides products and services on a global basis to many of the
worlds largest wireless communications OEMs and carriers. The Company supplies
many different customized Base Station Subsystems and Components that are
incorporated in cell sites including filters, duplexers, power amplifiers,
combiners, microwave radios and related products. Repeater and In-Building
Coverage Products support both coverage and capacity enhancements for carriers,
these products include repeaters, distributed antenna systems, bi-directional
boosters as well as test equipment and analysis software. The Base Station and
Mobile Antenna product line manufactures a comprehensive line of base station
and mobile antennas serving all major wireless standards and frequencies. The
Geolocation Products product line manufactures, installs and services a network
based geolocation solution that enables carriers to determine the location of
wireless callers without the need of the caller having a special handset.
The Wireless Engineering and Consulting Services segment provides frequency
planning and microwave coordination services as well as network design and field
engineering services to wireless communication carriers.
The following shows the operating results and asset positions for each of
the reportable segments for the years ended December 31, 1999, 2000 and 2001
(amounts in thousands):
1999 2000 2001
-------- -------- --------
Sales to external customers:
Wireless communications equipment
Base station subsystems and components........ $143,285 $190,934 $182,964
Repeater and in-building coverage products.... 93,528 78,751 94,523
Base station and mobile antennas.............. 76,840 97,820 88,218
Geolocation products.......................... -- -- 7,846
-------- -------- --------
Total Wireless communications equipment.......... 313,653 367,505 373,551
Wireless engineering and consulting services..... 22,560 25,103 21,050
-------- -------- --------
Total sales...................................... $336,213 $392,608 $394,601
======== ======== ========
F-22
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 2000 2001
-------- -------- --------
Operating (loss) income:
Wireless communications equipment................ $ 11,098 $ 38,226 $ 21,159
Wireless engineering and consulting services..... 1,034 4,426 1,025
-------- -------- --------
12,132 42,652 22,184
Goodwill amortization............................ (7,020) (7,822) (7,901)
General corporate expenses....................... (5,748) (7,423) (6,787)
-------- -------- --------
Operating (loss) income.......................... $ (636) $ 27,407 $ 7,496
======== ======== ========
Segment Assets:
Wireless communications equipment................ $248,148 $261,227 $272,674
Wireless engineering and consulting services..... 14,579 13,676 12,360
-------- -------- --------
262,727 274,903 285,034
Goodwill......................................... 134,723 129,190 140,995
Deferred income taxes............................ 37,247 48,115 42,061
Other general corporate assets................... 16,733 20,814 43,866
-------- -------- --------
Total assets..................................... $451,430 $473,022 $511,956
======== ======== ========
Depreciation and software amortization:
Wireless communications equipment................ $ 14,296 $ 12,830 $ 14,440
Wireless engineering and consulting services..... 3,264 2,955 2,825
Fixed asset and capitalized software additions:
Wireless communications equipment................ $ 10,730 $ 16,925 $ 10,510
Wireless engineering and consulting services..... 643 2,227 1,715
The geographic distribution of the Company's sales and long-lived assets
(excluding deferred income taxes) is as follows (amounts in thousands):
1999 2000 2001
-------- -------- --------
Sales:
United States.................................... $179,772 $196,783 $184,427
Italy............................................ 110,701 156,189 147,229
Germany.......................................... 55,055 37,581 59,292
Other............................................ 59,429 74,708 90,451
Intercompany..................................... (68,744) (72,653) (86,798)
-------- -------- --------
Total.............................................. $336,213 $392,608 $394,601
======== ======== ========
Long-lived assets:
United States.................................... $190,950 $184,087 186,071
Italy............................................ 12,650 13,649 14,004
Germany.......................................... 8,181 9,041 7,696
Other............................................ 5,218 4,825 6,854
-------- -------- --------
Total.............................................. $216,999 $211,602 $214,625
======== ======== ========
The geographic distribution of sales is based on where such products are
manufactured or services rendered.
Sales to one major communications equipment customer accounted for 10.2% of
consolidated sales in 2001 and a different customer accounted for 15.2% of
consolidated sales in 2000. No customers accounted for more than 10% of sales in
1999.
F-23
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9: ACQUISITIONS AND DISPOSITIONS
In 1999, the Company acquired the remaining outstanding 26% minority
interest in Mikom G.m.b.H., bringing its ownership interest to 100%, together
with most of the shares in two related European entities. Total consideration
was approximately $17,556,000, including $9,290,000 and $6,173,000 paid in cash,
in 1999 and 2000, respectively, and the balance paid, in cash, in 2001 (included
in Accounts Payable at December 31, 2000).
In 2000, the Company acquired the remaining outstanding 28% minority
interest of Telia, bringing its ownership interest to 100%, for a cash payment
of $2,193,000.
On December 18, 2001, the Company acquired substantially all of the assets
and certain liabilities of Bartley R.F. Systems, Inc. ("Bartley"). Bartley
designs and manufactures radio frequency (RF) filters, filter related subsystems
and other wireless communications infrastructure products principally for
wireless OEM's. The combination of the Company's Forem division, a leading
manufacturer of base station subsystems and components and Bartley is expected
to substantially increase the Company's market share in the United States in the
Company's Base Station Subsystems and Components product line. The results of
Bartley's operations (insignificant from the date of acquisition for 2001) will
be included in the consolidated financial statements beginning January 1, 2002.
The aggregate purchase price was approximately $23,900,000 including
$3,667,000 in cash (including $3,160,000 for the repayment of debt, $380,000 in
purchase price and related costs of acquisition) and common stock valued at
$20,233,000. The value of the 2,271,391 common shares was determined based on
the average market price of the Company's shares over a 5-day period before and
after the terms of the acquisition were agreed to and announced.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition. The Company is in
process of obtaining third-party valuations of certain intangible assets; thus,
the allocation of the purchase price (and amount of currently recorded goodwill)
is subject to refinement (amounts in thousands):
Current Assets.............................................. $ 9,839
Property, plant and equipment............................... 1,266
Goodwill.................................................... 20,086
-------
Total assets acquired.................................. 31,191
-------
Current Liabilities......................................... (6,371)
Long-term debt.............................................. (920)
-------
Total liabilities assumed.............................. (7,291)
-------
Net assets acquired.................................... $23,900
=======
The amount of the goodwill was assigned to the wireless communications
equipment segment, all of which is expected to be tax deductible.
F-24
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following supplemental information is presented, on a pro forma basis,
for the consolidated results of operations of the Company for fiscal years 2000
and 2001 as though the business combination of Bartley had been completed at the
beginning of fiscal year 2000 (amounts in thousands, except per share data):
2000 2001
-------- --------
Sales.................................................. $437,857 $435,426
Income (loss) from continuing operations............... $ 9,356 $ (3,590)
Earnings (loss) per common share from continuing
operations (Basic and Diluted)....................... $ 0.31 $ (0.12)
In the preparation of such pro forma information, goodwill was assumed to
be amortizable over a 10-year period resulting in $2,009,000 of goodwill
amortization (or $1,246,000 after related income tax effect), in accordance with
the then existing accounting rules and requirements.
On March 1, 1999, the Company sold its Marta Technologies, Inc. ("Marta")
subsidiary, which operated its discontinued centralized automotive emission
testing business. Previously contingent purchase price in the amount of
$2,000,000 was earned, when, in February 2000, the purchaser was awarded an
emissions testing contract. The additional purchase price consideration was in
the form of a 12% installment note. Accordingly, in the first quarter of 2000,
the Company reported additional gain of $1,300,000 from disposal of discontinued
operations, net of related income taxes of $700,000. The gain on sale of this
discontinued operation in 1999, in the amount of $2,363,000, is net of related
income taxes in the amount of $1,403,000.
NOTE 10: FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments.
Cash and Short-Term Investments: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates its fair value.
Long-Term Investments: It is not practicable to estimate the fair value of
the Company's 8% investment in the common and preferred stock of its former
specialty rubber products business because of the lack of quoted market prices
and the inability to estimate fair value without incurring excessive costs.
However, management believes that the carrying amounts recorded at December 31,
2000 and December 31, 2001 reflect the corresponding fair value of such
investment.
Long-Term Debt: The fair values of the Company's long-term debt either
approximate fair value or are estimated using discounted cash flow analysis
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Off-Balance Sheet Instruments: The Company utilizes letters of credit to
back certain financing instruments, insurance policies and payment obligations.
The letters of credit reflect fair value as a condition of their underlying
purpose and are subject to fees competitively determined. The Company enters
into foreign currency contracts to offset the impact of currency rate changes
related to accounts receivable and certain payment obligations. The fair value
of such contracts are based on quoted market
F-25
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
prices of comparable contracts. The carrying amounts and fair values of
financial instruments at December 31, 2000 and 2001 are as follows (amounts in
thousands):
CARRYING AMOUNT FAIR VALUE
------------------- -------------------
2000 2001 2000 2001
-------- -------- -------- --------
Cash and cash equivalents.................. $ 10,539 $ 16,368 $ 10,539 $ 16,368
Non-current investments.................... 4,344 4,344 4,344 4,344
Long-term debt............................. 139,421 153,899 141,885 158,809
Off-balance sheet financial instruments:
Letters of credit........................ 1,115 2,115 1,115 2,115
Foreign currency contracts............... 2,773 2,330 2,966 2,373
NOTE 11: SUPPLEMENTAL CASH FLOW DISCLOSURE
The following non-cash items were effected and are not reflected in the
Consolidated Statements of Cash Flows:
In 1999, the Company purchased the remaining outstanding interest in Mikom
and two affiliated European companies. This acquisition resulted in additional
Goodwill of $9,608,000. This acquisition also increased Accounts Payables at
December 31, 1999 by $8,266,000 and eliminated minority interest liability of
$6,500,000.
In 1999, the Company sold Marta assets of $22,958,000 and, further, the
purchaser assumed a $12,436,000 capital lease obligation. As described in Note
9, in 2000 the Company received a $2,000,000 installment note receivable
relating to the sale of Marta.
In 2001, Accumulated other comprehensive loss, representing adjustments
from translating foreign currency financial statements and an adjustment to
reflect minimum pension liabilities, decreased from $31,948,000 at December 31,
2000 to $30,671,000 at December 31, 2001. In 2001, the minimum pension liability
was $2,664,000 (net of related income tax effect) and was none in 2000. The
translation loss decreased from $31,984,000 at December 31, 2000 to $28,052,000
at December 31, 2001. In 2000, such loss, representing adjustments from
translating foreign currency financial statements, increased from $10,685,000 at
December 31, 1999 to $31,948,000 at December 31, 2000.
As more fully described in Note 9, in December 2001 the Company acquired
substantially all of the assets of Bartley R.F. Systems, Inc., in exchange for,
in part, 2,271,391 shares of the Company's common stock valued at approximately
$20,233,000.
Information with respect to cash paid during the year for interest and
taxes is as follows (amounts in thousands):
1999 2000 2001
------ ------- -------
Interest paid.................................... $9,240 $10,620 $11,005
Income taxes paid, net........................... 8,605 10,207 3,664
F-26
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12: SPECIAL CHARGES
In 1999, 2000 and 2001, the Company incurred net special charges pertaining
to the discontinuation of certain product lines, the closing and consolidation
of manufacturing facilities and other items. Such costs are included in the
Consolidated Statements of Operations as follows (amounts in thousands):
1999 2000 2001
------- ----- ------
Cost of sales...................................... $ 6,109 $ 106 $ 997
Selling, general and administrative expenses....... 5,877 (141) 1,308
Research and development and product engineering
costs............................................ 325 -- --
------- ----- ------
Total (income) loss........................... $12,311 $ (35) $2,305
======= ===== ======
In 1999, the Company incurred special charges of $12,311,000 (or $0.29 per
basic and diluted share after related income tax effect) relating to the closure
of a manufacturing facility, a loss on the sale of this facility, the
termination of substantially all employees in such facility, a loss on the
disposal of equipment and inventory related charges of $4,690,000 all in the
Wireless Communications Equipment segment. The facility had a net book value of
$4,805,000 at December 31, 2000, classified in other assets, and was sold in
2001.
In 2000, the Company incurred additional pretax charges of $1,678,000, or
$0.04 per basic and diluted share after related income tax effect, incremental
to the 1999 restructuring charge. These 2000 charges, which were not accruable
at December 31, 1999, include termination costs of employees notified subsequent
to December 31, 1999, relocation costs, asset write-offs, and other termination
related benefits. In 2000, the Company also recognized a non-cash pretax gain of
$1,160,000, or $0.03 per basic and diluted 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. The Company also
adjusted the loss accrual for the disposal of the facility as a result of its
sale in January 2001 and recorded income in the amount of $553,000, or $0.01 per
basic and diluted share after related income tax effect.
In 2001, the Company incurred pretax charges of $2,305,000 or $.05 per
basic and diluted share after related income tax effect, with respect to the
planned closing and consolidation of the Company's U.S. base station subsystem
and components parts manufacturing facility in Nevada into the newly acquired
Bartley manufacturing facility in Massachusetts. These costs include 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.
F-27
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of the status of certain exit costs incurred
(amounts in thousands, except employee data):
SEVERANCE
------------------- DISPOSITION
NUMBER OF OF BUILDING
ACCRUAL EMPLOYEES AND EQUIPMENT OTHER
------- --------- ------------- -------
Accrual................................... $ 1,531 115 $ 3,764 $ 1,110
Charged against accrual................... (157) (22) (1,493) (593)
------- --- ------- -------
Balance, December 31, 1999................ 1,374 93 2,271 517
Additions to the accrual.................. 327 5 393 958
Charged against accrual................... (1,482) (98) (562) (1,158)
Accrual adjustment credited to income..... -- -- (553) --
------- --- ------- -------
Balance, December 31, 2000................ 219 -- 1,549 317
Additions to the accrual.................. 570 76 576 168
Charged against accrual................... (219) -- (1,524) (147)
------- --- ------- -------
Balance, December 31, 2001................ $ 570 76 $ 601 $ 338
======= === ======= =======
NOTE 13: UNAUDITED QUARTERLY FINANCIAL DATA
Quarterly financial data are summarized as follows (amounts in thousands,
except per share amounts):
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- -------- -------- --------
2000
Sales...................................... $ 88,859 $ 89,175 $107,690 $106,884
Gross profit............................... 25,382 27,584 31,930 30,046
Income from continuing operations.......... 570 2,242 4,285 3,656
Gain from discontinued operations.......... 1,300 -- -- --
Net income................................. 1,870 2,242 4,285 3,656
Earnings per common share:
Basic and Diluted:
Continuing operations................. $ 0.02 $ 0.08 $ 0.15 $ 0.13
Discontinued operations............... 0.05 -- -- --
Net income............................ 0.07 0.08 0.15 0.13
2001
Sales...................................... $108,543 $105,094 $ 91,319 $ 89,645
Gross profit............................... 29,904 27,111 21,442 19,802
Net income (loss).......................... 2,437 846 (1,662) (3,444)
Earnings (loss) per common share:
Basic and Diluted:
Net income (loss)..................... $ 0.09 $ 0.03 $ (0.06) $ (0.12)
In the first quarter of 2000, the Company incurred incremental pretax
charges of approximately $1,678,000, or $0.04 per basic and diluted share after
related income tax effect, in connection with the restructuring, announced
during the fourth quarter of 1999, of certain operations including the
discontinuance of certain product lines, the closing of a manufacturing
facility, termination costs of
F-28
ALLEN TELECOM INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employees and other items. Of this pretax charge, $960,000 was recorded in cost
of sales and $718,000 in selling, general and administrative expenses.
In the third quarter of 2000, the Company recognized a pretax gain of
approximately $1,160,000, or $0.03 per basic and diluted share after related
income tax effect, with respect to a pension curtailment gain as a result of a
reduction in force in connection with the aforementioned restructuring, of this
gain $406,000 was recorded in cost of sales and $754,000 in selling, general and
administrative expenses.
In the fourth quarter of 2000, the Company adjusted the loss accrual for
the disposal of a facility and recorded income in the amount of $553,000
(included in cost of sales) or $0.01, per basic and diluted share, after related
income tax effect.
In the fourth quarter of 2001, the Company recognized a restructuring
charge of approximately $2,305,000, or $0.05 per basic and diluted share after
related income tax effect, with respect to the closing and consolidation of the
Company's U.S. base station subsystem and components parts manufacturing
facility in Nevada into the newly acquired Bartley manufacturing facility in
Massachusetts. Of this cost, approximately $997,000 is included in cost of sales
and $1,308,000 in selling, general and administrative expense.
NOTE 14: SUBSEQUENT EVENT
On February 13, 2002, the Company announced that it had filed a
Registration Statement with the Securities and Exchange Commission to register
1,000,000 shares of its Series D Convertible Preferred Stock (liquidation
preference $50.00 per share), with an aggregate offering price of $50,000,000.
The Registration Statement also covers the additional shares to be issued if the
underwriters exercise the over-allotment option to purchase up to an additional
150,000 shares.
F-29
ALLEN TELECOM INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 2001
(AMOUNTS IN THOUSANDS)
ADDITIONS
BALANCE ---------------------
AT CHARGED TO CHARGED DEDUCTIONS BALANCE AT
BEGINNING COSTS AND TO OTHER FROM END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES PERIOD
----------- --------- ---------- -------- ---------- ----------
Allowance for doubtful accounts:
2001................................... $ 4,739 1,151 -- 2,552(1) $ 3,338
======= ====== ===== ======== =======
2000................................... $ 2,537 2,603 -- 401(1) $ 4,739
======= ====== ===== ======== =======
1999................................... $ 3,189 513 -- 1,165(1) $ 2,537
======= ====== ===== ======== =======
Inventory reserves:
2001................................... $13,964 10,139 419(3) 7,520(2) $17,002
======= ====== ===== ======== =======
2000................................... $20,722 7,507 -- 14,265(2) $13,964
======= ====== ===== ======== =======
1999................................... $15,440 14,562 -- 9,280(2) $20,722
======= ====== ===== ======== =======
---------------
(1) Represents the net amount of the write-off of uncollectible accounts (less
recoveries), and foreign currency translation changes.
(2) Represents the net amount of the write-off of inventory (less recoveries)
and foreign currency translation changes.
(3) Represents reserves acquired related to the purchase of Bartley R.F.
Systems, Inc.
F-30