SEC Company Response from ANDREW CORP (CIK 0000317093) — Dec 7, 2005
ANDREW CORP (CIK 0000317093)
Date: Dec. 7, 2005 · CIK: 0000317093 · Accession: 0000950134-05-022721
AI Filing Summary & Sentiment
Letter
Division of Corporation Finance Filed December 13, 2004 Forms 10-Q for the Fiscal Quarters Ended December 31, 2004, March 31, 2005 and June 30, 2005 File No. 0-21682
RE:
Dear Ms. Shah:
This letter is in response to questions the Staff raised on the Tuesday, November 29 conference call. This letter also contains additional information that came to the company’s attention as a result of preparing this letter, as discussed with you on Monday, November 28. This information was inadvertently excluded from prior responses to the Staff and relates to the amount of deferred revenue on Allen Telecom’s financial statements and the classification of that deferred revenue as “accounts receivable” on their balance sheet.
Additionally, our response dated October 3, 2005 (comment #9) indicated that the customer did not allow billing to occur until certification services were completed. The company has since learned that this statement was not accurate in that the customer had been billed for PSAP integration work that had been performed prior to Addendum No. 5.
Prior response letters regarding this matter were compiled from contracts, business activity and accounting information provided by division management responsible for the geolocation business. The company believes that these inaccuracies occurred due to division management not fully understanding the accounting questions and not having enough historical knowledge of the geolocation business and accounting activities.
It is always the company’s objective to provide complete, relevant and accurate responses to the Staff’s comments. The company regrets that the October 3, 2005 response letter contained these inadvertent inaccuracies.
Comment #1
Describe how Allen Telecom accounted for deferred revenue and what was included on their July 14, 2003 (pre-acquisition) balance sheet.
Response:
As PSAP integration services were completed and invoiced, Allen Telecom debited accounts receivable and credited deferred revenue, which was presented net of trade receivables on their balance sheet. Costs incurred in providing these services were carried as inventory. Revenue was recognized only upon completion of the related certification services.
Allen Telecom’s final, pre-acquisition balance sheet included deferred revenue of $8.7 million related to PSAP integration work and $0.6 million of deferred revenue (presented as such on the balance sheet) related to extended maintenance agreements (as noted in comment #8 of the company’s October 3, 2005 letter). Additionally, Allen Telecom’s pre-acquisition balance sheet included $2.9 million of inventory related to deferred PSAP integration costs.
Comment #2
Describe Andrew Corporation’s purchase accounting treatment of Allen Telecom’s deferred revenue.
Response:
In Andrew Corporation’s purchase price allocation, $8.7 million was included in the opening balance sheet as deferred revenue consistent with Allen Telecom’s classification. Of this $8.7 million, $3.5 million was recognized from July 2003 to the quarter ended September 2004 as certification work was completed. As previously indicated in the company’s June 30, 2005 response letter, the remaining $5.2 million was recognized as part of the $9.6 million that was recorded subsequent to the execution of Addendum No. 5.
Andrew Corporation’s purchase price allocation also included the $2.9 million of inventory related to PSAP integration costs. This inventory balance represented costs deferred with respect to the $8.7 million deferred revenue balance.
Comment #3
Describe Andrew Corporation’s proposed restatement of revenue and income for the geolocation contracts acquired from Allen Telecom.
The SAB 99 analysis below documents proposed restatements for the impact of:
•
the adoption of SOP 97-2
•
PSAP integration revenue recognition based on the completion of PSAP integration services, and
•
intangible asset amortization expense based on a lower value of identified intangible assets acquired from Allen Telecom.
Andrew Corporation — Geolocation Revenue Recognition Changes
(dollars in thousands)
ADOPTION OF SOP 97.2
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
(1,630 )
(1,630 )
(62 )
(12 )
(220 )
PRE-TAX
(1,588 )
(1,588 )
(73 )
(16 )
1,212
(287 )
NET INCOME
(985 )
(985 )
(45 )
(10 )
(178 )
PSAP INTEGRATION — Opening Balance Sheet Adjustment
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
(38 )
(38 )
(33 )
(9,565 )
(8,539 )
(1,199 )
(133 )
PRE-TAX
(218 )
(218 )
(1,211 )
(4,776 )
(5,525 )
(659 )
(73 )
NET INCOME
(135 )
(135 )
(748 )
(2,949 )
(3,412 )
(407 )
(45 )
PSAP INTEGRATION — Amortization Impact
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
—
—
—
—
—
—
—
—
—
—
—
—
PRE-TAX
NET INCOME
TOTAL of CHANGES
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
(1,668 )
(1,668 )
(45 )
(8,914 )
(7,862 )
(237 )
(81 )
PRE-TAX
(1,616 )
(1,616 )
(1,037 )
(3,935 )
(4,096 )
(181 )
1,132
NET INCOME
(1,002 )
(1,002 )
(640 )
(2,428 )
(2,527 )
(113 )
AS REPORTED
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
344,921
1,014,486
410,771
447,146
492,998
487,834
1,838,749
474,074
481,828
487,232
517,491
1,960,625
PRE-TAX (1)
8,186
23,326
6,339
15,894
27,413
(723 )
48,923
19,411
5,284
20,971
16,381
62,047
NET INCOME
(1,204 )
9,061
3,805
10,212
19,199
32,278
14,625
3,124
12,969
7,206
37,924
EPS
$ (0.01 ) $ 0.08 $ 0.02
$ 0.06
$ 0.11
$ 0.00
$ 0.20
$ 0.09
$ 0.02
$ 0.08
$ 0.04
$ 0.23
RESTATED
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
343,253
1,012,818
411,138
447,876
492,953
478,920
1,830,887
473,837
481,747
487,235
518,415
1,961,234
PRE-TAX
6,570
21,710
6,696
16,413
26,376
(4,658 )
44,827
20,154
5,103
21,003
16,919
63,179
NET INCOME
(2,206 )
8,059
4,025
10,533
18,559
(1,859 )
29,751
15,087
3,011
12,989
7,538
38,626
EPS
$ (0.02 ) $ 0.07 $ 0.03
$ 0.07
$ 0.10
$ (0.01 )
$ 0.19
$ 0.09
$ 0.02
$ 0.08
$ 0.05
$ 0.24
EPS INCREASE (DECREASE)
$ (0.01 ) $ (0.01) $ 0.01
$ 0.01
$ (0.01 )
$ (0.01 )
$ (0.01 )
$ 0.00
$ (0.00 )
$ 0.00
$ 0.01
$ 0.01
1.
This analysis only includes geolocation contract revenue recognition restatements, as such, Q1
and Q2, 2005 pre-tax amounts have intentionally not been restated for the $19.8 million warranty charge.
The SOP 97-2 restatement documents the change to the company’s financial statements based on adoption at the inception of the AT&T Wireless contract. In summary, $1.6 million of revenue for fiscal 2003 is decreased and deferred to later years—primarily fiscal years 2004 and 2005.
The PSAP integration revenue restatement has an overall impact as follows:
•
the opening balance sheet deferred revenue amount of $8.7 million was eliminated with the offsetting adjustment to the goodwill account
•
the opening inventory amount of $2.9 million was eliminated with the offsetting adjustment to the goodwill account
•
revenue for the three fiscal years 2003, 2004 and 2005 was reduced, in the aggregate, $8.7 million
•
revenue recognized for PSAP integration services completed subsequent to the July 2003 acquisition was restated to the period in which the work was performed
•
cost of sales amounts were revised so the restated costs match restated revenues on a quarterly basis; overall, cost of sales decreased $2.9 million for the three fiscal years 2003, 2004, 2005 in the aggregate
•
the valuation of certain intangible assets acquired from Allen Telecom (AWS supply agreement and patents) was impacted by the elimination of the $8.7 million of deferred revenue on the opening balance sheet. The value ascribed to these assets would be $1.4 million less than originally reported, and intangible amortization expense was therefore reduced during the 2003-2005 period.
The restatements presented on the SAB 99 analysis are the result of the company’s analysis of the geolocation accounting for the periods presented. Andrew Corporation’s external auditors have analyzed the company’s restatement work and concur with the restatements presented herein. Additionally, the company engaged a valuation firm to review the impact of the revenue restatement on the fair value of acquired intangible assets.
I have asked Mark Olson to contact you tomorrow to ensure that we have fully addressed each of the Staff’s comments. If there are further questions, please contact the undersigned at (708)873-3300.
Very truly yours,
/s/Marty R. Kittrell
Show Raw Text
CORRESP
1
filename1.htm
corresp
December 6, 2005
Ms. Nili Shah
Accounting Branch Chief
Division of Corporation Finance
100 F Street, NE
U.S. Securities and Exchange Commission
Washington, D.C. 20549-0510
RE:
Andrew Corporation
Form 10-K for the fiscal year ended September 30, 2004
Filed December 13, 2004
Forms 10-Q for the Fiscal Quarters Ended December 31,
2004, March 31, 2005 and June 30, 2005
File No. 0-21682
Dear Ms. Shah:
This letter is in response to questions the Staff raised on the Tuesday, November 29 conference
call. This letter also contains additional information that came to the company’s attention as a
result of preparing this letter, as discussed with you on Monday, November 28. This information
was inadvertently excluded from prior responses to the Staff and relates to the amount of deferred
revenue on Allen Telecom’s financial statements and the classification of that deferred revenue as
“accounts receivable” on their balance sheet.
Additionally, our response dated October 3, 2005 (comment #9) indicated that the customer did not
allow billing to occur until certification services were completed. The company has since learned
that this statement was not accurate in that the customer had been billed for PSAP integration work
that had been performed prior to Addendum No. 5.
Prior response letters regarding this matter were compiled from contracts, business activity and
accounting information provided by division management responsible for the geolocation business.
The company believes that these inaccuracies occurred due to division management not fully
understanding the accounting questions and not having enough historical knowledge of the
geolocation business and accounting activities.
It is always the company’s objective to provide complete, relevant and accurate responses to the
Staff’s comments. The company regrets that the October 3, 2005 response letter contained these
inadvertent inaccuracies.
Comment #1
Describe how Allen Telecom accounted for deferred revenue and what was included on their July 14,
2003 (pre-acquisition) balance sheet.
Response:
As PSAP integration services were completed and invoiced, Allen Telecom debited accounts receivable
and credited deferred revenue, which was presented net of trade receivables on their balance sheet.
Costs incurred in providing these services were carried as inventory. Revenue was recognized only
upon completion of the related certification services.
Allen
Telecom’s final, pre-acquisition balance sheet included deferred revenue of $8.7
million related to PSAP integration work and $0.6 million of deferred revenue (presented as such on
the balance sheet) related to extended maintenance agreements (as noted in comment #8 of the
company’s October 3, 2005 letter). Additionally, Allen Telecom’s pre-acquisition balance sheet
included $2.9 million of inventory related to deferred PSAP integration costs.
Comment #2
Describe Andrew Corporation’s purchase accounting treatment of Allen Telecom’s deferred revenue.
Response:
In Andrew Corporation’s purchase price allocation, $8.7 million was included in the opening balance
sheet as deferred revenue consistent with Allen Telecom’s
classification. Of this $8.7 million, $3.5 million was recognized from July 2003 to the
quarter ended September 2004 as certification work was completed. As previously indicated in the
company’s June 30, 2005 response letter, the remaining $5.2 million was recognized as part of the
$9.6 million that was recorded subsequent to the execution of Addendum No. 5.
Andrew Corporation’s purchase price allocation also included the $2.9 million of inventory related
to PSAP integration costs. This inventory balance represented costs deferred with respect to the
$8.7 million deferred revenue balance.
Comment #3
Describe Andrew Corporation’s proposed restatement of revenue and income for the geolocation
contracts acquired from Allen Telecom.
The SAB 99 analysis below documents proposed restatements for the impact of:
•
the adoption of SOP 97-2
•
PSAP integration revenue recognition based on the completion of PSAP integration
services, and
•
intangible asset amortization expense based on a lower value of identified intangible
assets acquired from Allen Telecom.
Andrew Corporation — Geolocation Revenue Recognition Changes
(dollars in thousands)
ADOPTION
OF SOP 97.2
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
(1,630
)
(1,630
)
100
(62
)
(12
)
651
677
962
(220
)
742
PRE-TAX
(1,588
)
(1,588
)
107
(73
)
(16
)
651
669
1,212
(287
)
925
NET INCOME
(985
)
(985
)
66
(45
)
(10
)
404
415
752
(178
)
574
PSAP INTEGRATION — Opening Balance Sheet Adjustment
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
(38
)
(38
)
267
792
(33
)
(9,565
)
(8,539
)
(1,199
)
139
3
924
(133
)
PRE-TAX
(218
)
(218
)
60
402
(1,211
)
(4,776
)
(5,525
)
(659
)
76
2
508
(73
)
NET INCOME
(135
)
(135
)
37
248
(748
)
(2,949
)
(3,412
)
(407
)
47
1
314
(45
)
PSAP INTEGRATION — Amortization Impact
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
—
—
—
—
—
—
—
—
—
—
—
—
PRE-TAX
190
190
190
190
190
190
760
190
30
30
30
280
NET INCOME
117
117
117
117
117
117
469
117
19
19
19
173
TOTAL of CHANGES
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
(1,668
)
(1,668
)
367
730
(45
)
(8,914
)
(7,862
)
(237
)
(81
)
3
924
609
PRE-TAX
(1,616
)
(1,616
)
357
519
(1,037
)
(3,935
)
(4,096
)
743
(181
)
32
538
1,132
NET INCOME
(1,002
)
(1,002
)
220
321
(640
)
(2,428
)
(2,527
)
462
(113
)
20
332
702
AS REPORTED
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
344,921
1,014,486
410,771
447,146
492,998
487,834
1,838,749
474,074
481,828
487,232
517,491
1,960,625
PRE-TAX (1)
8,186
23,326
6,339
15,894
27,413
(723
)
48,923
19,411
5,284
20,971
16,381
62,047
NET INCOME
(1,204
)
9,061
3,805
10,212
19,199
569
32,278
14,625
3,124
12,969
7,206
37,924
EPS
$
(0.01
)
$
0.08
$
0.02
$
0.06
$
0.11
$
0.00
$
0.20
$
0.09
$
0.02
$
0.08
$
0.04
$
0.23
RESTATED
Q4
FY03
Q1
Q2
Q3
Q4
FY04
Q1
Q2
Q3
Q4
FY05
REVENUE
343,253
1,012,818
411,138
447,876
492,953
478,920
1,830,887
473,837
481,747
487,235
518,415
1,961,234
PRE-TAX
6,570
21,710
6,696
16,413
26,376
(4,658
)
44,827
20,154
5,103
21,003
16,919
63,179
NET INCOME
(2,206
)
8,059
4,025
10,533
18,559
(1,859
)
29,751
15,087
3,011
12,989
7,538
38,626
EPS
$
(0.02
)
$
0.07
$
0.03
$
0.07
$
0.10
$
(0.01
)
$
0.19
$
0.09
$
0.02
$
0.08
$
0.05
$
0.24
EPS INCREASE (DECREASE)
$
(0.01
)
$
(0.01)
$
0.01
$
0.01
$
(0.01
)
$
(0.01
)
$
(0.01
)
$
0.00
$
(0.00
)
$
0.00
$
0.01
$
0.01
1.
This analysis only includes geolocation contract revenue recognition restatements, as such, Q1
and Q2, 2005 pre-tax amounts have intentionally not been restated for the $19.8 million warranty charge.
The SOP 97-2 restatement documents the change to the company’s financial statements based on
adoption at the inception of the AT&T Wireless contract. In summary, $1.6 million of revenue for
fiscal 2003 is decreased and deferred to later years—primarily fiscal years 2004 and 2005.
The PSAP integration revenue restatement has an overall impact as follows:
•
the opening balance sheet deferred revenue amount of $8.7 million was eliminated with
the offsetting adjustment to the goodwill account
•
the opening inventory amount of $2.9 million was eliminated with the offsetting
adjustment to the goodwill account
•
revenue for the three fiscal years 2003, 2004 and 2005 was reduced, in the aggregate,
$8.7 million
•
revenue recognized for PSAP integration services completed subsequent to the July 2003
acquisition was restated to the period in which the work was performed
•
cost of sales amounts were revised so the restated costs match restated revenues on a
quarterly basis; overall, cost of sales decreased $2.9 million for the three fiscal years
2003, 2004, 2005 in the aggregate
•
the valuation of certain intangible assets acquired from Allen Telecom (AWS supply
agreement and patents) was impacted by the elimination of the $8.7 million of deferred
revenue on the opening balance sheet. The value ascribed to these assets would be $1.4
million less than originally reported, and intangible amortization expense was therefore
reduced during the 2003-2005 period.
The restatements presented on the SAB 99 analysis are the result of the company’s analysis of the
geolocation accounting for the periods presented. Andrew Corporation’s external auditors have
analyzed the company’s restatement work and concur with the restatements presented herein.
Additionally, the company engaged a valuation firm to review the impact of the revenue restatement
on the fair value of acquired intangible assets.
I have asked Mark Olson to contact you tomorrow to ensure that we have fully addressed each of the
Staff’s comments. If there are further questions, please contact the undersigned at (708)873-3300.
Very truly yours,
/s/Marty R. Kittrell
Marty R. Kittrell
Chief Financial Officer
Cc:
Ms. Tracey Houser (Securities and Exchange Commission)
Mr. Nathan Cheney (Securities and Exchange Commission)
Mr. James P. Sherman (Ernst & Young LLP)
Mr. Dewey B. Crawford (Foley & Lardner LLP)