SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
| (Mark One) | |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2003. |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
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Commission file number: 001-14617
ANDREW CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE |
36-2092797 |
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| (State or other jurisdiction of incorporation or organization) |
(IRS Employer identification No.) |
10500 W. 153rd Street, Orland Park, Illinois 60462
(Address of principal executive offices and zip code)
(708) 349-3300
(Registrant's telephone number, including area code)
No Change
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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—98,329,555 shares as of May 12, 2003
| PART I. | FINANCIAL INFORMATION | 3 | ||
Item 1. |
Financial Statements (Unaudited) |
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Consolidated balance sheets—March 31, 2003 and September 30, 2002. |
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Consolidated statements of income—Three and six months ended March 31, 2003 and 2002. |
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Consolidated statements of cash flows—Six months ended March 31, 2003 and 2002. |
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Notes to consolidated financial statements—March 31, 2003. |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations. |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risks |
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Item 4. |
Controls and Procedures. |
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PART II. |
OTHER INFORMATION |
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Item 4. |
Submission of Matters to a Vote of Security Holders. |
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Item 6. |
Exhibits and Reports on Form 8-K. |
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SIGNATURES |
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CERTIFICATIONS |
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ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ANDREW CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
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March 31 2003 |
September 30 2002 |
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|---|---|---|---|---|---|---|---|---|
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(Unaudited) |
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| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 79,074 | $ | 84,871 | ||||
| Accounts receivable, less allowances (Mar. 2003—$8,339; Sept. 2002—$6,516) |
174,797 | 215,406 | ||||||
| Inventories | ||||||||
| Finished products | 75,711 | 61,963 | ||||||
| Materials and work in process | 74,374 | 72,030 | ||||||
| 150,085 | 133,993 | |||||||
| Other current assets | 21,504 | 28,121 | ||||||
| Current assets—discontinued operations | 651 | 14,792 | ||||||
| Total Current Assets | 426,111 | 477,183 | ||||||
| Other Assets | ||||||||
| Costs in excess of net assets of businesses acquired | 397,277 | 396,295 | ||||||
| Intangible assets, less amortization | 39,855 | 47,344 | ||||||
| Other assets | 3,092 | 1,809 | ||||||
| Non-current assets—discontinued operations | — | 2,000 | ||||||
| Property, Plant, and Equipment | ||||||||
| Land and land improvements | 17,962 | 17,890 | ||||||
| Buildings | 99,666 | 98,714 | ||||||
| Equipment | 455,127 | 448,036 | ||||||
| Allowance for depreciation | (384,099 | ) | (365,605 | ) | ||||
| 188,656 | 199,035 | |||||||
| TOTAL ASSETS | $ | 1,054,991 | $ | 1,123,666 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities | ||||||||
| Notes payable | $ | 32,500 | $ | 66,184 | ||||
| Accounts payable | 61,534 | 69,835 | ||||||
| Accrued expenses and other liabilities | 35,102 | 44,548 | ||||||
| Compensation and related expenses | 22,605 | 28,434 | ||||||
| Restructuring | 6,741 | 15,329 | ||||||
| Current portion of long-term debt | 6,935 | 7,250 | ||||||
| Current liabilities—discontinued operations | — | 4,990 | ||||||
| Total Current Liabilities | 165,417 | 236,570 | ||||||
| Deferred liabilities | 19,283 | 28,461 | ||||||
| Long-term debt, less current portion | 9,277 | 13,391 | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Common stock (par value, $.01 a share: 400,000,000 shares | ||||||||
| authorized: 102,718,210 shares issued, including treasury) | 1,027 | 1,027 | ||||||
| Additional paid-in capital | 145,480 | 145,764 | ||||||
| Accumulated other comprehensive loss | (33,959 | ) | (46,089 | ) | ||||
| Retained earnings | 799,010 | 796,374 | ||||||
| Treasury stock, at cost (4,388,655 shares in Mar. 2003; 4,500,493 shares in Sept. 2002) |
(50,544 | ) | (51,832 | ) | ||||
| 861,014 | 845,244 | |||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 1,054,991 | $ | 1,123,666 | ||||
See Notes to Consolidated Financial Statements.
3
ANDREW CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
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Three Months Ended March 31 |
Six Months Ended March 31 |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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2003 |
2002 |
2003 |
2002 |
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| Sales | $ | 201,318 | $ | 189,326 | $ | 455,844 | $ | 389,222 | ||||||
| Cost of products sold | 149,601 | 134,473 | 332,914 | 270,994 | ||||||||||
| Gross Profit | 51,717 | 54,853 | 122,930 | 118,228 | ||||||||||
| Operating Expenses | ||||||||||||||
| Research and development | 19,665 | 11,530 | 39,564 | 23,134 | ||||||||||
| Sales and administrative | 31,314 | 33,019 | 68,128 | 70,089 | ||||||||||
| Intangible amortization | 3,683 | 150 | 7,365 | 300 | ||||||||||
| Restructuring | 126 | — | 205 | — | ||||||||||
| 54,788 | 44,699 | 115,262 | 93,523 | |||||||||||
| Operating Income (Loss) | (3,071 | ) | 10,154 | 7,668 | 24,705 | |||||||||
| Other | ||||||||||||||
| Interest expense | 906 | 1,195 | 1,966 | 2,659 | ||||||||||
| Interest income | (179 | ) | (903 | ) | (502 | ) | (1,756 | ) | ||||||
| Other income | (1,410 | ) | (39 | ) | (890 | ) | (877 | ) | ||||||
| Gain on the sale of equity investments | — | — | — | (8,651 | ) | |||||||||
| (683 | ) | 253 | 574 | (8,625 | ) | |||||||||
| Income (Loss) from Continuing Operations | ||||||||||||||
| Before Income Taxes | (2,388 | ) | 9,901 | 7,094 | 33,330 | |||||||||
| Income tax (benefit) expense | (717 | ) | 2,971 | 2,128 | 8,726 | |||||||||
| Income (Loss) from Continuing Operations | (1,671 | ) | 6,930 | 4,966 | 24,604 | |||||||||
| Loss from Discontinued Operations, Net of Tax Benefit | 1,760 | 3,624 | 2,330 | 5,971 | ||||||||||
| Net Income (Loss) | $ | (3,431 | ) | $ | 3,306 | $ | 2,636 | $ | 18,633 | |||||
| Basic and Diluted Income (Loss) per Share from Continuing Operations | $ | (0.02 | ) | $ | 0.08 | $ | 0.05 | $ | 0.30 | |||||
| Basic and Diluted Net Income (Loss) per Share | $ | (0.03 | ) | $ | 0.04 | $ | 0.03 | $ | 0.23 | |||||
| Average Shares Outstanding | ||||||||||||||
| Basic | 98,330 | 81,777 | 98,307 | 81,696 | ||||||||||
| Diluted | 98,330 | 81,889 | 98,309 | 81,864 | ||||||||||
See Notes to Consolidated Financial Statements.
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ANDREW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
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Six Months Ended March 31 |
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2003 |
2002 |
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| Cash Flows from Operations | ||||||||
| Net Income | $ | 2,636 | $ | 18,633 | ||||
| Adjustments to Net Income | ||||||||
| Depreciation and amortization | 33,066 | 23,596 | ||||||
| Gain on the sale of equity investments | — | (8,651 | ) | |||||
| Other | (41 | ) | (359 | ) | ||||
| Restructuring and Discontinued Operations | ||||||||
| Restructuring costs | (5,935 | ) | — | |||||
| Discontinued operations costs, net of taxes | (1,483 | ) | — | |||||
| Operating cash flow from discontinued operations | 5,346 | 15,517 | ||||||
| Change in Operating Assets / Liabilities | ||||||||
| Decrease in accounts receivable | 50,498 | 63,830 | ||||||
| (Increase) / Decrease in inventories | (14,607 | ) | 7,847 | |||||
| Decrease / (Increase) in other assets | 5,411 | (5,563 | ) | |||||
| Decrease in accounts payable and other liabilities | (39,911 | ) | (22,079 | ) | ||||
| Net Cash from Operations | 34,980 | 92,771 | ||||||
Investing Activities |
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| Capital expenditures | (14,619 | ) | (25,390 | ) | ||||
| Proceeds from the sale of businesses and investments | 7,286 | 50,301 | ||||||
| Acquisition of businesses, net of cash acquired | (114 | ) | (121 | ) | ||||
| Investments in and advances to affiliates | — | 58 | ||||||
| Proceeds from sale of property, plant and equipment | 586 | 232 | ||||||
| Net Cash (Used for) / from Investing Activities | (6,861 | ) | 25,080 | |||||
Financing Activities |
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| Long-term debt payments, net | (4,472 | ) | (20,308 | ) | ||||
| Notes payable payments, net | (33,690 | ) | (38,815 | ) | ||||
| Stock purchase and option plans | 111 | 2,083 | ||||||
| Net Cash Used for Financing Activities | (38,051 | ) | (57,040 | ) | ||||
| Effect of exchange rate changes on cash | 4,135 | (1,400 | ) | |||||
| (Decrease) / Increase for the Period | (5,797 | ) | 59,411 | |||||
| Cash and Equivalents at Beginning of Period | 84,871 | 112,377 | ||||||
| Cash and Equivalents at End of Period | $ | 79,074 | $ | 171,788 | ||||
See Notes to Consolidated Financial Statements.
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ANDREW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with 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 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 and six month periods ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending September 30, 2003. 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, 2002.
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share:
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Three Months Ended March 31 |
Six Months Ended March 31 |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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2003 |
2002 |
2003 |
2002 |
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| BASIC EARNINGS PER SHARE | |||||||||||||
Income (loss) from continuing operations |
$ |
(1,671 |
) |
$ |
6,930 |
$ |
4,966 |
$ |
24,604 |
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| Average basic shares outstanding | 98,330 | 81,777 | 98,307 | 81,696 | |||||||||
| Basic income (loss) from continuing operations per share | $ | (0.02 | ) | $ | 0.08 | $ | 0.05 | $ | 0.30 | ||||
Net income (loss) |
$ |
(3,431 |
) |
$ |
3,306 |
$ |
2,636 |
$ |
18,633 |
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| Average basic shares outstanding | 98,330 | 81,777 | 98,307 | 81,696 | |||||||||
| Net income (loss) per share | $ | (0.03 | ) | $ | 0.04 | $ | 0.03 | $ | 0.23 | ||||
DILUTED EARNINGS PER SHARE |
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| Income (loss) from continuing operations | $ | (1,671 | ) | $ | 6,930 | $ | 4,966 | $ | 24,604 | ||||
| Average basic shares outstanding | 98,330 | 81,777 | 98,307 | 81,696 | |||||||||
| Effect of dilutive securities: stock options | — | 112 | 2 | 168 | |||||||||
| Average diluted shares outstanding | 98,330 | 81,889 | 98,309 | 81,864 | |||||||||
| Diluted income (loss) from continuing operations per share | $ | (0.02 | ) | $ | 0.08 | $ | 0.05 | $ | 0.30 | ||||
Net income (loss) |
$ |
(3,431 |
) |
$ |
3,306 |
$ |
2,636 |
$ |
18,633 |
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| Average basic shares outstanding | 98,330 | 81,777 | 98,307 | 81,696 | |||||||||
| Effect of dilutive securities: stock options | — | 112 | 2 | 168 | |||||||||
| Average diluted shares outstanding | 98,330 | 81,889 | 98,309 | 81,864 | |||||||||
| Diluted net income (loss) per share | $ | (0.03 | ) | $ | 0.04 | $ | 0.03 | $ | 0.23 | ||||
Options to purchase 6,445,727 shares of common stock, at exercise prices ranging from $9.36—$38.17 per share, were not included in the March 2003 diluted earnings per share calculations because the options' exercise prices were greater than the average market price of the common shares. Options to purchase 4,193,915 shares of common stock, at exercise prices ranging from $19.33—$38.17 per
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share, were not included in the March 2002 diluted earnings per share calculations because the options' exercise prices were higher than the average market price of the common shares.
NOTE 3. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income, requires the company to report foreign currency translation adjustments as a component of other comprehensive income. Comprehensive income for the six months ended March 31, 2003 and 2002 amounted to $14,766,000 and $17,162,000, respectively. Comprehensive income (loss) for the three months ended March 31, 2003 and 2002 amounted to ($1,537,000) and $2,722,000, respectively.
NOTE 4. RECENTLY ISSUED ACCOUNTING POLICIES
In June 2002, the FASB issued Statements of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The provisions of this statement will be 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 $36.0 million when the company's management approved the current restructuring plan. If the company had accounted for this restructuring plan under FASB No. 146, certain costs such as employee termination benefits of $11.8 million and lease and contract cancellation costs of $2.5 million accrued in this $36.0 million would have been recognized over the restructuring period as incurred and not accrued in fiscal year 2002.
NOTE 5. ADOPTION OF NEW ACCOUNTING POLICIES
At the beginning of fiscal year 2003, the company adopted FASB Statement No. 143, Accounting and Reporting for Obligations Associated with the Retirement of Tangible Long-Lived Assets and the Associated Asset Retirement Costs and FASB Statement No.145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of Statement 13, and Technical Corrections. FASB Statement No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs. FASB Statement No. 145 modifies reporting of extinguishment of debt and amends accounting for leases. The adoption of these statements did not impact the company's results of operations.
Starting in the second quarter of 2003 the company has adopted Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation. See note 8 for the disclosures required by FASB No. 148.
NOTE 6. RESTRUCTURING
In September 2002, the company initiated a plan to restructure its operations. The company plans to close several manufacturing and engineering facilities and consolidate into fewer, more efficient facilities. The company has closed two U.S. manufacturing locations and is in the processes of closing three additional U.S. manufacturing locations. The company has closed one international facility and will close three additional international facilities. The company is in the processes of moving the operations of these facilities to existing facilities and to two new facilities the company plans to open in Mexico and the Czech Republic. The company has entered into agreements to lease facilities in both Mexico and Czech Republic. These lease agreements will allow the company to significantly reduce the original estimate of $8.0 million dollars of capital expenditures that was required to build these facilities. The company plans to start operations at these facilities in the third quarter. The company has paid $4.2 million of severance to 375 employees in the second quarter of 2003 and during the first six months of 2003 the company paid $6.1 million to 545 employees who were terminated as part of
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these restructuring plans. Including discontinued operations (note 7) the company has reduced its workforce by 715 employees, plans to terminate approximately 485 additional employees as part of its restructuring plans and anticipates that approximately 400 employees will be hired at the new facilities.
In the fourth quarter of fiscal year 2002, the company recorded a $36.0 million pre-tax charge for these activities comprised of the following:
(Dollars in thousands)
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Actual Charges to Reserve |
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Restructuring Charge |
Three months Ended Sept. 30, 2002 |
Six months Ended March 31, 2003 |
March 31, 2003 Reserve Balance |
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| Inventory write downs | $ | 11,138 | $ | (11,138 | ) | $ | — | $ | — | |||
| Employee termination costs | 11,877 | — | (6,148 | ) | 5,729 | |||||||
| Equipment and other asset write downs | 9,579 | (9,579 | ) | — | — | |||||||
| Lease and contract cancellation costs | 3,452 | — | (2,440 | ) | 1,012 | |||||||
| Pre-tax charge | $ | 36,046 | $ | (20,717 | ) | $ | (8,588 | ) | $ | 6,741 | ||
Restructuring costs for the relocation of fixed assets are being expensed as incurred and are included in operating expenses. The statements of operations for the three months and six months ending March 31, 2003 contain $126 thousand and $205 thousand, respectively, of restructuring expense for the relocation of fixed assets.
NOTE 7. DISCONTINUED OPERATIONS
The company has discontinued three non-strategic businesses: equipment shelters, wireless accessories and satellite modems. In September 2002, the company recognized an after-tax charge of $26.4 million to reduce the carrying value of these assets to their fair value. The company estimated the fair value of these assets based on the projected proceeds from sale of these assets, net of any related costs. These businesses employed approximately 170 employees. The company closed its satellite modem business in September 2002 and sold its equipment shelter business in October 2002 and its wireless accessory business in January 2003.
The company has restated all periods presented to reflect its equipment shelter, wireless accessory, and satellite modem businesses as discontinued operations. The results of operations for the discontinued businesses are as follows:
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Three Months Ended March 31 |
Six Months Ended March 31 |
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| (Dollars in thousands) |
2003 |
2002 |
2003 |
2002 |
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| Sales | $ | 1,544 | $ | 10,405 | $ | 8,007 | $ | 34,008 | |||||
| Cost of products sold | 2,276 | 12,648 | 9,258 | 36,306 | |||||||||
| Gross Profit | (732 | ) | (2,243 | ) | (1,251 | ) | (2,298 | ) | |||||
Operating expenses |
1,782 |
2,934 |
2,078 |
6,232 |
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| Loss before income taxes | (2,514 | ) | (5,177 | ) | (3,329 | ) | (8,530 | ) | |||||
Income tax benefit |
(754 |
) |
(1,553 |
) |
(999 |
) |
(2,559 |
) |
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| Loss from discontinued operations | $ | (1,760 | ) | $ | (3,624 | ) | $ | (2,330 | ) | $ | (5,971 | ) | |
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NOTE 8. STOCK-BASED COMPENSATION
In the second quarter of fiscal year 2003, the company adopted Statements of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation. The company will continue to account for stock-based compensation plans using the intrinsic value method described in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. All stock options granted by the company are granted at market price and thus no compensation expense is recorded in the company's results of operations. Under FASB No. 148 the company is required to report quarterly pro forma net income and earnings per share as if the company had accounted for its stock option plans under the fair value method. The following table shows the company's pro forma net income and earnings per share as if the company had recorded the fair value of stock options as compensation expense.
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