Andrew Corporation (NASDAQ:ANDW):

First Quarter Fiscal 2006 Financial Highlights

-- Wireless Infrastructure sales increased 14% to $486 million

-- Satellite Communications sales decreased 41% to $29 million

-- Gross margin increased to 22.7%

-- Net income was $0.09 per share, including $0.02 per share of significant items

-- Cash flow used in operations was $1.8 million compared to cash flow used in operations of $10.9 million in the prior year quarter

-- Repurchased 1.6 million shares of common stock at an average price of $11.00 per share

-- Entered into additional purchase commitments for copper that cover approximately 90% of estimated fiscal 2006 production requirements

Andrew Corporation, a global leader in communications systems and products, reported total sales of $515 million for its first quarter ended December 31, 2005, up 9% compared to the prior year quarter, and higher than the company's previous estimate of $480 million to $510 million in total sales.

Wireless Infrastructure sales increased 14% versus the prior year quarter due to global wireless network upgrades and expansion. Satellite Communications sales decreased 41% versus the prior year quarter due to an anticipated decline for certain consumer broadband satellite programs. Total orders increased 6% to $481 million versus the prior year quarter due mainly to a 13% increase in Wireless Infrastructure orders. Total backlog declined 24% to $232 million due mainly to a reduction in E-911 geolocation equipment as network operators satisfy regulatory requirements.

"Demand trends continued to be favorable as wireless operators upgraded and expanded existing networks around the globe," said Ralph Faison, president and chief executive officer, Andrew Corporation. "Our globally diversified customer base and industry-leading product portfolio enables the company to participate in multi-year build cycles ranging from deployment services to hardware infrastructure to network optimization. New products introduced over the last several quarters for remote electrical tilt (RET) antennas and integrated base station subsystems are generating increased demand from our customers worldwide, capturing market share and expanding our addressable market opportunity."

First quarter net income was $14.8 million or $0.09 per share, compared to net income of $2.9 million or $0.02 per share in the year ago quarter. First quarter net income included intangible amortization of $5.1 million or $0.02 per share, a tax benefit related to repatriation of foreign earnings of $1.9 million or $0.01 per share and a loss on sale of assets of $1.5 million or $0.01 per share. The prior year quarter included a warranty provision related to a defective component used in certain base station subsystems products of $19.8 million or $0.07 per share, intangible amortization of $7.6 million or $0.03 per share, a favorable tax settlement benefit related to the reversal of previously accrued taxes of $2.6 million or $0.02 per share and restructuring charges of $1.8 million or $0.01 per share.

"Our first quarter results reflect positive operational improvement and a strong financial start to the fiscal year," said Faison. "We increased gross margin to 22.7% despite significantly lower sales of E-911 geolocation equipment and higher commodity costs. We believe that declining sales of E-911 geolocation equipment have begun to flatten out sequentially and that forward purchase commitments for copper have mitigated the risk of rising copper commodity costs for fiscal 2006. Our filter product line in China delivered record volume shipments in December and we see further operational improvements across the company, which we anticipate will enable us to deliver on our high single-digit to low double-digit operating margin target by the end of fiscal 2006."

The following table is a summary of certain significant items impacting the comparability of earnings per share amounts for the three months ended December 31, 2005 and December 31, 2004. To calculate the per share impact of items, an underlying effective tax rate on operations of 30.0% and 178 million diluted shares outstanding for the first quarter fiscal 2006 were used and 37.5% and 161 million diluted shares outstanding were used for the first quarter fiscal 2005.

  Three Months Ended
December 31,
Summary of Significant

 

Items Impacting Results 2005   2004
Intangible amortization $ (0.02) $ (0.03)
Restructuring charges (0.00) (0.01)
Loss on sale of assets   (0.01) -
Sub-total   (0.03)   (0.04)
Repatriation benefit 0.01 -
Tax settlement - 0.02
Warranty provision -   (0.07)
Total $ (0.02) $ (0.09)

The top 25 customers represented 68% of sales compared to 69% in the prior quarter and 68% in the year ago quarter. Major original equipment manufacturers (OEMs) accounted for 38% of sales compared to 37% in the prior quarter and 41% in the year ago quarter. Lucent Technologies was the largest customer for the quarter at 11% of sales, while Cingular Wireless declined to 10% of sales due mainly to a significant decline for E-911 geolocation equipment. Ericsson and Siemens each represented more than 5% of the company's sales for the quarter.

RESULTS BY MAJOR REGION AND SEGMENT

  Three Months Ended    

December 31,

  % %
Sales by Region ($ in millions) 2005 2004 Change Total
 
Americas $ 298 $ 254 17 57
Europe, Middle East, Africa
(EMEA) 152 158 (4 ) 30
Asia Pacific 65 62 5   13  
 
Total $ 515 $ 474 9 % 100 %

Sales in the Americas increased 17% versus the prior year quarter due mainly to growth in North America for Antenna and Cable Products, Base Station Subsystems and Wireless Innovations supporting network upgrades and expansion, partially offset by lower sales of Satellite Communications and Network Solutions. EMEA declined 4% from the prior year quarter due mainly to lower Base Station Subsystem sales in Western Europe and unfavorable foreign currency exchange rates due mainly to a stronger dollar against the euro. Asia Pacific increased 5% versus the prior year quarter due mainly to increased demand in India for Antenna and Cable Products supporting network expansions.

  Three Months Ended    

December 31,

Sales by Segment   % %
($ in millions) 2005 2004 Change Total
 
Antenna and Cable Products $ 291 $ 232 25 56
Base Station Subsystems 124 117 6 24
Network Solutions 22 35 (37 ) 4
Wireless Innovations 49 41 20 10
Satellite Communications   29   49 (41 ) 6  
 
Total $ 515 $ 474 9 % 100 %

Antenna and Cable Products increased 25% versus the prior year quarter due mainly to significant growth in base station antennas, radio frequency (RF) cable supporting network expansion and coverage requirements, and the inclusion of sales from the acquisition of ATC Tower Services in December 2004. Base Station Subsystems sales increased 6% versus the prior year quarter due mainly to higher power amplifier sales and new product introductions in North America, partially offset by lower overall sales in Western Europe and China. Network Solutions declined 37% versus the prior year quarter due mainly to an anticipated decline in sales of E-911 related geolocation equipment in North America. Wireless Innovations increased 20% due mainly to an increase in operator needs for distributed coverage solutions in North America and Western Europe. Satellite Communications declined 41% due mainly to the company's planned reduction of involvement in certain consumer broadband satellite programs.

  Three Months Ended
December 31,
Operating Income (Loss) by Segment  
($ in millions) 2005 2004
 
Antenna and Cable Products $ 42 $ 38
Base Station Subsystems 3

(24

)

(a)

Network Solutions 2 16
Wireless Innovations 9 7
Satellite Communications   (3 )   (1 )
 
Sub-Total $ 53   $ 36  
 
Unallocated Sales and Administrative
Costs (26 ) (24 )
Intangible Amortization (5 ) (8 )
Gain (loss) on Sale of Assets   (1 )   -  
 
Total Operating Income $ 21   $ 4  
(a) Includes a $19.8 million warranty
provision related to a defective
component used in certain base
station subsystems products.

Antenna and Cable Products operating income increased due mainly to a 25% increase in segment sales and a modest benefit from the recent price increase on certain cable products, partially offset by higher commodity costs. Base Station Subsystems operating income increased versus the prior year quarter due mainly to a 6% increase in segment sales, a more favorable mix of products and lower filter product line transition costs. The prior year quarter included a $19.8 million warranty provision related to a defective component used in certain base station subsystems products. Network Solutions operating income declined versus the prior year due mainly to a decline for E-911 geolocation product. Geolocation sales declined to $13 million in the first quarter compared to $27 million in the prior quarter and $30 million in the prior year quarter. Wireless Innovations operating income increased versus the prior year quarter due mainly to a 20% increase in segment sales. Satellite Communications operating loss increased versus the prior year quarter due mainly to a 41% decline in segment sales.

FIRST QUARTER FINANCIAL SUMMARY

Gross margin was 22.7%, compared with 22.4% in the prior quarter and 19.2% in the prior year quarter. The prior quarter gross margin included $4.2 million of favorable benefits related to an adjustment of VAT reserves and recoveries from third parties. Excluding these items, gross margin was 21.6% for the prior quarter. The prior year quarter included a $19.8 million warranty provision. Excluding this charge, gross margin was 23.4% in the prior year quarter.

Gross margin, excluding items, increased 110 basis points versus the prior quarter due mainly to a favorable mix within Base Station Subsystems, lower filter product line transition costs and a modest benefit related to a recent price increase on cable products, partially offset by a significant decline in E-911 geolocation sales and increased commodity costs relating to copper.

The company entered into additional purchase commitments for copper that now cover approximately 57 million pounds or 90% of anticipated fiscal 2006 requirements. The average price paid for copper under commitment is approximately $1.61 per pound.

During the first quarter, the company made further progress towards relocating its filter product line manufacturing, despite a temporary labor disruption at its Shenzhen, China manufacturing facility. The Shenzhen manufacturing facility produced record volume shipments in December and the company believes it is on track to complete the transition by mid-2006.

Research and development expenses were $28.0 million or 5.4% of sales in the first quarter, compared to $26.9 million or 5.7% of sales in the prior year quarter. Research and development expenses increased due mainly to support for new product introductions. Sales and administrative expenses increased to $61.7 million or 12.0% of sales in the first quarter, compared to $51.0 million or 10.8% of sales in the year ago quarter. Sales and administrative expenses increased in absolute dollars and as a percentage of sales due mainly to higher sales, major implementations of global IT systems, compliance costs, the acquisitions of ATC Tower Services in December 2004 and Xenicom in January 2005 and equity based compensation, which includes $1.0 million from the initial impact of stock option expensing.

Intangible amortization decreased to $5.1 million in the first quarter, compared to $7.6 million in the prior year quarter due mainly to a reduction of amortized costs associated with the acquisition of Allen Telecom in July 2003. It is anticipated that total intangible amortization will be approximately $18 million in fiscal 2006, compared to $22 million in fiscal 2005.

Other expense decreased to $2.7 million compared to $3.5 million in the prior year quarter due primarily to foreign exchange gains related to a stronger dollar versus the euro.

The reported tax rate for the first quarter was 19.9%, reflecting an underlying effective tax rate on operations of 30.0% and the recording of a $1.9 million benefit related to repatriation of foreign earnings. During the quarter, the company's operations benefited from a favorable geographic mix shift of earnings to lower tax jurisdictions and a rate benefit from the permanent reinvestment of earnings in China. The repatriation benefit relates to the approval during the first quarter of a plan to repatriate up to $55 million of qualifying dividends from foreign subsidiaries under the American Jobs Creation Act and the reversal of certain deferred tax liabilities related to the portion of these distributions representing previously undistributed earnings of the company's Chinese subsidiaries.

Average diluted shares outstanding increased to 178 million compared to 161 million in the prior year quarter due mainly to the accounting effects of outstanding convertible debt. The company repurchased 1.6 million shares of common stock during the quarter at an average price of $11.00 including commissions and fees. The company repurchased 3.2 million shares over the last two quarters and has approximately 9.8 million shares available for repurchase under an existing authorized repurchase program.

BALANCE SHEET AND CASH FLOW HIGHLIGHTS

Cash and cash equivalents were $163 million at December 31, 2005, compared to $189 million at September 30, 2005. Cash and cash equivalents decreased from the prior quarter due mainly to the repurchase of 1.6 million shares of common stock and annual incentive plan payouts for fiscal 2005.

Accounts receivable were $464 million and days' sales outstanding (DSOs) were 76 days at December 31, 2005, compared to $471 million and 76 days at September 30, 2005. Inventories were $365 million and inventory turns were 4.4x at December 31, 2005, compared to $353 million and 4.6x at September 30, 2005.

Total debt outstanding and debt to capital were $311 million and 16.8% at December 31, 2005, compared to $303 million and 16.3% at September 30, 2005. Debt to capital increased primarily due to the repurchase of 1.6 million common shares.

Cash used from operations was $1.8 million in the first quarter, compared to cash used from operations of $10.9 million in the prior year quarter. Capital expenditures were $12.3 million in the first quarter compared to $14.0 million in the prior year quarter.

"Cash flow from operations improved compared to the prior year quarter, despite inventory builds related to the pending Orland Park, Illinois manufacturing facility relocation and investments to support a higher level of customer service," said Faison. "The company's entire supply chain is being redeveloped to be more supportive, flexible and responsive to our globally diversified customer base. We are committed to an improved supply chain and lower working capital requirements that will provide further financial flexibility to pursue additional share repurchases, debt reduction and corporate development activity."

SECOND QUARTER FISCAL 2006 OUTLOOK

For the second quarter, sales are anticipated to range from $480 million to $510 million compared to $482 million in the prior year quarter, due mainly to higher Wireless Infrastructure sales, partially offset by an anticipated decline in sales of Satellite Communications products. The second fiscal quarter is historically a seasonally weaker quarter due mainly to lower sales of passive components such as antennas and RF cable.

Gross margin rate is anticipated to be consistent with the prior quarter due mainly to lower filter product line transition costs, a modest benefit from the August 2005 price increase on Heliax cable products, relatively flat commodity costs and relatively flat sales of E-911 geolocation product.

Total operating expenses are anticipated to modestly decrease on an absolute basis compared to the first quarter including approximately $1.0 million of stock option expense.

Excluding the $1.9 million benefit related to repatriation of foreign earnings in the first quarter, the company anticipates the effective tax rate to be consistent with the first quarter due mainly to a favorable geographic mix shift of earnings and a rate benefit from the permanent reinvestment of earnings in China.

Earnings per share are anticipated to range from $0.05 to $0.08, including intangible amortization costs of approximately $0.02 per share and before any potential restructuring charges. Average diluted shares are anticipated to be approximately 160 million due mainly to the accounting effects on outstanding convertible debt.

Attached to this news release are preliminary unaudited financial statements for the first quarter fiscal 2006.

Conference Call Webcast

Andrew Corporation will host a conference call to discuss its first quarter fiscal 2006 financial results on Thursday, January 26, 2006, at 8:00 a.m. CT. Investors can participate via a live webcast over the Internet at www.andrew.com. An audio replay of the conference call will be made available for 60 days following the event.

About Andrew

Andrew Corporation (NASDAQ:ANDW) designs, manufactures and delivers innovative and essential equipment and solutions for the global communications infrastructure market. The company serves operators and original equipment manufacturers from facilities in 35 countries. Andrew (www.andrew.com), headquartered in Westchester, IL, is an S&P 500 company founded in 1937.

Forward-Looking Statements

Some of the statements in this news release, including those under the caption "Second Quarter Fiscal 2006 Outlook", are forward-looking statements and we caution our stockholders and others that these statements involve certain risks and uncertainties. Forward-looking statements are based on currently available information. Factors that may cause actual results to differ from expected results include fluctuations in commodity costs, the company's ability to integrate acquisitions and to realize the anticipated synergies and cost savings, the effects of competitive products and pricing, economic and political conditions that may impact customers' ability to fund purchases of our products and services, the company's ability to achieve the cost savings anticipated from cost reduction programs, fluctuations in foreign currency exchange rates, the timing of cash payments and receipts, end use demands for wireless communication services, the loss of one or more significant customers and other business factors. Investors should also review other risks and uncertainties discussed in company documents filed with the Securities and Exchange Commission, including its Form 10-K for the fiscal year ended September 30, 2005. The company disclaims any obligation to revise these forward-looking statements or to provide any updates regarding information contained in this release resulting from new information, future events or otherwise.

Non-GAAP Financial Measures

This news release contains certain non-GAAP financial measures, which are financial measures of Andrew's performance that exclude or include amounts thereby differentiating these measures from the most directly comparable amounts presented in the financial statements that are calculated and presented in accordance with Generally Accepted Accounting Principles (GAAP). Andrew believes that these non-GAAP measures improve the comparability of the financial results between periods. Below are reconciliations, of the non-GAAP financial measures used in this news release, for earnings per share and gross margin to the most directly comparable GAAP measures.

  Three Months Ended

December 31,

 

2005

2004
 
Reported GAAP Diluted Net Income per Share $ 0.09 $ 0.02
Intangible amortization 0.02 0.03
Restructuring charges 0.00 0.01
Loss on sale of assets 0.01 -
Repatriation benefit (0.01 ) -
Tax settlement - (0.02 )
Warranty provision   -     0.07  
 
Adjusted Diluted Net Income per Share $ 0.11   $ 0.11  
  Three Months Ended
Dec. 31,   % of   Sept. 30,   % of   Dec. 31,   % of
2005 Sales 2005 Sales 2004 Sales
 
Reported
GAAP Gross
Profit $ 117,006 22.7 $ 116,164 22.4 $ 91,160 19.2
Warranty
provision - - (3,200 ) (0.6 ) 19,800 4.2
VAT reserve
adjustment - -   (1,000 ) (0.2 )   - -  
 
Adjusted

Gross

Profit $ 117,006 22.7 % $ 111,964   21.6 % $ 110,960 23.4 %
UNAUDITED - PRELIMINARY
 
ANDREW CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 
 
  Three Months Ended
December 31
 
2005   2004
 
 
Sales $ 514,699 $ 473,837
Cost of products sold   397,693     382,677  
 
Gross Profit 117,006 91,160
 
Operating Expenses
Research and development 27,959 26,871
Sales and administrative 61,704 51,029
Intangible amortization 5,119 7,550
Restructuring (501 ) 1,838
Loss on sale of assets   1,461     -  
 
95,742 87,288
 
Operating Income 21,264 3,872
 
Other
Interest expense 3,769 3,708
Interest income (881 ) (1,706 )
Other expense (income), net   (154 )   1,516  
 
2,734 3,518
 
Income Before Income Taxes 18,530 354
 
Income taxes (benefit)   3,687     (2,624 )
 
Net Income 14,843 2,978
 
Preferred Stock Dividends   -     117  
 
 
Net Income Available to
Common Shareholders $ 14,843   $ 2,861  
 
 
 
Basic and Diluted Net Income per Share $ 0.09   $ 0.02  
 
 
 
Average Shares Outstanding
Basic 160,210 160,927
Diluted 178,140 161,325
 
 
 
Orders Entered $ 481,345 $ 453,010
Total Backlog $ 231,844 $ 304,914
 
 
 
PRELIMINARY
 
ANDREW CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
 
December 31 September 30
2005 2005
 
ASSETS (UNAUDITED)
Current Assets
Cash and cash equivalents $ 163,400 $ 188,780
Accounts receivable, less allowances
(Dec. 2005 - $11,598; Sept. 2005 - $12,240) 464,330 471,097
Inventories 364,775 353,402
Other current assets   63,106     63,578  
 
Total Current Assets 1,055,611 1,076,857
 
Other Assets
Goodwill 862,532 862,083
Intangible assets, less amortization 50,113 56,753
Other assets 88,589 83,772
 
Property, Plant and Equipment
Land and land improvements 22,012 21,693
Buildings 130,689 131,335
Equipment 540,055 533,317
Allowance for depreciation   (464,479 )   (454,783 )
 
228,277 231,562
 
           
TOTAL ASSETS $ 2,285,122   $ 2,311,027  
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 222,559 $ 230,620
Accrued expenses and other liabilities 104,574 112,596
Compensation and related expenses 45,532 52,002
Restructuring 12,072 13,432
Notes payable and current portion of long-
term debt   42,368     26,966  
 
Total Current Liabilities 427,105 435,616
 
Deferred Liabilities 49,695 49,255
Long-Term Debt, less current portion 269,071 275,604
 
STOCKHOLDERS' EQUITY
Common stock (par value, $.01 a share:
400,000,000 shares authorized: 159,321,588

shares issued at Dec. 31. 2005 and 162,476,513

 

shares issued at Sept. 30, 2005, including
treasury) 1,625 1,625
Additional paid-in capital 678,358 676,262
Accumulated other comprehensive income 9,077 19,720
Retained earnings 885,431 870,588
Treasury stock, at cost (3,154,955 shares at

Dec. 31, 2005 and 1,557,030 shares at

Sept. 30, 2005)

  (35,240 )   (17,643 )
 
Total Stockholders' Equity 1,539,251 1,550,552
 
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,285,122   $ 2,311,027  
 
 
 
 
UNAUDITED - PRELIMINARY
 
ANDREW CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
 
Three Months Ended
December 31
 
2005 2004
 
 
Cash Flows from Operations
Net Income $ 14,843 $ 2,978
 
Adjustments to Net Income
Depreciation 13,860 14,392
Amortization 5,119 7,550
Restructuring costs (1,360 ) (3,308 )
Loss on sale of assets and other (28 ) (91 )
 
 
Change in Operating Assets / Liabilities
Accounts receivable 2,429 (11,277 )
Inventories (14,002 ) 2,109
Other assets (3,756 ) (17,049 )
Accounts payable and other liabilities   (18,886 )   (6,244 )
 
Net Cash Used for Operations (1,781 ) (10,940 )
 
Investing Activities
Capital expenditures (12,346 ) (14,036 )
Acquisition of businesses, net of cash
acquired - (7,872 )
Investments (1,722 ) -
Proceeds from sale of businesses and
investments - 9,494
Proceeds from sale of property, plant and
equipment   1,238     553  
 
Net Cash Used for Investing Activities (12,830 ) (11,861 )
 
Financing Activities
Long-term debt payments (6,920 ) (8,158 )
Notes payable borrowings (payments), net 16,138 9,064
Preferred stock dividends - (117 )
Payments to acquire treasury stock (17,600 ) -
Stock purchase and option plans   3     184  
 
Net Cash (Used for) From Financing
Activities (8,379 ) 973
 
Effect of exchange rate changes on cash   (2,390 )   12,201  
 
 
Change for the Period (25,380 ) (9,627 )
Cash and Equivalents at Beginning of Period   188,780     189,048  
 
Cash and Equivalents at End of Period $ 163,400   $ 179,421  

Contact Us

Andrew Corporation
Scott Malchow (Investors), 708-236-6507
or
Rick Aspan (News Media), 708-236-6568
publicrelations@andrew.com