SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
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(Mark-One) |
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QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES |
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For the quarterly period ended December 31, 2003. |
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OR |
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES |
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For the transition period from to |
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Commission file number 001-14617 |
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ANDREW CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE |
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36-2092797 |
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer identification No.) |
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10500 W. 153rd Street, Orland Park, Illinois 60462 |
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(Address of principal executive offices and zip code) |
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(708) 349-3300 |
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(Registrant’s telephone number, including area code) |
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No Change |
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(Former name, former address and former fiscal year, if changed since last report) |
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Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ý No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Act)
Yes ý No o
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.
Common Stock, $.01 Par Value – 158,814,288 shares as of February 11, 2004
INDEX
ANDREW CORPORATION
2
ITEM 1. FINANCIAL STATEMENTS
(Dollars in thousands)
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December 31 |
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September 30 |
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(UNAUDITED) |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
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$ |
220,116 |
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$ |
286,269 |
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Accounts receivable, less allowances (Dec. 2003 - $11,472; Sept. 2003 - $10,662) |
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379,495 |
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326,282 |
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Inventories |
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284,190 |
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247,750 |
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Other current assets |
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36,457 |
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29,131 |
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Total Current Assets |
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920,258 |
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889,432 |
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Other Assets |
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Goodwill |
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828,295 |
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821,398 |
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Intangible assets, less amortization |
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90,814 |
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93,086 |
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Other assets |
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54,526 |
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50,398 |
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Property, Plant, and Equipment |
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Land and land improvements |
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23,671 |
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20,926 |
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Buildings |
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126,004 |
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116,038 |
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Equipment |
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480,749 |
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469,296 |
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Allowance for depreciation |
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(401,639 |
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(387,341 |
) |
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228,785 |
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218,919 |
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TOTAL ASSETS |
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$ |
2,122,678 |
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$ |
2,073,233 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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Notes payable |
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$ |
247 |
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$ |
284 |
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Accounts payable |
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166,432 |
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124,646 |
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Accrued expenses and other liabilities |
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74,965 |
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58,893 |
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Compensation and related expenses |
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42,806 |
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52,255 |
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Restructuring |
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15,070 |
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20,414 |
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Current portion of long-term debt |
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14,236 |
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17,466 |
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Total Current Liabilities |
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313,756 |
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273,958 |
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Deferred liabilities |
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60,559 |
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73,941 |
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Long-term debt, less current portion |
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294,222 |
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301,364 |
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STOCKHOLDERS’ EQUITY |
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Redeemable convertible preferred stock (par value, $50 a share: 160,814 shares outstanding at Dec. 31, 2003 and 183,720 shares outstanding at Sept. 30, 2003) |
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8,041 |
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9,186 |
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Common stock (par value, $.01 a share: 400,000,000 shares authorized: 160,900,657 shares issued at Dec. 31, 2003 and Sept. 30, 2003, including treasury) |
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1,609 |
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1,609 |
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Additional paid-in capital |
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648,119 |
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649,667 |
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Accumulated other comprehensive income (loss) |
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13,616 |
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(14,115 |
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Retained earnings |
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809,240 |
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805,435 |
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Treasury stock, at cost (2,493,662 shares at Dec. 31, 2003; 2,608,290 shares at Sept. 30, 2003) |
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(26,484 |
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(27,812 |
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1,454,141 |
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1,423,970 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
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$ |
2,122,678 |
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$ |
2,073,233 |
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See Notes to Consolidated Financial Statements
3
ANDREW CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
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Three Months Ended |
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2003 |
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2002 |
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Sales |
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$ |
410,771 |
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$ |
254,526 |
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Cost of products sold |
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306,702 |
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183,313 |
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Gross Profit |
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104,069 |
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71,213 |
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Operating Expenses |
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Research and development |
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25,623 |
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19,899 |
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Sales and administrative |
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52,493 |
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36,814 |
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Intangible amortization |
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9,421 |
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3,682 |
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Restructuring |
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694 |
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79 |
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88,231 |
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60,474 |
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Operating Income |
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15,838 |
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10,739 |
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Other |
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Interest expense |
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3,887 |
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1,060 |
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Interest income |
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(749 |
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(323 |
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Loss on sale of Broadcast assets |
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4,511 |
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— |
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Other expense |
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1,850 |
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520 |
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9,499 |
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1,257 |
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Income from Continuing Operations Before Income Taxes |
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6,339 |
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9,482 |
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Income Taxes |
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2,219 |
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2,845 |
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Income from Continuing Operations |
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4,120 |
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6,637 |
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Loss from Discontinued Operations, net of tax benefit |
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— |
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570 |
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Net Income |
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4,120 |
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6,067 |
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Preferred Stock Dividends |
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315 |
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— |
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Net Income Available to Common Shareholders |
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$ |
3,805 |
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$ |
6,067 |
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Basic and Diluted Income per Share from Continuing Operations |
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$ |
0.02 |
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$ |
0.07 |
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Basic and Diluted Net Income per Share |
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$ |
0.02 |
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$ |
0.06 |
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Average Shares Outstanding |
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Basic |
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158,345 |
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98,285 |
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Diluted |
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158,642 |
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98,288 |
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See Notes to Consolidated Financial Statements
4
ANDREW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
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Three Months Ended |
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2003 |
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2002 |
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Cash Flows from Operations |
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Net Income |
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$ |
4,120 |
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$ |
6,067 |
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Adjustments to Net Income |
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Depreciation |
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15,219 |
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12,711 |
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Amortization |
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9,421 |
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3,682 |
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Other |
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(90 |
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(97 |
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Restructuring and Discontinued Operations |
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Restructuring costs |
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(6,281 |
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(2,153 |
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Discontinued operations, net of taxes |
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— |
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3,067 |
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Change in Operating Assets / Liabilities |
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Accounts receivable |
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(38,863 |
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5,069 |
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Inventories |
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(26,646 |
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(6,375 |
) |
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Other assets |
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(4,638 |
) |
6,721 |
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Accounts payable and other liabilities |
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32,092 |
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(16,037 |
) |
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Net Cash (Used for) From Operations |
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(15,666 |
) |
12,655 |
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Investing Activities |
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Capital expenditures |
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(19,573 |
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(9,432 |
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Acquisition of businesses, net of cash acquired |
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(23,227 |
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(114 |
) |
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Investments |
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(6,500 |
) |
— |
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Proceeds from sale of businesses and investments |
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3,000 |
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3,508 |
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Proceeds from sale of property, plant and equipment |
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549 |
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388 |
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Net Cash Used for Investing Activities |
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(45,751 |
) |
(5,650 |
) |
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Financing Activities |
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Long-term debt payments, net |
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(11,691 |
) |
(4,350 |
) |
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Notes payable payments, net |
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(174 |
) |
(19,526 |
) |
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Preferred stock dividends |
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(315 |
) |
— |
|
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Payments to acquire treasury stock |
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(2,472 |
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— |
|
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Stock purchase and option plans |
|
636 |
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56 |
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Net Cash Used for Financing Activities |
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(14,016 |
) |
(23,820 |
) |
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Effect of exchange rate changes on cash |
|
9,280 |
|
3,368 |
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|
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|
|
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Decrease for the Period |
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(66,153 |
) |
(13,447 |
) |
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Cash and Equivalents at Beginning of Period |
|
286,269 |
|
84,871 |
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Cash and Equivalents at End of Period |
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$ |
220,116 |
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$ |
71,424 |
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See Notes to Consolidated Financial Statements
5
ANDREW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended December 31, 2003 are not necessarily indicative of the results that may be expected for the year ending September 30, 2004. For further information, refer to the consolidated financial statements and footnotes thereto included in the company’s annual report on Form 10-K for the year ended September 30, 2003.
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share amounts):
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Three Months Ended |
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2003 |
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2002 |
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BASIC EARNINGS PER SHARE |
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Income from continuing operations |
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$ |
4,120 |
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$ |
6,637 |
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Preferred stock dividends |
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315 |
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— |
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Income from continuing operations available to common shareholders |
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3,805 |
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6,637 |
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Average basic shares outstanding |
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158,345 |
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98,285 |
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Basic income from continuing operations per share |
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$ |
0.02 |
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$ |
0.07 |
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Net income |
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$ |
4,120 |
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$ |
6,067 |
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Preferred stock dividends |
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315 |
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— |
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Net income available to common shareholders |
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3,805 |
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6,067 |
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|
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Average basic shares outstanding |
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158,345 |
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98,285 |
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Basic net income per share |
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$ |
0.02 |
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$ |
0.06 |
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DILUTED EARNINGS PER SHARE |
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Income from continuing operations |
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$ |
4,120 |
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$ |
6,637 |
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Preferred stock dividends |
|
315 |
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— |
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Income from continuing operations available to common shareholders |
|
3,805 |
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6,637 |
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|
|
|
|
|
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Average basic shares outstanding |
|
158,345 |
|
98,285 |
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Effect of dilutive securities: stock options |
|
297 |
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3 |
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Average diluted shares outstanding |
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158,642 |
|
98,288 |
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Diluted income from continuing operations per share |
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$ |
0.02 |
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$ |
0.07 |
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Net income |
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$ |
4,120 |
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$ |
6,067 |
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|
Preferred stock dividends |
|
315 |
|
— |
|
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Net income available to common shareholders |
|
3,805 |
|
6,067 |
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||
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|
|
|
|
|
|
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Average basic shares outstanding |
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158,345 |
|
98,285 |
|
||
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Effect of dilutive securities: stock options |
|
297 |
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3 |
|
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Average diluted shares outstanding |
|
158,642 |
|
98,288 |
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Diluted net income per share |
|
$ |
0.02 |
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$ |
0.06 |
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6
The company had 160,814 shares of convertible preferred stock outstanding at December 31, 2003, which can potentially be converted into 1,853,542 shares of common stock. These shares were not included in the computation of diluted earnings per share because including these shares and excluding the convertible preferred stock dividends would have increased reported earnings per share.
Options to purchase 5,330,272 shares of common stock, at exercise prices ranging from $12.32 - $38.17 per share, were not included in the computation of diluted earnings per share calculations for December 31, 2003 because the options’ exercise prices were greater than the average market price of the common shares. Options to purchase 6,547,991 shares of common stock, at prices ranging from $9.36 - $38.17 per share, were not included in the computation of diluted earnings per share calculations for December 31, 2002 because the options’ exercise prices were greater than the average market price of the common shares.
The company’s convertible subordinated notes are potentially convertible into 17,531,568 shares of the company’s stock. These shares were not included in the computation of diluted earnings per share because the conversion price of these notes was greater than the market price of the company’s common shares for the three months ending December 31, 2003.
NOTE 3. INVENTORIES
Inventories consisted of the following at December 31, 2003 and September 30, 2003, net of reserves:
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Dollars in thousands |
|
December 31 |
|
September 30 |
|
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|
|
|
|
|
|
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Raw materials |
|
$ |
131,373 |
|
$ |
112,130 |
|
|
Work in process |
|
50,046 |
|
44,513 |
|
||
|
Finished goods |
|
102,771 |
|
91,107 |
|
||
|
Net Inventory |
|
$ |
284,190 |
|
$ |
247,750 |
|
NOTE 4. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income, requires the company to report foreign currency translation adjustments and other items included in Accumulated Other Comprehensive Income, a component of stockholders equity, as comprehensive income. For the three months ended December 31, 2003 and 2002, other comprehensive income is made up primarily of net income available to common shareholders and foreign currency translation adjustments. Comprehensive income for the three months ended December 31, 2003 and 2002 amounted to $31.5 million and $16.3 million, respectively.
NOTE 5. RECENTLY ISSUED ACCOUNTING POLICIES
In December 2003, the Financial Accounting Standards Board (FASB) issued revised SFAS No. 132(R), Employers’ Disclosures about Pensions and Other Postretirement Benefits. SFAS 132(R) revises employers’ required disclosures for pension plans and other postretirement benefit plans. SFAS 132(R) disclosure requirements will be effective for the company starting with the quarter ending March 31, 2003. SFAS 132(R) will only impact disclosure requirements and will not impact the company’s results of operations.
On December 8, 2003, the Medical Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law. This Act introduces a prescription drug benefit under Medicare (Medicare part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. The company has not yet determined what the impact of this Act will be on the company’s accumulated postretirement benefit obligation (APBO) and the company’s net postretirement benefit costs. However, the company does not believe this Act will have a material impact the company’s results of operations.
7
NOTE 6. ADOPTION OF NEW ACCOUNTING POLICIES
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The provisions of this statement were effective for exit or disposal activities initiated after December 31, 2002. The company’s current restructuring plan, initiated in September 2002, is being accounted for under the previously existing accounting principles for restructuring, primarily Emerging Issues Task Force Issue 94-3. The company accrued pre-tax charges of $44.0 million when the company’s management approved the current restructuring plan. If the company had accounted for this restructuring plan under SFAS No. 146, certain costs included in this $44.0 million, such as employee termination benefits of $12.3 million and lease and contract cancellation costs of $10.3 million, would have been recognized over the restructuring period as incurred and not accrued for when the company’s management approved these plans.
NOTE 7. RESTRUCTURING
In September 2002, the company initiated a plan to restructure its operations. The company has recorded $44.0 million of pre-tax charges for inventory provisions, employee termination costs, equipment and other asset provisions, and lease and contract cancellation costs. During fiscal year 2003, the company closed several manufacturing and engineering facilities and consolidated its operations into fewer, more efficient facilities. The company has also relocated certain manufacturing operations to new facilities in Mexico and the Czech Republic. The company started operations at these new facilities in the third quarter of 2003 and plans to finish the transition of manufacturing activities to these facilities by end of fiscal year 2004.
As part of the Allen Telecom acquisition, the company accrued $29.9 million of integration costs, comprised of a $16.2 million provision for inventory and fixed assets and $13.7 million for employee termination, lease cancellation and other costs accrued as additional restructuring reserves. In the first quarter of 2004, the company recorded an additional $7.5 million of integration costs that were accounted for as a decrease in assets acquired and an increase in liabilities assumed from Allen Telecom. This $7.5 million was comprised of a $4.0 million provision for inventory and fixed assets and $3.5 million for employee termination, lease cancellation and other costs accrued as additional restructuring reserves.
Under these restructuring plans, in the first quarter of 2004, the company paid $3.2 million of severance to 322 employees and incurred an additional $5.7 million of lease cancellation and other costs. The cash costs incurred in the first quarter of 2004 were $6.3 million. The total number of employees terminated as part of these plans was 1,237 and it is anticipated that approximately 290 additional employees will be terminated before these plans are completed.
Restructuring costs for the relocation of fixed assets under the initial restructuring plan are being expensed as incurred and are included in operating expenses. These costs were $0.7 million and $0.1 million in first quarter of 2004 and 2003, respectively.
A summary of the restructuring reserve activity is provided below (in thousands):
|
Reserve
Activity for the three |
|
Reserve |
|
Charges |
|
Allen
Integration |
|
Reserve |
|
||||
|
Severance |
|
$ |
11,189 |
|
$ |
(3,178 |
) |
$ |
2,683 |
|
$ |
10,694 |
|
|
Lease cancellation and other costs |
|
9,225 |
|
(5,677 |
) |
828 |
|
4,376 |
|
||||
|
Total Reserve Balance |
|
$ |
20,414 |
|
$ |
(8,855 |
) |
$ |
3,511 |
|
$ |
15,070 |
|
|
Reserve
Activity for the three |
|
Reserve |
|
Charges |
|
Reserve |
|
|||
|
Severance |
|
$ |
11,877 |
|
$ |
(1,915 |
) |
$ |
9,962 |
|
|
Lease cancellation and other costs |
|
3,452 |
|
(1,730 |
) |
|
1,722 |
|
||
|
Total Reserve Balance |
|
$ |
15,329 |
|
$ |
(3,645 |
) |
$ |
11,684 |
|
8
|
|
|
Three Months Ended |
|
||||
|
(Dollars in thousands, except per share amounts) |
|
2003 |
|
2002 |
|
||
|
|
|
|
|
|
|
||
|
Reported net income available to common shareholders |
|
$ |
3,805 |
|
$ |
6,067 |
|
|
|
|
|
|
|
|
||
|
Less: Stock-based compensation, net of tax |
|
(1,733 |
) |
(1,881 |
) |
||
|
|
|
|
|
|
|
||
|
Pro forma net income available to common shareholders |
|
$ |
2,072 |
|
$ |
4,186 |
|
|
|
|
|
|
|
|
||
|
Reported basic and diluted net income per share |
|
$ |
0.02 |
|
$ |
0.06 |
|
|
|
|
|
|
|
|
||
|
Pro forma basic and diluted net income per share |
|
$ |
0.01 |
|
$ |
0.04 |
|
NOTE 9. WARRANTY RESERVE
The company offers warranties on most of its products that qualify as guarantees under FASB Interpretation No. 45 and thus is required to disclose the components of its warranty reserve. The specific terms and conditions of the warranties offered by the company vary depending upon the product sold. The company estimates the costs that may be incurred under its warranty plans and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect the company’s warranty liability include the number of units sold, the type of products sold, historical and anticipated rates of warranty claims and cost per claim. The company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. The company reports warranty reserves as a current liability, included in accrued expenses and other liabilities. Changes in the company’s warranty reserve during the three months ended December 31, 2003, are as follows (dollars in thousands):
|
|
|
Three Months Ended |
|
||||
|
|
|
2003 |
|
2002 |
|
||
|
|
|
|
|
|
|
||
|
Warranty reserve at beginning of period |
|
$ |
12,470 |
|
$ |
9,932 |
|
|
Accrual for warranties issued |
|
5,872 |
|
772 |
|
||
|
Warranty settlements made |
|
(1,903 |
) |
(533 |
) |
||
|
Warranty expirations and adjustments |
|
910 |
|
— |
|
||
|
Warranty reserve at end of period |
|
$ |
17,349 |
|
$ |
10,171 |
|
9
NOTE 10. ACQUISITION OF BUSINESSES
In the first quarter of fiscal 2004, the company made two business acquisitions. The company acquired selected assets of Channel Master LLC, a U.S. manufacturer of high volume antenna and antenna related products for professional VSAT (Very Small Aperture Terminal), consumer DBS (Direct Broadcast Satellite) and television accessory markets. The company also purchased selected assets of Yantai Fine Cable Company, a Chinese manufacturer of products for telecommunications and broadband cable TV infrastructure markets. The company paid a total of $23.2 million for these acquisitions. A preliminary allocation of the purchase price resulted in $3.2 million of goodwill and $6.9 million of intangible assets. Pro forma results of operations, assuming these acquisitions occurred at the beginning of the period, were not materially different from the reported results of operations.
NOTE 11. SALE OF ASSETS
In November 2003, the company sold selected assets from its broadcast manufacturing operations to Electronics Research. Inc. (ERI). For these assets the company received $3.0 million in cash and $5.8 million in promissory notes. The company recognized a $4.5 million loss on the disposal of these assets, including $4.0 million of goodwill allocated to these assets based on fair value.
NOTE 12. DEBT COVENANTS
Under the terms of the company’s revolving credit and loan agreements, the company has agreed to meet various requirements. The company is in compliance with all of these requirements as of December 31, 2003. Under the company’s amended and restated credit agreement dated December 19, 2002 the company must meet various requirements, including maintaining net worth, maintaining a ratio of earnings before interest, taxes, depreciation and amortization (EBITDA) to total debt, maintaining a fixed charges coverage ratio and limits on the amount of assets that the company can dispose of in a fiscal year. These requirements may limit the amount of borrowing under this credit agreement. Under the most restrictive of these requirements, the company was limited to a maximum borrowing of $160.7 million at December 31, 2003. The company is required to report on these requirements quarterly.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the quarter ended December 31, 2003 were $410.8 million, an increase of 61% over the first quarter of fiscal year 2003, as a result of the acquisition of Allen Telecom. A weaker U.S. dollar also contributed approximately 5% of this year over year growth. Sales increased 19% sequentially from the fourth quarter of fiscal year 2003, with increases in most of the company’s major product categories and geographic regions, due primarily to a general increase in wireless infrastructure spending.
Sales in the company’s five main product categories, Antennas, Base Station Subsystems, Cable Products, Network Solutions and Wireless Innovations, all increased significantly compared to the first quarter of 2003 due mainly to the acquisition of Allen Telecom. Sequentially compared to the fourth quarter of 2003, Antenna product sales increased, driven by spending on coverage applications for network expansion on products such as base station antennas. Antenna product sales also increased as a result of the company’s November acquisition of Channel Master LLC, a manufacturer of satellite antennas for the VSAT and DBS markets. Base Station Subsystems grew significantly on a sequential basis, due to increased power amplifier and filter sales to OEMs to support network upgrades and expansion. The increase in wireless infrastructure spending also resulted in growth in Cable Product sales, both sequentially and compared to the first quarter of 2003. The company’s October acquisition of Yantai Fine Cable also moderately increased Cable Product sales. This acquisition, along with the company’s strategic investment in Andes Industries, allows the company to offer complete end-to-end solutions for the broadband cable TV market. Network Solutions was the only major product category that decreased sequentially, as anticipated. Wireless Innovations sales grew significantly due to service providers’ increased expenditures on network coverage products, primarily repeaters.
Gross profit, as a percentage of sales was 25.3% in the first quarter of 2004, compared to 28.3% in the fourth quarter of 2003 and 28.0% in the first quarter of 2003. The decrease in gross margin was due primarily to product mix and start-up costs associated with the company’s new facilities in Mexico and the Czech Republic. Product mix had a negative impact on gross margin as sales of higher margin Network Solutions and Cable Products declined as a percentage of total sales.
Research and development expense was $25.6 million or 6.2% of sales, compared to $25.7 or 7.4% of sales in the fourth quarter and $19.9 million or 7.8% of sales in the first quarter of 2003. The company has continued to invest in product development, working to develop integrated product offerings and next generation products. The company anticipates that research and development will continue to be in the range of 6% to 7% of sales.
10
Sales and administrative costs were $52.5 million or 12.8% of sales, compared to 13.9% and 14.5% of sales in the fourth quarter and first quarter of 2003, respectively. On a sequential basis, sales and administrative costs increased 10% from $47.9 million in the fourth quarter of 2003. Increased sales resulted in higher selling expense, and increased operating profits drove higher compensation accruals. The company has established a goal to reduce sales and administrative costs to 10% to 11% of revenue by fiscal year 2005. The company believes that it will be able to recognize significant savings in sales and administrative expenses once Allen Telecom’s and Andrew’s operations are fully integrated.
Intangible amortization was $9.4 million in the first quarter of 2004, compared to $8.2 million in the fourth quarter and $3.7 million in the first quarter of 2003. The increase in intangible amortization was due to intangible assets acquired from Allen Telecom in the fourth quarter of 2003. The company anticipates that intangible amortization will be approximately $38.0 million in fiscal year 2004 and will decline to approximately $20.0 million in fiscal year 2005.
Interest expense was $3.9 million, compared to $3.0 million in the fourth quarter of 2003 and $1.1 million in the first quarter of 2003. This increase was due almost entirely to interest on the company’s $240.0 million, 3.25% convertible subordinated notes that were issued in August 2003.
Other (income) expense was expense of $1.9 million compared to income of $0.2 million in the fourth quarter of 2003 and expense of $0.5 million in the first quarter of 2003. Other (income) expense is primarily driven by foreign exchange gains and losses. During the first quarter of 2004, the company recognized foreign exchange losses due to the impact of a weaker dollar on the net U.S. dollar-denominated assets held by the company’s foreign subsidiaries.
In the first quarter of 2004, the company recognized a $4.5 million loss on the sale of selected assets of its television broadcast business to Electronics Research Inc. (ERI). The company received $3.0 million in cash and $5.8 million in promissory notes from this sale. Included in the $4.5 million loss is an allocation of $4.0 million of goodwill that was attributed to these broadcast assets based on fair value.
The company’s effective tax rate for the quarter was 35% compared to 30% for the first quarter of 2003. The increase in the effective tax rate is due to an increase in U.S. taxable income, primarily as a result of the Allen Telecom acquisition.
LIQUIDITY
The company has maintained its strong balance sheet and reduced its outstanding debt during the first quarter of 2004. The company’s cash balances decreased $66.2 million to $220.1 million in the quarter. The decrease in cash was driven primarily by working capital requirements associated with higher sales, two assets acquisitions, capital expenditures for a new facility in Mexico and a reduction in long-term debt. Working capital at December 31, 2003 was $606.5 million, down from $615.5 million at December 31, 2003. The reduction in working capital was due to the $66.2 million decrease in cash and offset by growth in receivables and inventory. Management believes that the company’s strong working capital position, ability to generate cash flow from operations, and its ability to borrow under its revolving credit agreement will allow the company to meet its normal operating cash flow needs.
In the first quarter of 2004, the company used $15.7 million of cash for operations. This was driven by higher working capital requirements due to increased sales. The increase in sales in the quarter led to an increase in accounts receivable of $38.9 million. The age of average billed receivables increased slightly as days sales in billed receivables (DSO) increased to 83 days from 80 days at September 30, 2003. The increase in sales drove a $26.6 million increase in inventory and a $32.1 million increase in accounts payable and other liabilities. Netted in the $32.1 million increase in accounts payable and other liabilities is a $7.5 million payment made to the pension plan acquired from Allen Telecom. Included in cashflow used for operations is $6.3 million of employee termination costs, lease cancellation costs and other cash costs associated with the company’s restructuring and Allen Telecom integration plans.
In the first quarter of 2004, the company used $45.8 million for investing activities. The company spent $19.6 million on capital expenditures. Approximately $9.1 million of these capital expenditures were for the company’s new facility in Reynosa, Mexico. The company received $3.0 million in cash as part of the sale of selected assets of its broadcast business to ERI. The company spent $23.2 million on two separate asset acquisitions. In October, the company acquired the assets of Yantai Fine Cable and, in November, the company acquired assets of Channel Master LLC. During the quarter, the company made a $6.5 million investment in Andes Industries and its principal operating subsidiary, PCT International. This investment was in the form of a convertible interest-bearing note that allows the company to convert this note into an equity interest in Andes Industries. Andes Industries is a manufacturer of high-performance optical equipment and other products for broadband cable networks.
Net cash used for financing activities during the first quarter of 2004 totaled $14.0 million. The company reduced its total debt by $11.9 million, primarily due to principal payments on senior notes acquired from Allen Telecom. The company spent $2.5 million
11
to repurchase 225,000 shares of its common stock. Also included in cash used for financing activities were preferred stock dividend payments of $0.3 million and cash received from option exercises of $0.6 million.
See Item 7a of the company’s Annual Report on Form 10-K for the year ended September 30, 2003. With the exception of copper purchase commitments there has been no material change from the end of the previous fiscal year through December 31, 2003.
The company uses various metals in the production of its products. Copper, which is used to manufacture coaxial cable, is the most significant of these metals. As a result, the company is exposed to fluctuations in the price of copper. In order to reduce this exposure, the company has entered into contracts with various suppliers to purchase copper. At September 30, 2003 the company had contracts to purchase 38.2 million pounds of copper for $29.5 million. Based on current market conditions and forecasted copper requirements, the company increased the amount of copper under contract to 43.3 million pounds for $36.3 million at December 31, 2003.
Evaluation of Disclosure Controls and Procedures:
As of December 31, 2003, the company’s management, including its Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of the company’s disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the company’s disclosure controls and procedures are adequate and effective and that no changes are required at this time.
Changes in Internal Controls:
In connection with the evaluation by management, including its Chief Executive Officer and Chief Financial Officer, of the company’s internal control over reporting, pursuant to Exchange Act Rule 13a-15(d), no changes during the quarter ended December 31, 2003 were identified that have materially affected, or are reasonably likely to materially affect, the company’s internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Subsequent to the close of the first quarter, the company reached a definitive agreement with TruePosition, Inc. to settle pending patent infringement litigation filed against Allen Telecom, Inc., on December 11, 2001, prior to the acquisition by the company in July 2003. The definitive agreement, which settles all patent infringement litigation between the parties, provides for the company to pay TruePosition $35 million in cash payments and issue warrants to purchase one million shares of common stock that have a four-year term and a $17.70 exercise price per share. The parties also agreed to cross-license geolocation-related patents and to provide the company with the opportunity to manufacture certain geolocation hardware for TruePosition through October 2006. The terms of this settlement will be accounted for as an increase to the liabilities assumed in the acquisition of Allen Telecom and should not have a material affect on future operating results.
On December 12, 2003, Antel Holding, Ltd. (Antel) a subsidiary of Group Menetap, Ltd., filed a Notice of Arbitration and Statement of Claim with the American Arbitration Association. The claim relates to the purchase by Antel of the company’s interest in certain Russian ventures pursuant to a Share Purchase and Sale Agreement dated November 5, 2001. The Statement of Claim asserts that the company breached warranties and representations in connection with the sale and that Antel was thereby damaged in an amount to be proven up to the indemnification limit of $40 million. The company believes that the Claim is without merit and intends to defend the matter vigorously.
The company is also a party to various other legal proceedings, lawsuits and other claims arising in the ordinary course of its business. The company does not believe that such other litigation, if adversely determined, would have a material effect on the company’s business, financial position, results of operations or cash flow.
12
|
Exhibit No. |
|
Description |
|
|
|
|
|
|
|
3.1 |
|
Restated Certificate of Incorporation. Filed as Exhibit 4.1 to Form S-8 filed on July 22, 2003 and incorporated herein by reference. (SEC File No. 333-107243) |
|
|
|
|
|
|
|
3.2 |
|
By-Laws of Registrant. Filed as Exhibit 3.2 to Form S-3 dated October 28, 2003 and incorporated herein by reference. (SEC File No. 333-110014) |
|
|
|
|
|
|
|
4.1 |
|
Note Agreement dated September 1, 1990. Filed as Exhibit 4(a) to Form 10-K for fiscal year ended September 30, 1992 and incorporated herein by reference. (SEC File No. 000-09514) |
|
|
|
|
|
|
|
4.2 |
|
First Amendment to Note Agreement dated September 1, 1990. Filed as Exhibit 4(a)a to Form 10-K for fiscal year ended September 30, 1992 and incorporated herein by reference. (SEC File No. 000-09514) |
|
|
|
|
|
|
|
4.3 |
|
Note Assumption and Exchange Agreement dated as of July 15, 2003. Filed as Exhibit 4.3 to Form S-3 dated October 28, 2003 and incorporated herein by reference. (SEC File No. 333-110014) |
|
|
|
|
|
|
|
4.4 |
|
Stockholders Rights Agreement Dated November 14, 1996. Filed under Item 5 of Form 8-K dated November 14, 1996 and incorporated herein by reference. (SEC File No. 000-09514) |
|
|
|
|
|
|
|
4.5 |
|
Registration Rights Agreement dated as of June 4, 2002 between Andrew Corporation and each of the stockholders named therein. Filed as Exhibit 4.1 to Form S-3 dated August 19, 2002 and incorporated herein by reference. (SEC File No. 333-98333) |
|
|
|
|
|
|
|
4.6 |
|
Indenture, dated as of August 8, 2003, between the Registrant and BNY Midwest Trust Company, as Trustee. Filed as Exhibit 4.6 to Form S-3 dated October 28, 2003 and incorporated herein by reference (SEC File No. 333-110014) |
|
|
|
|
|
|
|
4.7 |
|
Form of 3 1/4% Convertible Subordinated Note due 2013 (included as Exhibit A to the Indenture filed as Exhibit 4.6). Filed as Exhibit 4.7 to Form S-3 dated October 28, 2003 and incorporated herein by reference (SEC File No. 333-110014) |
|
|
|
|
|
|
|
4.8 |
|
Registration Rights Agreement, dated as of August 8, 2003, among the Registrant and Morgan Stanley & Co. Incorporated, Banc of America Securities LLC and Citigroup Global Markets Inc., as representatives of the Initial Purchasers. Filed as Exhibit 4.8 to Form S-3 dated October 28, 2003 and incorporated herein by reference. (SEC File No. 333-110014) |
|
|
|
|
|
|
|
4.9 |
|
Warrant to Purchase Common Stock issued on January 16, 2004. Filed on Exhibit 99.2 to Form 8-K filed on February 3, 2004 and incorporated herein by reference. |
|
|
|
|
|
|
|
31 |
|
Rule 13a-14(a) Certification of Chief Executive and Chief Financial Officers |
|
|
|
|
|
|
|
32 |
|
18 U.S.C. Section 1350 Certifications of Chief Executive and Chief Financial Officers |
|
(b) Reports on Form 8-K
On November 4, 2003, the company furnished under Items 12 and 7 of Form 8-K, a press release regarding the company’s financial results for its fourth quarter of fiscal year 2003, as well as a transcript of the conference call presentation that followed the press release.
On October 2, 2003, the company filed under Items 5 and 7 of Form 8-K, an unaudited capitalization table setting forth Andrew’s capitalization as of June 30, 2003: (i) on an actual basis; (ii) on a pro forma basis as if the merger with Allen Telecom had occurred on June 30, 2003; and (iii) on a pro forma basis as if the merger with Allen Telecom and the sale of $240 million aggregate 3.25% convertible subordinated notes had occurred on June 30, 2003.
13
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Date |
February 12 , 2004 |
|
By: |
/s/ Marty R. Kittrell |
|
|
|
|
|
|
|
|
|
|
Marty R. Kittrell |
||||
|
|
Chief Financial Officer |
||||
|
|
(Duly Authorized Officer and Principal Financial Officer) |
||||
14