**Exhibit13**

 
| ANDREW CORPORATION 2003 |   | RESULTS OF OPERATIONS  17 |
|-------------------------|--------|--------------------------------|

 

**Results of Operations**

 

Capitalinvestment in wireless infrastructure continued to be weak in 2003, puttingpressure on sales and operating margins. To meet the demands of thischallenging market, the company took significant steps in 2003 to broaden itsproduct portfolio, improve operating performance and increase financialflexibility.

 

AllenTelecom was acquired in July 2003 for total consideration of $495.0 million instock, creating the single largest provider of RF (radio frequency) footprintproduct. Following the acquisition, the company announced a merger integrationprogram that would eliminate at least $52 million of costs annually beginningin 2005. Combined with annual cost savings of approximately $47 million thatthe company expects to generate from the September 2002 restructuring program,the company anticipates that it will realize savings in excess of $100 millionannually beginning in 2005. Major drivers of this cost reduction includerelocation of manufacturing to lower labor cost regions, global sourcing ofcomponents and utilization of shared services.

 

Salesfor 2003 were $1.0 billion, up 17% compared with the prior year, driven by theacquisition of Allen Telecom in July 2003 and Celiant in June 2002. Net incomeavailable to common shareholders for 2003 was $9.1 million, or $0.08 per share,compared with a net loss of $26.4 million, or $(0.30) per share in 2002. Theloss in 2002 was driven by restructuring and discontinued operations charges.In September 2002, the company initiated plans to restructure and discontinueseveral non-strategic businesses. After-tax restructuring charges were $6.0million in 2003 and $25.2 million in 2002. After-tax losses from discontinuedoperations were $3.2 million in 2003 and $36.8 million in 2002.

 

**OUTLOOK**Despitechallenging conditions in the broader economy and the wireless infrastructuresector over the past three years, the company believes there are severalpositive factors that lead to a cautiously optimistic outlook. As minutes ofuse (MOU), total subscribers, data intensive applications and spending on thirdgeneration networks (3G) increase, the company believes there will be anincreased proportion of capital expenditures on the RF footprint to improvecapacity, coverage and quality of service. The company believes that the stepstaken to broaden its product portfolio, improve operating performance andincrease financial flexibility position the company to capitalize on the opportunitiesin the wireless infrastructure market.

 

**SALES BY PRODUCT GROUP** During 2003, sales were classifiedinto the following five primary product groups that the company believes bestreflect the company’s complete RF footprint product offering: Antennas, BaseStation Subsystems, Cable Products,Network Solutions and Wireless Innovations.

** **
| **DOLLARS IN  MILLIONS**    |   | **2003** |      | **% CHANGE** |   | **2002** |   | **% CHANGE** |   | **2001** |   | **% CHANGE** |   |
|-----------------------------|--------|----------|-----------|--------------|--------|----------|--------|--------------|--------|----------|--------|--------------|--------|
|                        |   |     |      |         |   |     |   |         |   |     |   |         |   |
| **Sales  by Product Group** |   |     |      |         |   |     |   |         |   |     |   |         |   |
| Antennas                    |   | **$**    | **265**   |         | 4      | %        | $      | 256          |   | (20      | )%     | $            | 320    |   | 8 | % |
| Base Station  Subsystems    |   | **236**  |      | 146          | %      | 96       |   | NA           |   | 8        |   | NA           |   |
| Cable Products              |   | **428**  |      | (13          | )%     | 490      |   | (15          | )%     | 579      |   | 1            | %      |
| Network  Solutions          |   | **43**   |      | —       |   | —   |   | —       |   | —   |   | —       |   |
| Wireless  Innovations       |   | **42**   |      | 83           | %      | 23       |   | (18          | )%     | 28       |   | 50           | %      |
| **Total  Sales**            |   | **$**    | **1,014** |         | 17     | %        | $      | 865          |   | (7       | )%     | $            | 935    |   | 4 | % |

 

Antennasales for 2003 were $264.8 million, up 4% from the prior year, driven by theacquisition of Allen Telecom and partially offset by lower sales of broadcastantennas. Antenna sales accounted for 26% of total sales in 2003.

 

BaseStation Subsystems sales, consisting of power amplifiers, filters, combinersand integrated products, increased 146% to $236.2 million in 2003, andrepresented 23% of total sales. This increase was driven by the acquisition ofAllen Telecom in 2003 and the full-year benefit of the Celiant acquisition,which occurred in June 2002. The company is currently shipping stand aloneproducts to seven major original equipment manufacturers (OEMs) and designingintegrated radio amplifier products for three OEMs. The company believes thatpricing pressure experienced in 2003 will moderate as the company offers morevalue-added and integrated products.

 

CableProducts sales were $428.1 million in 2003 and represented 42% of total sales.Cable sales decreased 13% in 2003 and 15% in 2002. The weak wirelessinfrastructure market and competitive market conditions resulted in a declinein both unit volume and average selling price over the last two years. Unitvolume declined 12%, and average selling prices decreased 9% in 2003. Anincreased focus on new products such as Heliax Virtual AirTM cable and entryinto the broadband cable infrastructure market are expected to mitigate pricingpressure and expand the company’s total addressable market for cable.

 

NetworkSolutions, which includes geolocation, test and measurement and networkoptimization services, posted sales of $43.8 million in 2003. Sales in thisproduct group represented 4% of total sales for 2003 and are the result of theAllen Telecom acquisition. Geolocation sales are largely project driven and canexperience significant fluctuations on a quarterly basis.

 

WirelessInnovations consists primarily of repeaters and distributed communicationsproducts. Sales in 2003, were $41.6 million, up 83% from the prior year due tothe acquisition of Allen Telecom. Sales from this product group represented 4%of total sales for the company. Products for the in-building market such asPico Node-B are an increasing focus of the company and are expected tocontribute to future sales growth.

 

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| 18  RESULTS  OF OPERATIONS |   | ANDREW  CORPORATION 2003 |
|---------------------------------|--------|--------------------------|

 

Thecompany’s top 25 customers represented 65% of total sales in 2003 and LucentTechnologies was the only customer that accounted for more than 10% of totalsales. AT&T Wireless was also a significant customer, accounting for morethan 10% of total sales in the fourth quarter.

 
| **DOLLARS IN MILLIONS**                    |   | **2003** |      | **% CHANGE** |   | **2002** |   | **% CHANGE** |   | **2001** |   | **% CHANGE** |   |
|--------------------------------------------|--------|----------|-----------|--------------|--------|----------|--------|--------------|--------|----------|--------|--------------|--------|
|                                       |   |     |      |         |   |     |   |         |   |     |   |         |   |
| **Sales  by Region (end use destination)** |   |     |      |         |   |     |   |         |   |     |   |         |   |
| Americas                                   |   | **$**    | **549**   |         | 7      | %        | $      | 511          |   | (6       | )%     | $            | 543    |   | (5 | )% |
| Europe, Middle  East, Africa (EMEA)        |   | **278**  |      | 46           | %      | 190      |   | 6            | %      | 179      |   | (6           | )%     |
| Asia Pacific                               |   | **187**  |      | 14           | %      | 164      |   | (23          | )%     | 213      |   | 50           | %      |
| **Total  Sales**                           |   | **$**    | **1,014** |         | 17     | %        | $      | 865          |   | (7       | )%     | $            | 935    |   | 4 | % |
|                                            |        |          |           |              |        |          |        |              |        |          |        |              |        |  |  |  |  |

 

Salesin 2003 increased across all regions, driven by the acquisitions of AllenTelecom and Celiant. In the Americas, sales were $549.0 million, up 7% from theprior year, and represented 54% of total sales. EMEA sales were $278.2 million,up 46% from a year ago, and represented 27% of total sales in 2003. AsiaPacific sales were $187.3 million, up 14% from the prior year, and accountedfor 19% of total sales in 2003.

 

**Gross profit**as a percentage of sales was 27.1% in 2003, 27.5% in 2002 and 33.1% in 2001.Included in cost of goods sold for 2002 was $11.1 million of restructuringcosts relating to inventory write-downs. Weakness in the wirelessinfrastructure market resulted in price erosion, adversely impacting grossprofits over the last two years. The company realized some of the benefits in2003 from cost reduction efforts and restructuring programs, including therelocation of manufacturing operations to new facilities in Mexico and theCzech Republic. The company anticipates that these new facilities will providesignificant cost savings in the future, resulting in improved gross margins.The overall gross margin percentage for 2003 was enhanced by the fourth quarteracquisition of Allen Telecom and its Geolocation product line.

 

Grossprofit margins vary for the company’s product groups. Generally, NetworkSolutions and Cable Products exceed the corporate average, Wireless Innovationsis approximately equal to the corporate average, and Base Station Subsystemsand Antennas are below the corporate average. Cable Products gross profitmargins have declined over the last three years due to competitive pricing,with average cable prices declining 9% in 2003. Sales and gross profits forBase Station Subsystems increased as a result of the Celiant acquisition in thethird quarter of 2002. With the acquisition of Allen the company will be ableto offer more value-added and integrated products, which the company believeswill improve Base Station Subsystems margins in the future. Antenna Productsgross profit margins decreased slightly in 2003, due primarily to start-upcosts at new manufacturing facilities. The relocation of manufacturing toMexico and the Czech Republic is expected to have a positive impact on AntennaProducts gross margins in the second half of 2004.

 

**Operating expenses**increased 15%, or $33.1 million, in 2003 and 13%, or $27.0 million, in 2002.The 2003 increase in operating expenses was driven by increased investment inresearch and development and amortization of intangible assets, partiallyoffset by lower restructuring expenses. The 2002 increase in operating expenseswas driven by restructuring charges and increased investment in research anddevelopment. Sales and administrative costs increased slightly in 2003 due tothe addition of Allen’s operations. Excluding the impact of Allen Telecom, thecompany reduced sales and administrative costs in 2003 and 2002.

 

InSeptember 2002, the company initiated restructuring plans that involved therelocation of manufacturing operations to new locations and the consolidationof certain other facilities into existing locations. The company recorded $24.9million of restructuring costs in 2002 and an additional $9.2 million in 2003.These costs consisted primarily of employee termination, lease and contractcancellation costs, and fixed asset and inventory relocation costs. The companyrecorded amortization of intangible assets of $19.2 million in 2003 and $5.1million in 2002. Intangible asset amortization is largely attributable tointangible assets acquired in the Allen Telecom and Celiant acquisitions. Thecompany expects that intangible asset amortization will increase to $36.8million in 2004 and decline significantly thereafter.

 

**Research and developmentexpense**increased $26.2 million,or 45%, in 2003 and $18.0 million, or 45%, in 2002. Research and developmentrepresented 8% of sales in 2003 and 7% of sales in 2002. The company hascontinued to invest heavily in product improvement and development. Themajority of these increases in research and development have been focused onthe company’s power amplifier business. With the June 2002 acquisition ofCeliant, the company has significantly increased its power amplifier operationsand research and development spending on power amplifiers. With the acquisitionof Allen, the company expects research and development to increase slightly in2004, but to decrease as a percentage of sales to approximately 6% to 7%.

 

**Sales and administrativeexpense** increased $8.6 million,or 6%, in 2003 and decreased $20.9 million, or 13%, in 2002. The increase in2003 was driven by $13.5 million of additional expenses related to the Allenacquisition, partially offset by the impact of headcount reductions and othercost cutting efforts. Sales and administrative expenses as a percentage ofsales were 15%, 16% and 17% in 2003, 2002 and 2001, respectively. The companyanticipates that sales and administrative expenses will decrease to between 10%and 11% of total sales in 2005.

 

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| ANDREW CORPORATION 2003 |   | RESULTS OF OPERATIONS  19 |
|-------------------------|--------|--------------------------------|

 

**Other income and expense**consisted of income of $9.6 million in 2003, income of $3.7 million in 2002,and expense of $7.2 million in 2001. In 2003, the company recognized income of$12.2 million from the sale of assets, primarily due to gains of $9.3 millionfrom the sale of unimproved land in Orland Park, Illinois, and $2.8 millionfrom the sale of the company’s Denton, Texas manufacturing facility. In 2002,the company recognized income of $8.7 million from a gain on the sale of thecompany’s Russian telecommunication ventures. Interest expense increased $0.6million to $5.7 million in 2003. This increase is attributed to the sale of$240.0 million of convertible notes in August 2003 and additional long-termdebt assumed from Allen Telecom. In 2002, interest expense decreased $2.3million due to lower debt levels. Interest income decreased $2.0 million to$1.6 million in 2003, as average cash and short-term investment balances weresignificantly lower than the prior year. Other (income) expense, net was incomeof $1.5 million in 2003 and expense of $3.6 million and $2.4 million in 2002and 2001, respectively. The largest item in other (income) expense, net isforeign exchange gains and losses. The weakening of the U.S. dollar, especiallyagainst European currencies, was the primary driver of other income in 2003.

 

**Income taxes**as a percentage of income from continuing operations was 19.8% in 2003, 19.7%in 2002 and 32.0% in 2001. The effective tax rate for 2003 was lower than theUnited States federal tax rate due to the favorable impact of benefits from thecompany’s export sales structure, the utilization of capital losses to offsetgains recognized on the asset sales described above and the rate differentialon foreign earnings, offset by valuation allowances provided for a portion ofthe company’s foreign tax credits. The company expects the effective tax ratefor 2004 to be approximately 35%, due to the impact of Allen, forecastedimprovement in pre-tax income and the non-recurrence of capital lossutilization.

 

**Discontinued operations resulted**in a loss from operations of $3.2 million and $10.4 million in 2003 and 2002,respectively. The company has discontinued three non-strategic businesses,closing its satellite modem business in September 2002 and selling its shelterand wireless accessories businesses in the first quarter and second quarter of2003, respectively. In 2002, the company incurred a $26.4 million charge toreduce the net assets of these businesses to their fair value. The dispositionof these businesses in 2003 resulted in no significant differences from thecompany’s original estimates.

 

**Net income available to commonshareholders** for 2003 includes $6.5million of preferred stock dividends, comprised of a regular quarterly dividendof $0.8 million and conversion premium payments of $5.7 million. As part of theAllen merger, the company issued 991,000 shares of convertible preferred stock,issuing one share for each share of Allen convertible preferred stock. Thecompany paid $5.7 million to induce early conversion of 807,000 shares ofpreferred stock into 9.3 million shares of the company’s common stock duringthe fourth quarter of 2003.

 

**Liquidity**

 

**Cash and cash equivalents**increased significantly to $286.3 million at September 30, 2003 compared with$84.9 million at September 30, 2002. This increase was primarily due to cashacquired as part of the Allen acquisition and the proceeds from the company’sconvertible debt offering. To take advantage of favorable interest rates and toincrease financial flexibility, the company raised $240.0 million from the saleof ten-year 3.25% convertible subordinated notes. Working capital was $615.5million and $240.6 million at September 30, 2003 and 2002, respectively.Management believes that the company’s strong working capital position and abilityto generate cash flow from operations will allow the company to meet its normaloperating cash requirements.

 

**Net cash from operations**was$62.4 million in 2003, $155.1 million in 2002, and $160.2 million in 2001. In2003, net income of $15.5 million included $62.2 million of net non-cashcharges, comprised of $74.4 million of depreciation and amortization and a gainof $12.2 million from the sale of assets. In 2002, net loss of $26.4 millionincluded net non-cash charges of $56.3 million of depreciation andamortization, and an $8.7 million gain on the sale of the company’s Russiantelecommunication ventures.

 

Netcash costs for restructuring and discontinued operations totaled $1.3 millionin 2003, versus $83.5 million of cash provided in 2002. In 2003, net cash costsfor restructuring were $5.8 million consisting of a non-cash restructuringaccrual of $7.9 million and cash costs of $13.7 million principally forseverance and lease termination payments. In 2002, the company incurrednon-cash charges of $35.4 million for the accrual of restructuring reserves. In2003, the company used $1.5 million of cash to complete the closing of itsdiscontinued businesses. In 2002, the company incurred net non-cash charges of$25.9 million to reduce the net assets of discontinued businesses to their fairvalue. Cash flow from discontinued businesses was reported as a single lineitem and resulted in cash flow of $6.0 million and $22.2 million in 2003 and2002, respectively.

 

Changesin operating assets and liabilities resulted in a net decrease in cash of $14.1million in 2003, compared with a net increase of $50.7 million in 2002. Thedecrease in 2003 was almost entirely driven by fluctuations in accountsreceivable. Cash flow generated from decreases in accounts receivable were$10.7 million in 2003 and $59.0 million in 2002. Quarterly fluctuations insales and the significant increase in sales in the fourth quarter of 2003created less cash flow from receivables in 2003. At the end of 2003, averagepayment terms were slightly longer. Days sales in billed receivables increasedto 80 days at the end of 2003, compared with 72 days at the end of 2002.

 

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| 20  RESULTS  OF OPERATIONS |   | ANDREW  CORPORATION 2003 |
|---------------------------------|--------|--------------------------|

 

**Net cash from investing activities** was $39.4 million in 2003, and a net use ofcash of $170.2 million in 2002 and $79.1 million in 2001.

 

Thecompany’s capital expenditures were $31.9 million in 2003, $40.6 million in2002, and $72.1 million in 2001. The company reduced capital expenditures by21% in 2003 and 44% in 2002, due mainly to reductions in spending onmanufacturing facilities and management information systems. The $72.1 millionof capital expenditures in 2001 was focused mainly on the expansion andimprovement of manufacturing facilities in China, Brazil and Scotland.

 

InJuly 2003, the company acquired Allen Telecom in a stock-for-stock transactionvalued at $495.0 million. Allen common shareholders received 1.775 shares ofthe company’s common stock for each share of Allen common stock. The companyincurred $47.6 million of cash costs to complete this merger. The companyacquired Allen’s cash and cash equivalents of $95.8 million.

 

In2002, the company used cash of $239.8 million for acquisitions and received$58.7 million of cash as part of the Celiant acquisition. In June 2002, thecompany acquired Celiant Corporation for $481.0 million, consisting of 16.3million shares of the company’s common stock valued at $266.6 million and cashof $214.4 million consisting of purchase consideration and merger costs. In2002, the company spent an additional $25.4 million on three smalleracquisitions.

 

Proceedsfrom the sale of businesses and investments were $7.3 million in 2003 and $50.3million in 2002. In 2003, the company received $7.3 million of proceeds from thesale of two discontinued businesses, selling its equipment shelter business inOctober 2002 and its wireless accessories business in January 2003. In 2002,the company received $50.3 million of proceeds from the sale of its Russiantelecommunication ventures.

 

Proceedsfrom the sale of property, plant, and equipment were $15.9 million in 2003,$1.0 million in 2002, and $0.7 million in 2001. In 2003, the company received$15.9 million from the sale of property, plant, and equipment, primarily $9.5million from the sale of unimproved land in Orland Park, Illinois, and $5.3million from the sale of the company’s Denton, Texas facility.

 

**Net cash from financingactivities**was $89.6 million in2003, and a net use of cash of $17.9 million and $16.1 million in 2002 and2001, respectively.

 

In2003, the company paid down $24.0 million of long-term debt. This included$12.9 million assumed from Allen Telecom, a $3.8 million industrial developmentbond associated with the company’s equipment shelter business, $1.9 million ofborrowing in China and $4.5 million of senior notes. Long-term borrowings of$233.3 million consisted primarily of the $240.0 million ten-year, 3.25%,convertible notes, less issuance costs of $6.9 million. The company reduced itsshort-term notes payable borrowing by $65.9 million in 2003.

 

Thecompany reduced its total debt outstanding by $20.7 million and $93.4 millionin 2002 and 2001, respectively.

 

In2003, financing activities included $6.5 million of preferred stock dividends,comprised of regular quarterly dividends of $0.8 million and a conversionpremium of $5.7 million. In August 2003, the company repurchased 5.0 millionshares of common stock for $49.6 million. The company receives cash from thesale of stock under employee and director option plans and the employee stockpurchase plan. Under these plans, the company received cash proceeds of $2.3million in 2003, $2.8 million in 2002, and $2.1 million in 2001.

 

**Dividend policy.**Although the company has never paid dividends to common shareholders, the Boardof Directors periodically reviews this practice and, to date, has elected toretain earnings in the business to finance future investments and operations.

 

**Critical Accounting Policies**

 

Thepreparation of financial statements and related disclosures in conformity withaccounting principles generally accepted in the United States requiresmanagement to make judgments, assumptions, and estimates that affect theamounts reported in the consolidated financial statements and accompanying notes.The first footnote to the company’s consolidated financial statements (Summaryof Significant Accounting Policies) describes the major accounting policies andmethods used in the preparation of the consolidated financial statements.Estimates are used for, but not limited to, accounting for the allowance fordoubtful accounts, sales returns, inventory reserves, warranty costs,depreciation and amortization, goodwill and intangible impairments,contingencies, taxes, pension liabilities, and restructuring and mergerintegration costs. Actual results could differ materially from these estimates.A material change in these or other estimates could potentially have a materialimpact on results of operations. The following critical accounting policies areimpacted significantly by judgments, assumptions, and estimates.

 

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| ANDREW CORPORATION 2003 |   | RESULTS OF OPERATIONS  21 |
|-------------------------|--------|--------------------------------|

 

**ALLOWANCE FOR DOUBTFUL ACCOUNTS**Theallowance for doubtful accounts is based on our assessment of thecollectability and the aging of accounts receivable. Although managementbelieves that the current allowance is sufficient to cover existing exposures,there can be no assurance against the deterioration of a major customer’screditworthiness, or against defaults that are higher than what has beenexperienced historically. If our estimates of the recoverability of amounts dueto us are overstated, it could have an adverse impact on our results ofoperations.

 

**INVENTORIES**Inventoriesare stated at the lower of cost or market. Inventory obsolescence reserves aremaintained based on managements’ estimates, historical experience andforecasted demand for the company’s products. A material change in theseestimates could adversely impact gross profit.

 

**WARRANTY COSTS**Thecompany accrues for warranty costs based on historical trends in product returnrates. If the company were to experience an increase in warranty claimscompared with the company’s historical experience, gross profit could beadversely affected.

 

**GOODWILL**Thecompany performs an annual impairment test of goodwill on the first day of thecompany’s fiscal fourth quarter. The company operates its business as a singlereporting unit and uses the comparison of total market capitalization to bookvalue as an indicator of impairment. If impairment was indicated, the companywould determine the fair value of net assets based on a discounted cash flowmodel. The company did not find any indicator of impairment in 2003 andtherefore no impairment was recorded. Due to uncertain market conditions, it ispossible that future tests may indicate impairment in the fair value ofgoodwill, which could result in non-cash charges, adversely affecting thecompany’s results of operations.

 

**INCOME TAXES**Thecompany currently has significant deferred tax assets principally related toforeign tax credits and net operating losses. A valuation allowance has beenprovided for the portion of the deferred tax assets related to the foreign taxcredits and net operating losses, as management believes it is more likely thannot that these assets will not be utilized. No valuation allowance has beenrecorded for the remainder of the company’s deferred tax assets as the companyexpects the turnaround of deferred tax liabilities, higher taxable income inthe United States and tax planning strategies will make the realization ofthese deferred tax assets more likely than not. Changes in the company’sexpectations could result in significant adjustments to the valuationallowance, which would significantly impact the company’s results ofoperations.

 

**RESTRUCTURING** At September 30, 2003,the company had a restructuring reserve of $20.4 million for the integration ofAllen operations and for the completion of its current restructuring plans.These accruals are based on the company’s best estimates of the costsassociated with merger integration and restructuring plans, including employeetermination costs, lease cancellation, and other costs. If actual costs ofthese activities differ significantly from these forecasts, results ofoperations could be impacted.

 

**DEFINED BENEFIT PLANS**Someof the company’s employees are covered by defined benefit plans. Approximately600 current and former employees of the company’s United Kingdom subsidiary,Andrew Ltd., participate in a defined benefit plan. The company also acquireddefined benefit plans from Allen Telecom, which cover approximately 1,760current and former employees. The Allen plans have been frozen and the companyplans to fund these plans over the next three to five years. The costs andobligations recorded for these plans are dependent on actuarial assumptions.These assumptions include discount rates, expected return on plan assets,interest costs, expected compensation increases, benefits earned, mortalityrates, and other factors. If actual results are significantly different thanthose forecasted or if future changes are made to these assumptions, theamounts recognized for these plans could change significantly. In accordancewith accounting principles generally accepted in the United States, actualresults that differ from the assumptions are accumulated and amortized overfuture periods.

 

**Off-Balance Sheet Arrangements**

 

Thecompany’s most significant off-balance sheet arrangements are purchasecontracts for copper. The company uses copper to manufacture its cable productsand thus is exposed to fluctuations in the price of copper. In order to reducethis exposure, the company has entered into contracts with various suppliers.At September 30, 2003, the company had contracts to purchase 38.2 millionpounds of copper for $29.5 million.

 

Thesecontracts have set quantities, delivery dates and prices. These contractsqualify for the normal purchase exception within Statement of FinancialAccounting Standards No. 133 and therefore, no fair value accounting has beenperformed and no liability has been recorded on the company’s balance sheet forthese contracts. The company records copper into raw materials inventory at theprice at which these items are purchased.

 

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| 22  RESULTS  OF OPERATIONS |   | ANDREW  CORPORATION 2003 |
|---------------------------------|--------|--------------------------|

 

Thecompany has additional off-balance sheet arrangements for contracts that it hasentered into for operating leases and letters of credit. Some of the company’sfacilities are leased under operating leases. For minimum lease payments forthe next five years see Note 11 to the financial statements. The companyutilizes letters of credit to back certain financing instruments, insurancepolicies and payment obligations. These letters of credit are with variousfinancial institutions and have terms of three years or less. At September 30,2003, the company had letters of credit totaling $13.0 million.

 

**Risk Factors**

 

**Safe Harbor for Forward-LookingStatements.** We have madeforward-looking statements in this annual report including in “Management’sDiscussion and Analysis of Financial Condition and Results of Operations” and“Notes to Consolidated Financial Statements.” In addition, other written ororal statements that constitute forward-looking statements may be made by or onbehalf of the company. Although we have based these statements on the beliefsand assumptions of our management and on information currently available tothem, they are subject to risks and uncertainties. We wish to ensure that suchstatements are accompanied by meaningful cautionary statements, so as to obtainthe protections of the safe harbor established in the Private SecuritiesLitigation Reform Act of 1995. Accordingly, such statements are qualified byreference to the discussion below of certain important factors that could causeactual results to differ materially from those projected in suchforward-looking statements.

 

Wecaution the reader that the list of factors may not be exhaustive. We operatein a continually changing business environment, and new risk factors emergefrom time to time. We cannot predict such risk factors, nor can we assess theimpact, if any, of such risk factors on our business or the extent to which anyfactors may cause actual results to differ materially from those projected inany forward-looking statements. Accordingly, undue reliance should not be puton any forward-looking statements. We undertake no obligation to updatepublicly any forward-looking statements, whether as a result of newinformation, future events or otherwise. The following risks and uncertainties,among others, should be considered in evaluating our growth outlook.

 

**Although we expect that ouracquisition of Allen will result in benefits to the combined company, we maynot realize those benefits because of integration and other challenges.**We operate in a market environment that cannot be predicted and that involvessignificant risks, many of which are beyond our control. Our failure to meetthe challenges involved in successfully integrating the operations of Andrewand Allen or to otherwise realize any of the anticipated benefits of themerger, including anticipated cost savings, could seriously harm our results ofoperations. Realizing the benefits of the merger will depend in part on theintegration of technology, operations and personnel. The integration of thecompanies is a complex, time-consuming and expensive process that couldsignificantly disrupt our business. The challenges involved in this integrationinclude the following: consolidating and rationalizing corporate informationtechnology and administrative infrastructures; consolidating and rationalizingmanufacturing operations; combining product offerings; coordinating sales andmarketing efforts to effectively communicate the capabilities of the combinedcompany; coordinating and rationalizing research and development activities toenhance introduction of new products and technologies with reduced cost;preserving distribution, marketing or other important relationships of bothAndrew and Allen and resolving potential conflicts that may arise; minimizingthe diversion of management’s attention from ongoing business concerns andsuccessfully returning managers to regular business responsibilities from theirintegration planning activities; demonstrating to employees that the businesscultures of Andrew and Allen are compatible, maintaining employee morale andretaining key employees; and coordinating and combining overseas operations,relationships and facilities, which may be subject to additional constraintsimposed by local laws and regulations.

 

Ourmanagement has limited experience integrating operations as substantial,geographically dispersed and decentralized as those of Allen. The combinedcompany may not successfully integrate the operations of Andrew and Allen in atimely manner, and may not realize the anticipated benefits or synergies of themerger to the extent, or in the timeframe, anticipated. The anticipatedbenefits and synergies relate to cost savings associated with anticipatedrestructurings and other operational efficiencies, greater economies of scale,and revenue enhancement opportunities. However, these anticipated benefits andsynergies are based on projections and assumptions, not actual experience, andassume a successful integration. In addition, our ability to realize thesebenefits and synergies could be adversely impacted by practical or legalconstraints on our ability to combine operations or implement workforcereductions and by risks relating to potential unknown liabilities of Allen. Inaddition to the integration risks discussed above, in September 2002, weannounced a plan to restructure our manufacturing operations and discontinueseveral non-strategic businesses. Our efforts to successfully integrate theoperations of Andrew and Allen may be made even more difficult by the diversionof management and other resources necessary to successfully complete thisreorganization. Our management has limited experience in carrying outrestructurings as substantial as this. Moreover, if our management isunsuccessful in carrying out our restructuring plans, we are unlikely toachieve expected cost savings, which would reduce our operating margins andincome.

 

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| ANDREW CORPORATION 2003 |   | RESULTS OF OPERATIONS  23 |
|-------------------------|--------|--------------------------------|

 

**The continuing deterioration ofthe wireless infrastructure industry could lead to further reductions incapital spending budgets by wireless operators and original equipmentmanufacturers, which could further adversely affect our revenues, gross marginsand income.**Our revenues and grossmargins will depend significantly on the overall demand for wirelessinfrastructure subsystems products. Reduced capital spending budgets bywireless operators and original equipment manufacturers caused by the ongoingindustry downturn have led to continued soft demand for our products andservices, which has resulted in, and may continue to result in, decreasedrevenues, earnings levels or growth rates. The global economy in general, andthe wireless infrastructure market in particular, has weakened and marketconditions continue to be challenging. As a result, individuals and companiesare delaying or reducing expenditures, including those for wirelessinfrastructure products. We have observed effects of the global economicdownturn in many areas of our business. We have experienced gross margindeclines, reflecting the effect of competitive pricing pressures as well ascharges associated with previously announced restructurings. In addition, thetelecommunications industry has experienced significant consolidation, and thistrend is expected to continue. It is possible that we and one or more of ourcompetitors each supply products to the companies that have merged or willmerge. This consolidation could result in further delays in purchasingdecisions by merged companies or in us playing a decreased role in the supplyof products to the merged companies. Further delays or reductions in wirelessinfrastructure spending could have a material adverse effect on demand for our productsand services and, consequently, our results of operations, prospects and stockprice.

 

**Because we depend on two of ourcustomers for a significant portion of our sales, our sales, operating marginsand income would be adversely affected by any disruption of our relationshipwith those customers or any material adverse change in their businesses.**Wedepend on Lucent Technologies and AT&T Wireless for a significant portionof our sales. Lucent accounted for more than 10% of 2003 sales and the companyanticipates that both AT&T Wireless and Lucent will account for more than10% of sales in 2004. Any disruption of our relationships with Lucent orAT&T Wireless, including any adverse modification of our supply agreementswith them or the unwillingness or inability of either of them to perform itsobligations under its supply agreement, would adversely affect our sales and,as a result of under absorption of fixed costs, operating margins and income.In addition, any material adverse change in the financial condition of Lucentor AT&T Wireless, or in expenditures by Lucent on RF power amplifiers or byAT&T Wireless on network geolocation products and services, would havesimilar adverse effects.

 

**Our revenues and selling,general and administrative expenses may suffer if we cannot continue to enforcethe intellectual property rights on which our business depends or if thirdparties assert that we violate their intellectual property rights.**Wegenerally rely upon patent, copyright, trademark and trade secret laws in theUnited States and similar laws in other countries, and agreements with ouremployees, customers, partners and other parties, to establish and maintain ourintellectual property rights in technology and products used in our operations.However, any of our intellectual property rights could be challenged,invalidated or circumvented, or our intellectual property rights may notprovide competitive advantages, which could significantly harm our business.Also, because of the rapid pace of technological change in the wirelessindustry, a portion of our business and our products may rely on keytechnologies developed by third parties, and we may not be able to obtainlicenses and technologies from these third parties on reasonable terms or atall. Third parties also may claim that we are infringing upon theirintellectual property rights. Even if we do not believe that our products orbusiness are infringing upon third parties’ intellectual property rights, theclaims can be time-consuming and costly to defend and divert management’sattention and resources away from our business. Claims of intellectual propertyinfringement also might require us to enter into costly settlement or licenseagreements. If we cannot or do not license the infringed technology at all oron reasonable terms or substitute similar technology from another source, oursales, operating margins and income could suffer.

 

**A competitor of the wirelessgeolocation business of our Allen subsidiary has sued Allen, alleginginfringement of that competitor’s patents.**OnDecember 11, 2001, a lawsuit was filed against Allen in the United StatesDistrict Court for the District of Delaware by a competitor,TruePosition, Inc., and its subsidiary, KSI, Inc. In their originalcomplaint, the plaintiffs alleged that Allen, through its Grayson Wirelessdivision, infringed three patents in connection with Allen’s GEOMETRIX wirelessgeolocation business. On July 16, 2002, the plaintiffs amended theircomplaint to include four additional patents in the lawsuit. In Allen’s answerto the original complaint, filed on January 18, 2002, and to the amendedcomplaint, filed on July 30, 2002, it has denied all of the plaintiffs’allegations and asserted a patent infringement counterclaim of one of Allen’spatents and asserted antitrust and business tort counterclaims based onplaintiffs’ bad faith initiation of the present litigation. Allen andplaintiffs have agreed to withdraw claims of infringement with respect to threeof plaintiffs’ seven patents in suit and Allen’s patent in suit. The lawsuitrelates to all of the geolocation products of our Allen subsidiary, whichproducts have accounted for approximately $221.7 million of Allen’s totalsales since their introduction and approximately $37.1 million since the acquisitionof Allen (July 16, 2003 to September 30, 2003).

 

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| 24  RESULTS OF OPERATIONS |   | ANDREW  CORPORATION 2003 |
|--------------------------------|--------|--------------------------|

 

Plaintiffsare seeking damages for lost profits, price erosion and royalties due toAllen’s alleged infringement and have requested that Allen treble such damagesas a result of alleged willful infringement. We believe that plaintiffs havesuffered no damages. Plaintiffs are also seeking to enjoin Allen’s allegedinfringement. A trial date of April 13, 2004 has been set. We believe thatAllen has meritorious defenses against the claims asserted by the plaintiffs,and we intend to vigorously defend the lawsuit. There can be no assurance,however, that we will ultimately prevail in this action. Whether we ultimatelywin or lose, litigation could be time-consuming and costly and injure ourreputation. If the plaintiffs prevail in this action, we may be required to paya substantial judgment and/or negotiate royalty or license agreements withrespect to the patents at issue, and may not be able to enter into suchagreements on acceptable terms. Any limitation on our ability to provide aservice or product could cause us to lose revenue-generating opportunities andrequire us to incur additional expenses, either of which could have a materialadverse effect on our business. We may also be required to indemnify ourcustomers for any expenses or liabilities resulting from the claimedinfringements. These potential costs and expenses, as well as the need to payany damages awarded in favor of the plaintiffs, which may be material inamount, could increase our selling, general and administrative expenses, reduceour income and adversely affect our liquidity.

 

**Continuing and future salesopportunities for our geolocation products and services are uncertain, and ifwe cannot develop such opportunities, our sales and income will be reduced.**TheFederal Communications Commission has promulgated regulations requiringwireless communications carriers to provide caller location information forwireless 911 calls. The systems by which this location information is suppliedare often described as “E 911 solutions.” Our Allen subsidiary has developednetwork-based geolocation products and services that enable carriers toeffectively implement network-based E 911 solutions. Changes in technology andregulations, or our inability to meet customers’ evolving requirements, couldaffect our ability to develop continuing and future sales opportunities forAllen’s network-based geolocation products and services. If we cannot developsales opportunities for Allen’s network-based geolocation products or servicesor meet customers’ requirements, the sales and income of the combined companywould be reduced.

 

**A substantial portion of oursales are outside the United States. Conducting business in internationalmarkets involves risks and uncertainties such as foreign exchange rate exposureand political and economic instability that could lead to reduced internationalsales and reduced profitability associated with such sales, which would reduceour sales and income.**A significant portion ofour sales are outside the United States, and in recent years we havesignificantly increased our international manufacturing capabilities. Weanticipate that international sales will continue to represent a substantialportion of our total sales and that continued growth and profitability willrequire further international expansion. Identifiable foreign exchange rateexposures result primarily from currency fluctuations, accounts receivable fromcustomer sales, the anticipated purchase of products from affiliates andthird-party suppliers and the repayment of intercompany loans denominated inforeign currencies with our foreign subsidiaries. International business risksalso include political and economic instability, tariffs and other tradebarriers, longer customer payment cycles, burdensome taxes, restrictions on therepatriation of earnings, expropriation or requirements of local or sharedownership, compliance with local laws and regulations, terrorist attacks,developing legal systems, reduced protection of intellectual property rights insome countries, cultural and language differences, and difficulties in managingand staffing operations. We believe that international risks and uncertaintiescould lead to reduced international sales and reduced profitability associatedwith such sales, which would reduce our sales and income.

 

Inaddition, we expect a significant portion of our sales will be in China. Whilewe were not materially adversely affected by the recent outbreak of SevereAcute Respiratory Syndrome (SARS) in China and we will, if necessary, be ableto ship product into China from other manufacturing facilities to meet demandin China, there can be no assurance that a new outbreak of SARS, with attendanttravel restrictions, adverse impact on the Chinese economy andtelecommunications business and other known and unknown potential consequences,would not materially reduce our sales.

 

**Charges to earnings resultingfrom the application of the purchase method of accounting with respect to ourmerger with Allen may reduce our income.**Inaccordance with United States generally accepted accounting principles, we areaccounting for our merger with Allen using the purchase method of accounting, whichresults in charges to earnings that could have a material adverse effect on themarket value of our common stock. Under the purchase method of accounting, weallocated the total estimated purchase price to Allen’s net tangible assets,amortizable intangible assets, and intangible assets with indefinite livesbased on their fair values as of the date of completion of the merger, andrecorded the excess of the purchase price over those fair values as goodwill.We will incur additional depreciation and amortization expense over the usefullives of certain of the net tangible and intangible assets acquired inconnection with the merger. In addition, to the extent the value of goodwill orintangible assets with indefinite lives becomes impaired, we will be requiredto incur charges, which may be material, relating to the impairment of thoseassets. These depreciation, amortization, and potential impairment charges willreduce our income.

 

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| ANDREW CORPORATION 2003 |   | RESULTS OF OPERATIONS  25 |
|-------------------------|--------|--------------------------------|

 

**The competitive pressures weface could lead to reduced demand or lower prices for our products and servicesin favor of our competitors’ products and services, which could harm our sales,gross margins and prospects.**Weencounter aggressive competition from numerous and varied competitors in allareas of our business, and compete primarily on the basis of technology,performance, price, quality, reliability, brand, distribution, customer serviceand support. If we fail to develop new products and services, periodicallyenhance our existing products and services, or otherwise compete successfully,it would reduce our sales and prospects. Further, we may have to continue tolower the prices of many of our products and services to stay competitive. Ifwe cannot reduce our costs in response to competitive price pressures, ourgross margins would decline.

 

**If we cannot continue torapidly develop, manufacture and market innovative products and services thatmeet customer requirements for performance and reliability, we may lose marketshare and our revenues may suffer.**Theprocess of developing new wireless technology products and services is complexand uncertain, and failure to anticipate customers’ changing needs and emergingtechnological trends accurately and to develop or obtain appropriateintellectual property could significantly harm our results of operations. Wemust make long-term investments and commit significant resources before knowingwhether our investments will eventually result in products that the market willaccept. After a product is developed, we must be able to manufacture sufficientvolumes quickly and at low costs. To accomplish this, we must accuratelyforecast volumes, mix of products and configurations that meet customerrequirements, which we may not be able to do successfully.

 

Amongthe factors that make a smooth transition from current products to new productsdifficult are delays in product development or manufacturing, variations inproduct costs, delays in customer purchases of existing products inanticipation of new product introductions and customer demand for the newproduct. Our revenues and gross margins may suffer if we cannot make such atransition effectively and also may suffer due to the timing of product orservice introductions by our suppliers and competitors. This is especiallychallenging when a product has a short life cycle or a competitor introduces anew product just before our own product introduction. Furthermore, sales of ournew products may replace sales of some of our current products, offsetting thebenefit of even a successful product introduction. There may also be overlapsin our current product portfolios resulting from our recent merger with Allenthat we will need to reconcile. If we incur delays in new product introductions,or do not accurately estimate the market effects of new product introductions,given the competitive nature of its industry, future demand for our productsand our revenues may be seriously harmed.

 

**The price of our outstandingsecurities may suffer if we cannot control fluctuations in our sales andoperating results.**Historically, ourquarterly and annual sales and operating results have fluctuated. We expectfluctuations to continue in the future. In addition to general economic andpolitical conditions, the following factors affect our sales: the timing ofsignificant customer orders, our inability to forecast future sales due to ourjust-in-time supply approach, changes in competitive pricing, wide variationsin profitability by product line, variations in operating expenses, the timingof announcements or introductions of new products by us, our competitors or ourrespective customers, the acceptance of those products, relative variations inmanufacturing efficiencies and costs, and the relative strength or weakness ofinternational markets. Since our quarterly and annual sales and operatingresults vary, we believe that period-to-period comparisons are not necessarilymeaningful, and you should not rely on those comparisons as indicators of ourfuture performance. Due to the foregoing factors, it is possible that in somefuture quarter or quarters our revenues or operating results will not meet theexpectations of the public stock market analysts or investors, which couldcause the price of our outstanding securities to decline.

 

**If we cannot continue toattract and retain highly qualified people our revenues, gross margin andincome may suffer.**We believe that ourfuture success significantly depends on our ability to attract, motivate andretain highly qualified management, technical and marketing personnel. Thecompetition for these individuals is intense. From time to time, there may be ashortage of skilled labor, which may make it more difficult and expensive forus to attract, motivate and retain qualified employees. We believe ourinability to do so could negatively impact the demand for our products andservices and consequently our financial condition and operating results.

 

**Our costs and businessprospects may be affected by increased government regulation, a factor which islargely beyond our control.**Weare not directly regulated in the U.S., but many of our U.S. customers and thetelecommunications industry generally are subject to Federal CommunicationsCommission regulation. In overseas markets, there are generally similargovernmental agencies that regulate our customers. We believe that regulatorychanges could have a significant negative effect on our business and operatingresults by restricting our customers’ development efforts, making currentproducts obsolete or increasing competition. Our customers must obtainregulatory approvals to operate certain of our products. Any failure or delayby any of our customers to obtain these approvals would adversely impact ourability to sell our products. The enactment by governments of new laws orregulations or a change in the interpretation of existing regulations couldadversely affect the market

 

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| 26  RESULTS OF OPERATIONS |   | ANDREW  CORPORATION 2003 |
|--------------------------------|--------|--------------------------|

 

forour products. The increasing demand for wireless communications has exertedpressure on regulatory bodies worldwide to adopt new standards for suchproducts, generally following extensive investigation and deliberation overcompeting technologies. In the past, the delays inherent in this governmentalapproval process have caused, and may in the future cause, the cancellation orpostponement of the deployment of new technologies. These delays could have amaterial adverse effect on our revenues, gross margins and income.

 

**Allegations of health risksfrom wireless equipment may negatively affect our results of operations.**Allegationsof health risks from the electromagnetic fields generated by base stations andmobile handsets, and the lawsuits and publicity relating to them, regardless ofmerit, could affect our operations negatively by leading consumers to reducetheir use of mobile phones or by causing us to allocate resources to theseissues.

 

**The price of our common stockhistorically has been volatile.**Themarket price of our common stock historically has experienced and may continueto experience high volatility, and the broader stock market has experiencedsignificant price and volume fluctuations in recent years. Some of the factorsthat can affect our stock price include the following: actual, or marketexpectations of, fluctuations in capital spending by wireless operators andoriginal equipment manufacturers on wireless infrastructure; the announcementof new products, services or technological innovations by us or our competitors;continued variability in our revenue or earnings; changes in quarterly revenueor earnings estimates for us made by the investment community; delays orpostponements of wireless infrastructure deployments, including 3G technology,regardless of whether such deployments have an actual impact on our orders orsales; and speculation in the press or investment community about our strategicposition, financial condition, results of operations, business or significanttransactions.

 

Generalmarket conditions and domestic or international macroeconomic and geopoliticalfactors unrelated to our performance may also affect the price of our commonstock. For these reasons, investors should not rely on historical trends topredict future stock prices or financial results. In addition, followingperiods of volatility in a company’s securities, securities class actionlitigation against a company is sometimes instituted. This type of litigationcould result in substantial costs and the diversion of management time andresources. We anticipate that we will continue to face these types of risks.

 

**Market Risks**

 

Thecompany is exposed to market risks from changes in interest rates, foreignexchange rates and commodities as follows:

 

**Interest Rate Risk**The company had $319.1 million in debt outstanding at September 30, 2003 in theform of lines of credit and debt agreements at both fixed and variable rates.The company is exposed to interest rate risk primarily through its variablerate debt, which totaled $5.3 million or 1.7% of the company’s total debt. A100 basis point increase in interest rates would not have a material effect onthe company’s financial position, results of operations or cash flows. Andrewcurrently does not use derivative instruments to manage its interest rate risk.

 

**Foreign Currency Risk**Thecompany’s international operations represent a substantial portion of itsoverall operating results and asset base. In many cases, the company’s productsare produced at manufacturing facilities in foreign countries to support salesin those markets. During fiscal year 2003, sales of products exported from theUnited States or manufactured abroad were 56% of total sales. The company’sidentifiable foreign exchange rate exposures result primarily from accountsreceivable from customer sales, anticipated purchases of product fromaffiliates and third-party suppliers and the repayment of intercompany loanswith foreign subsidiaries denominated in foreign currencies. The companyprimarily manages its foreign currency risk by making use of naturallyoffsetting positions that include the establishment of local manufacturingfacilities that conduct business in local currency. The company alsoselectively utilizes derivative instruments such as forward exchange contractsto manage the risk of exchange fluctuation. These instruments held by thecompany are not leveraged and are not held for trading or speculative purposes.

 

**Commodity Risk**The company uses various metals in the production of its products. Copper,which is used to manufacture coaxial cable, is the most significant of thesemetals. As a result, the company is exposed to fluctuations in the price ofcopper. In order to reduce this exposure, the company has entered intocontracts with various suppliers to purchase almost all of its forecastedcopper requirements for fiscal year 2004. At September 30, 2003 the company hadcontracts to purchase 38.2 million pounds of copper for $29.5 million.

 

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| ANDREW  CORPORATION 2003 |   | CONSOLIDATED STATEMENTS OF OPERATIONS  27 |
|--------------------------|--------|------------------------------------------------|

** **
|                                                                                                   |   | **YEAR ENDED  SEPTEMBER 30** |          |
|--------------------------------------------------------------------------------------------------------|--------|------------------------------|---------------|
| **DOLLARS IN  THOUSANDS, EXCEPT PER SHARE AMOUNTS**                                                    |   | **2003**                     |          | **2002** |   | **2001** |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Sales**                                                                                              |   | **$**                        | **1,014,486** | ** ** | $ | 864,801 |   | $ | 935,276 |   |
| Cost of products sold                                                                                  |   | **739,341**                  | ** **    | 627,093 |   | 625,367 |   |
| **Gross Profit**                                                                                       |   | **275,145**                  | ** **    | 237,708 |   | 309,909 |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Operating Expenses**                                                                                 |   |                         | ** **    |   |   |   |   |
| Research and  development                                                                              |   | **84,151**                   | ** **    | 57,977 |   | 39,934 |   |
| Sales and  administrative                                                                              |   | **148,867**                  | ** **    | 140,307 |   | 161,223 |   |
| Intangible  amortization                                                                               |   | **19,222**                   | ** **    | 5,121 |   | 150 |   |
| Restructuring                                                                                          |   | **9,222**                    | ** **    | 24,908 |   | — |   |
|                                                                                                   |   | **261,462**                  |          | 228,313 |   | 201,307 |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Operating Income**                                                                                   |   | **13,683**                   | ** **    | 9,395 |   | 108,602 |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Other**                                                                                              |   |                         | ** **    |   |   |   |   |
| Interest expense                                                                                       |   | **5,675**                    | ** **    | 5,079 |   | 7,413 |   |
| Interest income                                                                                        |   | **(1,649**                   | **)**         | (3,617 | ) | (2,645 | ) |
| Other (income)  expense, net                                                                           |   | **(1,453**                   | **)**         | 3,576 |   | 2,442 |   |
| Gain on the sale of assets and  investments                                                            |   | **(12,216**                  | **)**         | (8,713 | ) | — |   |
|                                                                                                   |   | **(9,643**                   | **)**         | (3,675 | ) | 7,210 |   |
| **Income from Continuing Operations Before Income Taxes**                                              |   | **23,326**                   | ** **    | 13,070 |   | 101,392 |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| Income taxes                                                                                           |   | **4,622**                    | ** **    | 2,578 |   | 32,444 |   |
| **Income from Continuing Operations**                                                                  |   | **18,704**                   | ** **    | 10,492 |   | 68,948 |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Discontinued Operations**                                                                            |   |                         | ** **    |   |   |   |   |
| Loss from operations  of discontinued operations, net of tax benefit                                   |   | **3,184**                    | ** **    | 10,484 |   | 7,326 |   |
| Loss on disposal of discontinued  operations, net of tax benefit                                       |   | **—**                   | ** **    | 26,387 |   | — |   |
|                                                                                                   |   | **3,184**                    |          | 36,871 | ** ** | 7,326 |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Net Income (Loss)**                                                                                  |   | **15,520**                   | ** **    | (26,379 | ) | 61,622 |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Preferred  Stock Dividends**                                                                         |   | **6,459**                    | ** **    | — |   | — |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Net  Income (Loss) Available to Common Shareholders**                                                |   | **$**                        | **9,061**     | ** ** | $ | (26,379 | ) | $ | 61,622 |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Basic and Diluted Income from Continuing Operations per  Average Share of Common Stock Outstanding** |   | **$**                        | **0.11**      | ** ** | $ | 0.12 |   | $ | 0.85 |   |
| **Basic  and Diluted Net Income (Loss) per Average Share of Common Stock Outstanding**                 |   | **$**                        | **0.08**      | ** ** | $ | (0.30 | ) | $ | 0.76 |   |
|                                                                                                   |   |                         | ** **    |   |   |   |   |
| **Average Basic Shares Outstanding**                                                                   |   | **109,822**                  | ** **    | 87,197 |   | 81,382 |   |
| **Average  Diluted Shares Outstanding**                                                                |   | **109,866**                  | ** **    | 87,295 |   | 81,542 |   |

 

See Notes toConsolidated Financial Statements.

 

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| 28   CONSOLIDATED BALANCE SHEETS |   | ANDREW CORPORATION 2003 |
|---------------------------------------|--------|-------------------------|

 
|                                                              |   | **SEPTEMBER 30** |          |
|-------------------------------------------------------------------|--------|------------------|---------------|
| **DOLLARS IN  THOUSANDS**                                         |   | **2003**         |          | **2002** |   |
|                                                              |   |             | ** **    |   |   |
| **Assets**                                                        |   |             | ** **    |   |   |
|                                                              |   |             | ** **    |   |   |
| **Current Assets**                                                |   |             | ** **    |   |   |
| Cash and cash  equivalents                                        |   | **$**            | **286,269**   | ** ** | $ | 84,871 |   |
| Accounts receivable,  less allowances (2003-$10,662; 2002-$6,516) |   | **326,282**      | ** **    | 215,406 |   |
| Inventories                                                       |   | **247,750**      | ** **    | 133,993 |   |
| Other current assets                                              |   | **29,131**       | ** **    | 42,913 |   |
| **Total Current Assets**                                          |   | **889,432**      | ** **    | 477,183 |   |
|                                                              |   |             | ** **    |   |   |
| **Other Assets**                                                  |   |             | ** **    |   |   |
| Goodwill                                                          |   | **821,398**      | ** **    | 396,295 |   |
| Intangible assets,  less amortization                             |   | **93,086**       | ** **    | 47,344 |   |
| Other assets                                                      |   | **50,398**       | ** **    | 3,809 |   |
|                                                              |   |             | ** **    |   |   |
| **Property, Plant and Equipment**                                 |   |             | ** **    |   |   |
| Land and land  improvements                                       |   | **20,926**       | ** **    | 17,890 |   |
| Buildings                                                         |   | **116,038**      | ** **    | 98,714 |   |
| Equipment                                                         |   | **469,296**      | ** **    | 448,036 |   |
| Allowance for depreciation                                        |   | **(387,341**     | **)**         | (365,605 | ) |
|                                                              |   | **218,919**      |          | 199,035 |   |
| **Total Assets**                                                  |   | **$**            | **2,073,233** | ** ** | $ | 1,123,666 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

----

 
| ANDREW  CORPORATION 2003 |   | CONSOLIDATED BALANCE  SHEETS  29 |
|--------------------------|--------|---------------------------------------|

 
|                                                                                                                                                                 |   | **SEPTEMBER 30** |          |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------|---------------|
| **DOLLARS IN  THOUSANDS**                                                                                                                                            |   | **2003**         |          | **2002** |   |
|                                                                                                                                                                 |   |             |          |   |   |
| **Liabilities and Stockholders’  Equity**                                                                                                                       |   |             |          |   |   |
|                                                                                                                                                                 |   |             |          |   |   |
| **Current Liabilities**                                                                                                                                              |   |             |          |   |   |
| Notes payable                                                                                                                                                        |   | **$**            | **284**       | ** ** | $ | 66,184 |   |
| Accounts payable                                                                                                                                                     |   | **124,646**      | ** **    | 69,835 |   |
| Accrued expenses and  other liabilities                                                                                                                              |   | **58,893**       | ** **    | 49,538 |   |
| Compensation and  related expenses                                                                                                                                   |   | **52,255**       | ** **    | 28,434 |   |
| Restructuring                                                                                                                                                        |   | **20,414**       | ** **    | 15,329 |   |
| Current portion of long-term debt                                                                                                                                    |   | **17,466**       | ** **    | 7,250 |   |
| **Total Current Liabilities**                                                                                                                                        |   | **273,958**      | ** **    | 236,570 |   |
|                                                                                                                                                                 |   |             | ** **    |   |   |
| **Deferred Liabilities**                                                                                                                                             |   | **73,941**       | ** **    | 28,461 |   |
|                                                                                                                                                                 |   |             | ** **    |   |   |
| **Long-Term Debt,**  less current portion                                                                                                                            |   | **301,364**      | ** **    | 13,391 |   |
|                                                                                                                                                                 |   |             | ** **    |   |   |
| **Stockholders’ Equity**                                                                                                                                        |   |             | ** **    |   |   |
| Redeemable convertible  preferred stock (par value, $50 a share: 183,720 shares outstanding)                                                                         |   | **9,186**        | ** **    | — |   |
| Common stock (par  value, $.01 a share: 400,000,000 shares authorized; 160,900,657 shares issued  in 2003 and 102,718,210 shares issued in 2002, including treasury) |   | **1,609**        | ** **    | 1,027 |   |
| Additional paid-in capital                                                                                                                                           |   | **649,667**      | ** **    | 145,764 |   |
| Accumulated other  comprehensive loss                                                                                                                                |   | **(14,115**      | **)**         | (46,089 | ) |
| Retained earnings                                                                                                                                                    |   | **805,435**      | ** **    | 796,374 |   |
| Treasury stock, at cost (2,608,290  shares in 2003; 4,500,493 shares in 2002)                                                                                        |   | **(27,812**      | **)**         | (51,832 | ) |
| **Total  Stockholders’ Equity**                                                                                                                                 |   | **1,423,970**    | ** **    | 845,244 |   |
| **Total Liabilities and Stockholders’ Equity**                                                                                                                  |   | **$**            | **2,073,233** | ** ** | $ | 1,123,666 |   |

 

See Notes toConsolidated Financial Statements.

 

----

 
| 30   CONSOLIDATED STATEMENTS OF CASH FLOWS |   | ANDREW CORPORATION 2003 |
|-------------------------------------------------|--------|-------------------------|

 
|                                                           |   | **YEAR ENDED SEPTEMBER 30** |        |
|----------------------------------------------------------------|--------|-----------------------------|-------------|
| **DOLLARS IN  THOUSANDS**                                      |   | **2003**                    |        | **2002** |   | **2001** |   |
|                                                           |   |                        |        |   |   |   |   |
| **Cash Flows from Operations**                                 |   |                        |        |   |   |   |   |
| Net  Income (Loss)                                             |   | **$**                       | **15,520**  | ** ** | $ | (26,379 | ) | $ | 61,622 |   |
|                                                           |   |                        | ** **  |   |   |   |   |
| **Adjustments to Net Income (Loss)**                           |   |                        | ** **  |   |   |   |   |
| Depreciation                                                   |   | **55,182**                  | ** **  | 51,195 |   | 46,401 |   |
| Amortization                                                   |   | **19,222**                  | ** **  | 5,121 |   | 4,523 |   |
| Gain  on the sale of assets and investments                    |   | **(12,216**                 | **)**       | (8,713 | ) | — |   |
| Other                                                          |   | **56**                      | ** **  | (339 | ) | (2,240 | ) |
|                                                           |   |                        | ** **  |   |   |   |   |
| **Restructuring and  Discontinued Operations**                 |   |                        | ** **  |   |   |   |   |
| Restructuring  costs                                           |   | **(5,782**                  | **)**       | 35,400 |   | — |   |
| Discontinued  operations costs, net of taxes                   |   | **(1,483**                  | **)**       | 25,903 |   | — |   |
| Operating  cash flow from discontinued operations              |   | **5,961**                   | ** **  | 22,221 |   | 15,330 |   |
|                                                           |   |                        | ** **  |   |   |   |   |
| **Change in Operating  Assets/Liabilities**                    |   |                        | ** **  |   |   |   |   |
| Decrease  in accounts receivable                               |   | **10,736**                  | ** **  | 59,011 |   | 3,603 |   |
| Decrease  in inventories                                       |   | **783**                     | ** **  | 6,665 |   | 4,134 |   |
| (Increase)  decrease in other assets                           |   | **(19,200**                 | **)**       | (10,724 | ) | 5,049 |   |
| (Decrease) increase in accounts payable  and other liabilities |   | **(6,413**                  | **)**       | (4,240 | ) | 21,730 |   |
| **Net Cash From Operations**                                   |   | **62,366**                  | ** **  | 155,121 |   | 160,152 |   |
|                                                           |   |                        | ** **  |   |   |   |   |
| **Investing Activities**                                       |   |                        | ** **  |   |   |   |   |
| Capital  expenditures                                          |   | **(31,859**                 | **)**       | (40,561 | ) | (72,065 | ) |
| Acquisition  of businesses                                     |   | **(47,664**                 | **)**       | (239,757 | ) | (21,380 | ) |
| Cash  acquired in acquisitions                                 |   | **95,750**                  | ** **  | 58,705 |   | — |   |
| Proceeds  from sale of businesses and investments              |   | **7,286**                   | ** **  | 50,301 |   | — |   |
| Investments  in and advances to affiliates, net                |   | **—**                  | ** **  | 58 |   | 13,651 |   |
| Proceeds from sale of property, plant  and equipment           |   | **15,870**                  | ** **  | 1,016 |   | 724 |   |
| **Net Cash From (Used for) Investing Activities**              |   | **39,383**                  | ** **  | (170,238 | ) | (79,070 | ) |
|                                                           |   |                        | ** **  |   |   |   |   |
| **Financing Activities**                                       |   |                        | ** **  |   |   |   |   |
| Long-term  debt payments                                       |   | **(23,969**                 | **)**       | (44,658 | ) | (14,516 | ) |
| Long-term  debt borrowings                                     |   | **233,308**                 | ** **  | — |   | 289 |   |
| Notes  payable (payments) borrowings, net                      |   | **(65,911**                 | **)**       | 23,927 |   | (3,945 | ) |
| Preferred  stock dividends                                     |   | **(6,459**                  | **)**       | — |   | — |   |
| Payments  to acquire treasury stock                            |   | **(49,600**                 | **)**       | — |   | — |   |
| Stock purchase and option plans                                |   | **2,265**                   | ** **  | 2,840 |   | 2,053 |   |
| **Net Cash From (Used for) Financing Activities**              |   | **89,634**                  | ** **  | (17,891 | ) | (16,119 | ) |
|                                                           |   |                        | ** **  |   |   |   |   |
| Effect of exchange rate changes on cash                        |   | **10,015**                  | ** **  | 5,502 |   | 2,549 |   |
| **Increase (Decrease) for the Year**                           |   | **201,398**                 | ** **  | (27,506 | ) | 67,512 |   |
|                                                           |   |                        | ** **  |   |   |   |   |
| Cash and equivalents at beginning of  year                     |   | **84,871**                  | ** **  | 112,377 |   | 44,865 |   |
| **Cash  and Equivalents at End of Year**                       |   | **$**                       | **286,269** | ** ** | $ | 84,871 |   | $ | 112,377 |   |

 

See Notes toConsolidated Financial Statements.

 

----

 
| ANDREW CORPORATION 2003 | CONSOLIDATED STATEMENTS  OF STOCKHOLDERS’ EQUITY  31 |
|-------------------------|----------------------------------------------------------------|

 
| **DOLLARS IN  THOUSANDS**                       |   | **REDEEMABLE  CONVERTIBLE  PREFERRED  STOCK** |       | **COMMON  STOCK** |       | **ADDITIONAL  PAID-IN  CAPITAL** |       | **ACCUMULATED  OTHER  COMPREHENSIVE  LOSS** |        | **RETAINED  EARNINGS** |       | **TREASURY  STOCK** |       | **TOTAL**   |        |
|-------------------------------------------------|--------|-----------------------------------------------|------------|-------------------|------------|----------------------------------|------------|---------------------------------------------|-------------|------------------------|------------|---------------------|------------|-------------|-------------|
|                                            |   |                                          | ** ** |              | ** ** |                             | ** ** |                                        | ** **  |                   | ** ** |                | ** ** |        | ** **  |
| **Balance at September 30, 2000**               |   | $                                             | —     |              | $          | 1,027                            |       | $                                           | 64,136      |                   | $          | (35,801             | )          | $           | 761,131     |   | $ | (247,548 | ) | $ | 542,945 |   |
|                                            |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       |        |        |
| Stock purchase and option plans                 |   |                                          |       |              |       | 1,734                            |       |                                        |        |                   |       | 3,321               |       | 5,055       |        |
|                                            |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       |        |        |
| Foreign currency translation adjustments        |   |                                          |       |              |       |                             |       | (8,972                                      | )           |                   |       |                |       | (8,972      | )           |
| Net  Income                                     |   |                                          |       |              |       |                             |       |                                        |        | 61,622                 |       |                |       | 61,622      |        |
| **Comprehensive Income**                        |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       | **52,650**  |        |
|                                            |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       |        |        |
| **Balance at  September 30, 2001**              |   | $                                             | —     |              | $          | 1,027                            |       | $                                           | 65,870      |                   | $          | (44,773             | )          | $           | 822,753     |   | $ | (244,227 | ) | $ | 600,650 |   |
|                                            |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       |        |        |
| Stock purchase and option plans                 |   |                                          |       |              |       | 1,007                            |       |                                        |        |                   |       | 4,701               |       | 5,708       |        |
| Shares issued-Celiant purchase                  |   |                                          |       |              |       | 78,887                           |       |                                        |        |                   |       | 187,694             |       | 266,581     |        |
|                                            |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       |        |        |
| Minimum pension liability                       |   |                                          |       |              |       |                             |       | (5,470                                      | )           |                   |       |                |       | (5,470      | )           |
| Foreign currency translation adjustments        |   |                                          |       |              |       |                             |       | 4,154                                       |        |                   |       |                |       | 4,154       |        |
| Net  Loss                                       |   |                                          |       |              |       |                             |       |                                        |        | (26,379                | )          |                |       | (26,379     | )           |
| **Comprehensive Loss**                          |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       | **(27,695** | **)**       |
|                                            |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       |        |        |
| **Balance at  September 30, 2002**              |   | $                                             | —     |              | $          | 1,027                            |       | $                                           | 145,764     |                   | $          | (46,089             | )          | $           | 796,374     |   | $ | (51,832 | ) | $ | 845,244 |   |
|                                            |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       |        |        |
| Repurchase of shares                            |   |                                          |       |              |       |                             |       |                                        |        |                   |       | (49,600             | )          | (49,600     | )           |
| Stock purchase and option plans                 |   |                                          |       |              |       | (729                             | )          |                                        |        |                   |       | 5,728               |       | 4,999       |        |
| Shares issued-Allen purchase                    |   |                                          |       | 552               |       | 451,711                          |       |                                        |        |                   |       |                |       | 452,263     |        |
| Preferred stock                                 |   | 49,554                                        |       |              |       | 80,475                           |       |                                        |        |                   |       |                |       | 130,029     |        |
| Preferred stock conversion                      |   | (40,368                                       | )          | 30                |       | (27,554                          | )          |                                        |        |                   |       | 67,892              |       | —      |        |
|                                            |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       |        |        |
| Decrease in minimum pension liability           |   |                                          |       |              |       |                             |       | 2,387                                       |        |                   |       |                |       | 2,387       |        |
| Derivatives-foreign currency forward  contracts |   |                                          |       |              |       |                             |       | (418                                        | )           |                   |       |                |       | (418        | )           |
| Foreign currency translation adjustments        |   |                                          |       |              |       |                             |       | 30,005                                      |        |                   |       |                |       | 30,005      |        |
| Net Income                                      |   |                                          |       |              |       |                             |       |                                        |        | 15,520                 |       |                |       | 15,520      |        |
| Preferred stock dividends                       |   |                                          |       |              |       |                             |       |                                        |        | (6,459                 | )          |                |       | (6,459      | )           |
| **Comprehensive Income**                        |   |                                          |       |              |       |                             |       |                                        |        |                   |       |                |       | **41,035**  |        |
| **Balance at September 30, 2003**               |   | **$**                                         | **9,186**  | ** **        | **$**      | **1,609**                        | ** ** | **$**                                       | **649,667** | ** **             | **$**      | **(14,115**         | **)**      | **$**       | **805,435** | ** ** | **$** | **(27,812** | **)** | **$** | **1,423,970** |   |

 

See Notes to Consolidated Financial Statements.

 

----

 
| 32  NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW  CORPORATION 2003 |
|------------------------------------------------------|--------|--------------------------|

 

**1. Summaryof Significant Accounting Policies**

 

**PRINCIPLES OF CONSOLIDATION** The consolidated financial statementsinclude the accounts of the company and its majority-owned subsidiaries inwhich the company exercises control. All intercompany accounts and transactionshave been eliminated.

 

**CASH EQUIVALENTS** The company considers all highly liquid investments purchasedwith maturities of three months or less to be cash equivalents. The carryingamount of cash equivalents approximates fair value due to the relativeshort-term maturity of these investments.

 

**INVENTORIES** Inventories are stated at the lower of cost or market. Most ofthe company’s inventories are valued on the first-in, first-out (FIFO) method.Inventories stated under the last-in, first-out (LIFO) method represent 25% oftotal inventories in 2003 and 49% of total inventories in 2002. If the FIFOmethod, which approximates current replacement cost, had been used for theseLIFO inventories, the total amount of these inventories would have remainedunchanged. Inventories consisted of the following at September 30, 2003 and2002, net of reserves:

 
| **DOLLARS IN  THOUSANDS** |   | **2003**   |        | **2002** |   |
|---------------------------|--------|------------|-------------|----------|--------|
|                      |   |       |        |     |   |
| Raw  materials            |   | **$**      | **112,130** |     | $      | 27,553 |   |
| Work  in process          |   | **44,513** |        | 44,477   |   |
| Finished goods            |   | **91,107** |        | 61,963   |   |
|                      |   | **$**      | **247,750** |     | $      | 133,993 |   |

 

**PROPERTY, PLANT AND EQUIPMENT** Property, plant and equipment isrecorded at cost.  Approximately half ofthe company’s assets are depreciated using the straight-line method, and approximatelyhalf are depreciated using accelerated methods for both financial reporting andtax purposes. Both of these methods are based on estimated useful lives ofthese assets. Buildings are depreciated over ten to thirty years and equipmentis depreciated over three to eight years. Depreciation of leaseholdimprovements is based on the term of the related lease or the estimated usefullife, whichever is shorter. Maintenance, repairs, and minor renewals andbetterments are charged to expense. Depreciation expense was $55.2 million,$51.2 million, and $46.4 million for 2003, 2002, and 2001, respectively.

 

**REVENUE RECOGNITION** Revenue is principally recognized from the sale of products andservices when a product is shipped or a service is performed. The company hastwo major product groups, Network Solutions and Wireless Innovations, for whicha substantial portion of the revenue is recognized based on contractual terms.Network Solutions and Wireless Innovations sales were $43.8 million and $41.6million in 2003, respectively (see Note 14).

 

With the acquisition ofAllen Telecom, the company acquired a new product group, Network Solutions. Themajority of the revenue in this product group is from the company’s geolocationproduct line, where revenue is principally recognized pursuant to EmergingIssues Task Force Issue 00-21, *Accountingfor Multiple Element Revenue Arrangements*. These multiple elementarrangement contracts include 1) territory design, 2) delivery of hardware andsoftware and 3) testing and acceptance. These elements represent separateearnings processes and revenue is allocated among them based on the fair valueof each element. The fair value of these elements is based on negotiatedcontracts and stand-alone pricing of these components. Revenue is recognized onthe completion of each element, since each element is distinct and functionallyindependent.

 

The company hassignificantly expanded its Wireless Innovations product offering with theacquisition of Allen Telecom. A large portion of the revenue recognized in thisproduct category is for complete system sales. Revenue on these system sales isrecognized based on contractual terms such as customer acceptance.

 

**SHIPPING AND HANDLING CHARGES** Shipping and handling costs billed tocustomers are recorded as revenue and the related expenses are recorded in costof products sold.

 

**IDENTIFIABLE INTANGIBLE ASSETS** The company reports identifiableintangible assets net of accumulated amortization. Accumulated amortization onintangible assets was $26.4 million and $6.7 million at September 30, 2003 and2002, respectively. The company amortizes intangible assets, excluding goodwilland trademarks, over their estimated useful lives, which range from one to tenyears. Intangible assets consisted of the following:

 
|                                                                                                          |   | **SEPTEMBER  30** |       |
|---------------------------------------------------------------------------------------------------------------|--------|-------------------|------------|
| **DOLLARS IN THOUSANDS**                                                                                      |   | **2003**          |       | **2002** |   |
|                                                                                                          |   |              |       |   |   |
| Customer  contracts and relationships, net of accumulated amortization of $12,513 in  2003 and $2,335 in 2002 |   | **$**             | **34,292** |   | $ | 14,252 |   |
| Patents and  technology, net of accumulated amortization of $13,097 in 2003 and $3,715 in  2002               |   | **50,022**        |       | 33,047 |   |
| Trademarks-indefinite  life                                                                                   |   | **5,600**         |       | — |   |
| Other, net of  accumulated amortization of $786 in 2003 and $680 in 2002                                      |   | **3,172**         |       | 45 |   |
|                                                                                                          |   | **$**             | **93,086** |   | $ | 47,344 |   |

 

The company’s scheduledamortization expense over the next five years is as follows:

 
| **DOLLARS IN  MILLIONS** |   | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **2008** |   |
|--------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                     |   | $        | 36.8   |     | $      | 19.0     |   | $        | 14.6   |     | $      | 10.3 |   | $ | 1.0 |   |
|                          |        |          |        |          |        |          |        |          |        |          |        |  |  |  |  |  |

 

----

 
| ANDREW CORPORATION 2003 |   | NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS  33 |
|-------------------------|--------|------------------------------------------------------|

 

**GOODWILL**The company adopted the Financial AccountingStandards Board (FASB), Statement of Financial Accounting Standards (SFAS) No.142, *Goodwill and Other Intangible Assets*,during fiscal year 2002. Under the provisions of SFAS No. 142, the companytests goodwill for impairment on an annual basis. The company has elected toperform its annual impairment review on the first day of its fiscal fourthquarter. The impairment review performed for fiscal year 2003 indicated noimpairment of goodwill, but due to uncertain market conditions, it is possiblethat future impairment reviews may indicate impairment of the fair value ofgoodwill, which could result in non-cash charges, adversely affecting thecompany’s results of operations.

 

**FOREIGN CURRENCY TRANSLATION** The functional currency for thecompany’s foreign operations is predominantly the applicable local currency.Accounts of foreign operations are translated into U.S. dollars using year-endexchange rates for assets and liabilities and average monthly exchange ratesfor revenue and expense accounts. Adjustments resulting from translation areincluded in accumulated other comprehensive loss, a separate component ofstockholders’ equity. Gains and losses resulting from foreign currencytransactions are included in determining net income. Net gains and (losses)resulting from foreign currency transactions that are included in other income(expense), net were $2.2 million, ($2.1) million and ($3.3) million for 2003,2002 and 2001, respectively.

 

**HEDGING AND DERIVATIVE INSTRUMENTS** The company is exposed to changes inforeign exchange rates as a result of its foreign operations. The companyprimarily manages its foreign currencyrisk by making use of naturally offsetting positions. These natural hedgesinclude the establishment of local manufacturing facilities that conductbusiness in local currency. The company also selectively utilizes derivativeinstruments such as forward exchange contracts to manage the risk of exchangefluctuations. These instruments held by the company are not leveraged and arenot held for trading or speculative purposes.

 

In fiscal year 2003 thecompany used forward exchange contracts, designated as cash flow hedges tomanage its foreign currency exposure on intercompany loans between itssubsidiaries. The unrealized losses on these forward contracts was $0.4 millionand recorded to accumulated other comprehensive loss and a loss of $0.1 millionwas recorded in other expense for hedge ineffectiveness. The company designatedadditional forward contracts as a net investment hedge of its Australiansubsidiary. The unrealized losses on these forward contracts was $0.8 millionand recorded to accumulated other comprehensive loss and a loss of $0.07million was recorded in other expense for hedge ineffectiveness. The fair valueof all these contracts was a liability of $1.0 million and recorded in othercurrent liabilities. Hedge ineffectiveness is assessed based on the movement offorward contracts rates compared to the movement of current exchange rates.

 

**ACCUMULATED OTHER COMPREHENSIVE LOSS** The cumulative balances included inother comprehensive loss are as follows:

 
|                                   |   | **YEAR ENDED  SEPTEMBER 30, 2003** |       |
|----------------------------------------|--------|------------------------------------|------------|
| **DOLLARS IN THOUSANDS**               |   | **FOREIGN  CURRENCY  TRANSLATION** | ** ** | **MINIMUM  PENSION LIABILITY,  NET OF TAX** | ** ** | **CASH FLOW  HEDGES** | ** ** | **ACCUMULATED  OTHER  COMPREHENSIVE  INCOME (LOSS)** |   |
|                                   |   |                               | ** ** |   | ** ** |   | ** ** |   | ** ** |
| **September 30, 2001**                 |   | $                                  | (44,773    | ) | $ | — |   | $ | — |   | $ | (44,773 | ) |
| Foreign currency  translation          |   | 4,154                              |       | — |   | — |   | 4,154 |   |
| Minimum pension  liability             |   | —                             |       | (5,470 | ) | — |   | (5,470 | ) |
| **September  30, 2002**                |   | (40,619                            | )          | (5,470 | ) | — |   | (46,089 | ) |
| Foreign currency  translation          |   | 30,005                             |       | — |   | — |   | 30,005 |   |
| Decrease in  minimum pension liability |   | —                             |       | 2,387 |   | — |   | 2,387 |   |
| Cash flow hedges                       |   | —                             |       | — |   | (418 | ) | (418 | ) |
| **September  30, 2003**                |   | $                                  | (10,614    | ) | $ | (3,083 | ) | $ | (418 | ) | $ | (14,115 | ) |

 

----

 
| 34  NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW  CORPORATION 2003 |
|------------------------------------------------------|--------|--------------------------|

 

**INCOME TAXES** Deferred income taxes reflect the impact of temporarydifferences between the amounts of assets and liabilities recognized forfinancial reporting purposes and such amounts recognized for tax purposes.

 

**STOCK-BASED COMPENSATION** The company accounts for stock-basedcompensation awards pursuant to Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees*,and its related interpretations which prescribe the use of the intrinsicvalue-based method. Accordingly, no compensation cost is recognized for stockoptions since the exercise price of these stock options equals the market priceof the underlying stock on the date of the grant.

 

Pro forma informationregarding income and earnings per share as required by SFAS No. 148 has beendetermined as if the company had accounted for its stock option plans under thefair value method. The fair value of these options was estimated at the date ofgrant using a Black-Scholes option pricing model with the following weightedaverage assumptions for 2003, 2002 and 2001, respectively: risk-free interestrate of 3.98%, 4.09% and 4.62%; dividend yield of 0%; a volatility factor of..577, .538, and .523, and a weighted average expected life of the options ofsix years.

 

The following table showsthe company’s pro forma net income and earnings per share as if the company hadrecorded the fair value of stock options as compensation expense.

 
|                                                          |   | **YEAR ENDED  SEPTEMBER 30** |       |
|---------------------------------------------------------------|--------|------------------------------|------------|
| **DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS**            |   | **2003**                     |       | **2002** |   | **2001** |   |
|                                                          |   |                         |       |   |   |   |   |
| Reported income  (loss) available to common shareholders      |   | **$**                        | **9,061**  | ** ** | $ | (26,379 | ) | $ | 61,622 |   |
| Less:  Stock-based compensation, net of tax                   |   | **(7,224**                   | **)**      | (6,924 | ) | (6,053 | ) |
| Pro forma net  income (loss) available to common shareholders |   | **1,837**                    | ** ** | (33,303 | ) | 55,569 |   |
| Reported basic  and diluted net income (loss) per share       |   | **$**                        | **0.08**   | ** ** | $ | (0.30 | ) | $ | 0.76 |   |
| Pro forma basic  and diluted net income (loss) per share      |   | **$**                        | **0.02**   | ** ** | $ | (0.38 | ) | $ | 0.68 |   |

 

For additionalinformation regarding stock-based compensation, see Note 13.

 

**USE OF ESTIMATES** The preparation of financial statements in conformity withaccounting principles generally accepted in the United States requiresmanagement to make estimates and assumptions that affect the amounts reportedin the financial statements and accompanying notes. Actual results could differfrom those estimates.

 

**RECLASSIFICATIONS** Certain previously reported amounts have been reclassified toconform to the current period presentation.

 

**RECENTLY ISSUED 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 will be effective for exit or disposalactivities initiated after December 31, 2002. The company’s currentrestructuring plan, initiated in September 2002, is being accounted for underthe previously existing accounting principles for restructuring, primarilyEmerging Issues Task Force Issue 94-3, *Liability**Recognition for Certain Employee TerminationBenefits and Other Costs to Exit an Activity*. The company accruedpre-tax charges of $36.0 million when the company’s management approved thecurrent restructuring plan. If the company had accounted for this restructuringplan under SFAS No. 146, certain costs such as employee termination benefits of$11.8 million and lease and contract cancellation costs of $2.5 millionincluded in this $36.0 million would have been recognized over therestructuring period as incurred and not accrued in fiscal year 2002.

 

In April 2003, the FASBissued SFAS No. 149, *Amendment of Statement133 on Derivative Instruments and Hedging Activities*. This statementamends and clarifies financial accounting and reporting for derivativeinstruments, including certain derivative instruments embedded in othercontracts. SFAS No. 149 is effective for contracts entered into or modifiedafter June 30, 2003. The company does not expect that the adoption of thisstatement will have a material effect on the company’s financial statements.

 

**ADOPTION OF NEW ACCOUNTING POLICIES** At the beginning of fiscal year 2003,the company adopted SFAS No. 143, *Accountingand Reporting for Obligations Associated with the Retirement of TangibleLong-Lived Assets and the Associated Asset Retirement Costs* and SFASNo. 145, *Rescission of FASB Statements No.4, 44, and 64, Amendment of Statement 13, and Technical Corrections*.SFAS No. 143 addresses financial accounting and reporting for obligationsassociated with the retirement of tangible long-lived assets and associatedasset retirement costs. SFAS No. 145 modifies reporting of extinguishment ofdebt and amends accounting for leases. The adoption of these statements did notimpact the company’s results of operations.

 

Starting in the secondquarter of 2003, the company adopted the disclosure requirements of SFAS No.148, *Accounting for Stock-Based Compensation*.See disclosure above on stock-based compensation for the disclosures requiredby SFAS No. 148.

 

In January 2003, the FASBissued Interpretation No. 46,*Consolidationof Variable Interest Entities, an Interpretation of Accounting ResearchBulletin (ARB) No. 51 (FIN 46)*, which requires variable interestentities (commonly referred to as SPEs) to be consolidated by the primarybeneficiary of the entity if certain criteria are met. FIN 46 is effectiveimmediately for all new variable interest entities created or acquired afterJanuary 31, 2003. For variable interest entities created or acquired prior toFebruary 1, 2003, the provisions of FIN 46 became effective for the companyduring the third quarter of 2003. The company has no variable interestentities.

 

----

 
| ANDREW CORPORATION 2003 |   | NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS  35 |
|-------------------------|--------|------------------------------------------------------|

 

Starting in fiscal year2002, the company adopted SFAS No. 141, *BusinessCombinations,*and No. 142, *Goodwilland Other Intangible Assets*. Under the new statements, goodwill isno longer amortized but is subject to annual impairment tests. Other intangibleassets continue to be amortized over their useful lives. Goodwill amortizationincluded in sales and administrative expense in fiscal year 2001 was $4,373,000and an additional $211,000 of goodwill amortization was included in loss fromdiscontinued operations. If this goodwill amortization expense had beenexcluded from reported earnings per share it would increase both basic anddiluted earnings per share by $.05 for income from continuing operations andnet income for fiscal year 2001.

 

The company adopted SFASNo. 144, *Accounting and Reporting for theImpairment or Disposal of Long-Lived Assets*, in fiscal year 2002.SFAS No. 144 expands the use of discontinued operations from a reportingsegment of an entity to the lower level of a component of an entity as definedby SFAS No. 144. The company’s closing of its equipment shelter, wirelessaccessories and satellite modem businesses was accounted for as discontinuedoperations under the provisions of SFAS No. 144 (see Note 9). All periodspresented have been restated to exclude the operating results of thesebusinesses from continuing operations. The results of operations of thesebusinesses have been reported net of income taxes as discontinued operations.

 

In May 2003, the FASBissued SFAS No. 150, *Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity*.SFAS No. 150 required the company to report the convertible preferred stockissued on July 15, 2003 in connection with the Allen Telecom acquisition (seeNote 12) as a component of stockholders’ equity.

 

**2. Business Acquisitions**

 

In June 2002, the companyacquired Celiant Corporation, which designed, manufactured and marketed radiofrequency (RF) power amplifiers for use in wireless communications networks.Total purchase consideration was $481.0 million consisting of $203.1 million incash, 16,278,805 shares of the company’s common stock valued at $266.6 million,and $11.3 million of acquisition related costs. The 16,278,805 shares werevalued at $16.38, the February 15, 2002 closing price, the last trading daybefore the acquisition agreement was signed. These 16,278,805 sharesrepresented 16.6% of the company’s total shares outstanding at September 30,2002. The company acquired $58.7 million of cash in the Celiant acquisition,making the company’s net cash expenditure $155.7 million for this acquisition.The assets and liabilities of Celiant were recorded based upon their fair valuedetermined by management and by an independent appraisal. An allocation of thepurchase price is as follows:

 
| **DOLLARS IN  THOUSANDS**     |   |    |    |
|-------------------------------|--------|---------|---------|
|                          |   |    |    |
| Net  tangible assets          |   | $       | 97,700  |   |
| Intangible  assets            |   | 42,800  |    |
| Goodwill                      |   | 340,504 |    |
| Total purchase  consideration |   | $       | 481,004 |   |

 

Celiant’s results ofoperations have been included with the company’s since June 4, 2002. Pro formaresults of operations, assuming the acquisition of Celiant occurred on October1, 2001 are presented at the bottom of this footnote. Celiant commencedoperations on June 1, 2001 as a spin out of Lucent Technologies’ poweramplifier business. Lucent did not maintain the amplifier business as a separatebusiness unit and external financial statements historically have not beenprepared. Presenting meaningful pro forma financial data for fiscal year 2001would have required the company to make significant estimates based onforward-looking information, and therefore the company is not providing proforma financial data for fiscal year 2001.

 

The company also madethree smaller acquisitions in fiscal year 2002. The company acquired QuasarMicrowave Technology Ltd., a British manufacturer of microwave and millimeterwave radio components. The company purchased selected assets of Antenna BadBlankenburg, a German manufacturer of telematics equipment for the automotiveindustry. The company also purchased selected assets and intellectual propertyof WSIL Inc., a British manufacturer of power amplifiers. The company paid$23.9 million for these acquisitions and accounted for these transactions usingthe purchase method of accounting. These acquisitions resulted in $15.2 millionof goodwill and $5.9 million of intangible assets. Pro forma results ofoperations, assuming these acquisitions occurred at the beginning of fiscalyear 2001, were not materially different from the reported results ofoperations.

 

In fiscal year 2003, thecompany purchased Allen Telecom, Inc., a global provider of wirelessinfrastructure equipment and services to many of the largest wirelesscommunications carriers and original equipment manufacturers (OEMs). Thecompany completed this merger on July 15, 2003, following approval by both AllenTelecom and Andrew stockholders. The merger price was determined bynegotiations between Andrew and Allen and was a stock-for-stock transaction inwhich Allen common shareholders received 1.775 shares of newly issued Andrewcommon stock for each share of Allen common stock. The exchange ratio of 1.775represented a premium of approximately 21% over the trading price of Allen’scommon stock near the merger date. The company

 

----

 
| 36  NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW CORPORATION 2003 |
|------------------------------------------------------|--------|-------------------------|

 

believes that this premium was justified by the combined company’sability to provide total customer solutions, including virtually the entirebase station RF footprint. The combined company can also deliver integratedcomponents that better meet the performance and cost efficiency requirements ofOEMs. In this transaction Andrew issued 55,231,126 shares of common stock,which represented 36.0% of the company’s total shares outstanding at July 16,2003.

 

The company also issued 991,070 shares of redeemable convertiblepreferred stock, issuing one share for each share of Allen redeemableconvertible preferred stock. The total purchase consideration was $495.0million, consisting of shares of Andrew stock valued at $452.9 million, $23.7million to buyout Allen stock options and $18.4 million of acquisition relatedcosts. Andrew common shares issued in this transaction were valued at $8.20 ashare, the average closing price for three days, including the day the mergerwas announced, February 18, 2003, and the day before and the day after theannouncement.

 

A preliminary allocation of the purchase consideration to tangible andintangible assets was based upon an estimate of fair value determined bymanagement and independent valuation specialists. Based on these preliminaryestimates the purchase consideration was allocated as follows:

 
| **DOLLARS IN THOUSANDS**                                    |   |     |    |
|-------------------------------------------------------------|--------|----------|---------|
| Net tangible assets,  excluding convertible preferred stock |   | $        | 119,011 |   |
| Convertible preferred  stock                                |   | (130,028 | )       |
| Intangible assets                                           |   | 62,476   |    |
| Restructuring reserve                                       |   | (13,680  | )       |
| Net deferred tax asset                                      |   | 34,217   |    |
| Goodwill                                                    |   | 422,993  |    |
| Total  purchase consideration                               |   | $        | 494,989 |   |

 

The $119.0 million of net tangible assets, excluding the convertiblepreferred stock, are made up of the following:

 
| **DOLLARS IN THOUSANDS**                         |   |     |    |
|--------------------------------------------------|--------|----------|---------|
| Cash and cash  equivalents                       |   | $        | 95,750  |   |
| Accounts receivable                              |   | 101,860  |    |
| Inventory                                        |   | 100,104  |    |
| Property, plant and  equipment, and other assets |   | 79,977   |    |
| Accounts payable and  other liabilities          |   | (127,619 | )       |
| Defined benefit and  postretirement plans        |   | (49,026  | )       |
| Debt                                             |   | (82,035  | )       |
| Net  tangible assets                             |   | $        | 119,011 |   |

 

Independent valuation specialists identified $62.5 million ofintangible assets with a weighted average life of four years. These intangibleassets and their associated useful lives are as follows:

 
| **DOLLARS IN THOUSANDS**        |   | **VALUE** | ** ** | **USEFUL LIFE  IN YEARS** | ** ** |
|---------------------------------|--------|-----------|------------|---------------------------|------------|
| Patents and related  technology |   | $         | 25,900     |                      | 4          |   |
| Customer relationships          |   | 8,500     |       | 10                        |       |
| Customer contract               |   | 21,600    |       | 1.5                       |       |
| Trademarks                      |   | 5,600     |       | Indefinite                |       |
| Other  intangibles              |   | 876       |       | 3                         |       |
|                            |   | $         | 62,476     |                      |       |   |

 

The fair value of Allen’s redeemable convertible preferred stock wasestimated to be $131.20 per share, based on the market price of theseinstruments at July 15, 2003. Allen carried these instruments on their balancesheet at the liquidation preference of $50.00 a share. The $81.20 per shareincrease in fair value resulted in an $80.5 million purchase accountingadjustment that the company recorded to additional paid-in capital. The companyacquired Allen’s noncontributory defined benefit plans as well aspost-retirement medical and life insurance plans (see Note 5). Based on anactuarial study, the company recorded additional liabilities totaling $30.6million to bring the total liabilities recorded for these plans to $49.0million.

 

As part of integrating the operations of Andrew and Allen, the companywill incur costs to consolidate and realign operations. The company currentlyhas an integration plan in place where the company anticipates incurring $13.7million of employee termination, lease cancellation and other costs. Theseplans will result in the termination of approximately 380 Allen employees. Thecompany has not finalized the integration plans for all of its operations andanticipates accruing additional integration costs within the next six monthswhen these costs have been determined.

 

The deferred tax asset of $34.2 million reflects the elimination ofAllen’s previously recorded net deferred tax assets as well as adjustments torecord the difference between the tax basis and book basis of certain purchaseaccounting adjustments and the recording of the identifiable intangible assets.

 

The company acquired $95.8 million of cash in the Allen acquisition andincurred $47.6 million of cash costs resulting in the company’s net cashacquired of $48.2 million for this acquisition.

 

----

 
| ANDREW CORPORATION 2003 |   | NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS  37 |
|-------------------------|--------|------------------------------------------------------|

 

Allen’s results ofoperations have been included with the company’s since July 16, 2003 andCeliant’s results have been included in the company’s results since June 4,2002. Pro forma results of operations, assuming these acquisitions occurred onOctober 1, 2001, are as follows:

 

|                                                                        |   | **YEAR  ENDED SEPTEMBER 30, 2002** |       |
|-----------------------------------------------------------------------------|--------|------------------------------------|------------|
| **DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS**                          |   | **ANDREW**                         |       | **CELIANT  OCTOBER 1, 2001  TO JUNE 4, 2002** |   | **CELIANT  PRO FORMA  ADJUSTMENTS** |   | **ALLEN** |   | **ALLEN  PRO FORMA  ADJUSTMENTS** |   | **ANDREW  PRO FORMA** |   |
|                                                                        |   |                               | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |   | ** ** |
| Sales                                                                       |   | $                                  | 864,801    |   | $ | 228,519 |   | $ | — |   | $ | 378,318 |   | $ | — |   | $ | 1,471,638 |   |
|                                                                        |   |                               |       |   |   |   |   |   |   |   |   |   |   |
| Income (loss) from continuing operations                                    |   | 10,492                             |       | 12,311 |   | (8,892 | ) | (2,248 | ) | (14,882 | ) | (3,219 | ) |
| Preferred  stock dividends                                                  |   | $                                  | —     |   | $ | — |   | $ | — |   | $ | (1,572 | ) | $ | (2,303 | ) | $ | (3,875 | ) |
| Income (loss) from continuing operations,  available to common shareholders |   | $                                  | 10,492     |   | $ | 12,311 |   | $ | (8,892 | ) | $ | (3,820 | ) | $ | (17,185 | ) | $ | (7,094 | ) |
|                                                                        |   |                               |       |   |   |   |   |   |   |   |   |   |   |
| Average diluted shares outstanding                                          |   | 87,295                             |       | — |   | 10,837 |   | — |   | 55,231 |   | 153,363 |   |
| Income (loss) from continuing operations, per  common share                 |   | $                                  | 0.12       |   | — |   | — |   | — |   | — |   | $ | (0.05 | ) |

 

|                                                                        |   |   | ** ** |   | ** ** | **YEAR ENDED SEPTEMBER 30, 2003** | ** ** |
|-----------------------------------------------------------------------------|--------|--------|------------|--------|------------|-----------------------------------|------------|
| **DOLLARS IN THOUSANDS,  EXCEPT PER SHARE AMOUNTS**                         |   |   |       |   |       | **ANDREW**                        | ** ** | **ALLEN  OCTOBER 1, 2002  TO JULY 15, 2003** | ** ** | **PRO FORMA  ADJUSTMENTS** | ** ** | **ANDREW  PRO FORMA** | ** ** |
|                                                                        |   |   |       |   |       |                              |       |   |   |   |   |   |   |
| Sales                                                                       |   |   |       |   |       | $                                 | 1,014,486  |   | $ | 379,415 |   | $ | — |   | $ | 1,393,901 |   |
|                                                                        |   |   |       |   |       |                              |       |   |   |   |   |   |   |
| Income (loss) from continuing operations                                    |   |   |       |   |       | 18,704                            |       | 23,218 |   | (9,341 | ) | 32,581 |   |
| Preferred  stock dividends                                                  |   |   |       |   |       | $                                 | (6,459     | ) | $ | (3,067 | ) | $ | — |   | $ | (9,526 | ) |
| Income (loss) from continuing  operations, available to common shareholders |   |   |       |   |       | $                                 | 12,245     |   | $ | 20,151 |   | $ | (9,341 | ) | $ | 23,055 |   |
|                                                                        |   |   |       |   |       |                              |       |   |   |   |   |   |   |
| Average diluted shares outstanding                                          |   |   |       |   |       | 109,866                           |       | — |   | 43,561 |   | 153,427 |   |
| Income from  continuing operations, per common share                        |   |   |       |   |       | $                                 | 0.11       |   | — |   | — |   | $ | 0.15 |   |

 

TheCeliant pro forma adjustments consist of interest expense and amortization ofthe intangible assets acquired in the Celiant acquisition. The companyestimates that it would have had to borrow an additional $63.0 million in notespayable at 3.0%, resulting in an after-tax interest expense of $0.8 million.The amortization of the $42.8 million of intangibles over this eight-monthperiod would have created an additional $8.1 million of after-tax amortizationexpense.

 

The Allen pro formaadjustments consist of interest expense and amortization of the intangibleassets acquired in the Allen acquisition. The company estimates that it wouldhave had to borrow an additional $48.0 million in notes payable at 3.0%,resulting in an after-tax interest expense of $0.9 million in 2002 and $0.7million in 2003. The amortization of the $62.5 million of intangibles wouldhave created an additional after-tax amortization expense of $14.3 million in2002 and $8.6 million in 2003. In addition, if the redeemable convertiblepreferred stock had been outstanding since October 2001 as reflected in thesepro formas, Allen’s 2002 interest expense would have been reduced by anafter-tax amount of $0.4 million and preferred dividend payments would haveincreased by $2.3 million.

 

----

 
| 38  NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW CORPORATION 2003 |
|------------------------------------------------------|--------|-------------------------|

 

**3. Per Share Data**

 

The following table setsforth the computation of basic and diluted earnings per

 
|                                                                |   | **YEAR ENDED  SEPTEMBER 30** |       |
|---------------------------------------------------------------------|--------|------------------------------|------------|
| **DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS**                  |   | **2003**                     |       | **2002** |   | **2001** |   |
|                                                                |   |                         |       |   |   |   |   |
| **Basic Earnings (Loss) per Share**                                 |   |                         | ** ** |   |   |   |   |
| Income  from continuing operations                                  |   | **$**                        | **18,704** | ** ** | $ | 10,492 |   | $ | 68,948 |   |
| Preferred  stock dividends                                          |   | **(6,459**                   | **)**      | — |   | — |   |
| Income  from continuing operations available to common shareholders |   | **12,245**                   | ** ** | 10,492 |   | 68,948 |   |
| Average  basic shares outstanding                                   |   | **109,822**                  | ** ** | 87,197 |   | 81,382 |   |
| Basic income from continuing operations  per share                  |   | **$**                        | **0.11**   | ** ** | $ | 0.12 |   | $ | 0.85 |   |
|                                                                |   |                         | ** ** |   |   |   |   |
| **Net income (loss)**                                               |   | **$**                        | **15,520** | ** ** | $ | (26,379 | ) | $ | 61,622 |   |
| Preferred stock dividends                                           |   | **(6,459**                   | **)**      | — |   |   |   |
| Net income (loss) available to common  shareholders                 |   | **9,061**                    | ** ** | (26,379 | ) | 61,622 |   |
| Average  basic shares outstanding                                   |   | **109,822**                  | ** ** | 87,197 |   | 81,382 |   |
| Basic net income (loss) per share                                   |   | **$**                        | **0.08**   | ** ** | $ | (0.30 | ) | $ | 0.76 |   |
|                                                                |   |                         | ** ** |   |   |   |   |
| **Diluted Earnings (Loss) per Share**                               |   |                         | ** ** |   |   |   |   |
| Income  from continuing operations                                  |   | **$**                        | **18,704** | ** ** | $ | 10,492 |   | $ | 68,948 |   |
| Preferred stock dividends                                           |   | **(6,459**                   | **)**      | — |   | — |   |
| Income from continuing operations  available to common shareholders |   | **12,245**                   | ** ** | 10,492 |   | 68,948 |   |
| Average  basic shares outstanding                                   |   | **109,822**                  | ** ** | 87,197 |   | 81,382 |   |
| Effect of dilutive securities: stock  options                       |   | **44**                       | ** ** | 98 |   | 160 |   |
| Average  diluted shares outstanding                                 |   | **109,866**                  | ** ** | 87,295 |   | 81,542 |   |
| Diluted income from continuing  operations per share                |   | **$**                        | **0.11**   | ** ** | $ | 0.12 |   | $ | 0.85 |   |
|                                                                |   |                         | ** ** |   |   |   |   |
| **Net income (loss)**                                               |   | **$**                        | **15,520** | ** ** | $ | (26,379 | ) | $ | 61,622 |   |
| Preferred  stock dividends                                          |   | **(6,459**                   | **)**      | — |   | — |   |
| Net  income (loss) available to common shareholders                 |   | **9,061**                    | ** ** | (26,379 | ) | 61,622 |   |
| Average  basic shares outstanding                                   |   | **109,822**                  | ** ** | 87,197 |   | 81,382 |   |
| Effect of dilutive securities: stock  options                       |   | **44**                       | ** ** | — |   | 160 |   |
| Average  diluted shares outstanding                                 |   | **109,866**                  | ** ** | 87,197 |   | 81,542 |   |
| Diluted net income (loss) per share                                 |   | **$**                        | **0.08**   | ** ** | $ | (0.30 | ) | $ | 0.76 |   |

 

The 183,720 shares of convertible preferred stock outstanding atSeptember 30, 2003 can potentially be converted into 2,117,557 shares of thecompany’s common stock.  These shareswere not included in the calculation of earnings per share because includingthese shares and excluding the convertible preferred stock dividends would haveincreased reported earnings per share.

 

For fiscal year 2002,98,000 diluted shares were not included in the calculation of the net loss pershare because these shares would have reduced the reported net loss per share.Options to purchase 5,530,000, 5,569,000, and 3,664,000, shares of common stockin 2003, 2002 and 2001, respectively, were not included in the computation ofdiluted shares because the options’ exercise prices were greater than theaverage market price of the common shares.

 

The company’s convertiblesubordinated notes are potentially convertible into 17,531,568 shares of thecompany’s common stock. These shares were not included in the computation ofdiluted earnings per share because the conversion price of these notes isgreater than the average market price of the common shares.

 

----

 
| ANDREW CORPORATION 2003 |   | NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS  39 |
|-------------------------|--------|------------------------------------------------------|

 

**4. Investments in and Advances to Affiliates**

 

On December 4, 2001, thecompany completed the sale of its interest in a group of Russiantelecommunications companies, which were accounted for under the equity method.The company received $50.3 million, net of $0.3 million of Russian withholdingtax, for the sale of these investments. These investments were sold to AntelHoldings Ltd. The company sold the following investments: 49% of ZAO Rascom,45% of ZAO Metrocom, 45% of MAcommnet, 64.4% of Magistral Telecom and 99.7% ofZAO MKS. As part of this transaction, the company also sold its wholly owned,U.S. based, international telecommunications carrier, Antel. This sale resultedin an $8.7 million pre-tax gain and an after-tax gain of $7.3 million.

 

**5. Defined Benefit Plans**

 

**UNITED KINGDOM** Approximately 600 current and former employees of the company’sUnited Kingdom subsidiary, Andrew Ltd., participate in a defined benefit plan.Benefits are based on an employee’s final pensionable salary. The plan’s assetsare held by a trust, the Andrew Ltd. Pension and Life Assurance Plan, and anindependent third party manages the investments. The plan assets are investedin equity and debt securities and are not invested in the company’s commonstock. The company’s accumulated benefit obligation under this plan was $42.9million and $36.6 million at September 30, 2003 and 2002, respectively. AtSeptember 30, 2003 the accumulated benefit obligation exceeded the fair valueof plan assets and accrued pension costs by $4.5 million. The company recordedthis minimum pension liability of $3.1 million to deferred liabilities and toother comprehensive loss net of applicable income taxes. 

 

The reconciliation of the beginning and the ending balance of theprojected benefit obligation, reconciliation of the beginning and endingbalance of the fair value of the plan assets, funded status of the plan andamounts recognized on the company’s consolidated balance sheet are as follows:

 
|                                                   |   | **SEPTEMBER 30** |       |
|--------------------------------------------------------|--------|------------------|------------|
| **DOLLARS IN THOUSANDS**                               |   | **2003**         |       | **2002** |   |
|                                                   |   |             |       |   |   |
| **Change in projected benefit obligation**             |   |             |       |   |   |
| Projected  benefit obligation at beginning of the year |   | **$**            | **50,746** | ** ** | $ | 38,004 |   |
| Service  costs                                         |   | **1,907**        | ** ** | 2,323 |   |
| Interest  costs                                        |   | **2,854**        | ** ** | 2,386 |   |
| Actuarial  loss                                        |   | **8,160**        | ** ** | 7,423 |   |
| Benefits  paid                                         |   | **(1,376**       | **)**      | (1,909 | ) |
| Foreign currency  translation adjustment               |   | **3,832**        | ** ** | 2,519 |   |
| Projected  benefit obligation at end of the year       |   | **66,123**       | ** ** | 50,746 |   |
|                                                   |   |             | ** ** |   |   |
| **Change in plan assets**                              |   |             | ** ** |   |   |
| Fair  value of plan assets at beginning of the year    |   | **28,833**       | ** ** | 31,836 |   |
| Return  on plan assets                                 |   | **5,143**        | ** ** | (4,930 | ) |
| Company  contribution                                  |   | **1,462**        | ** ** | 1,404 |   |
| Contribution  by plan participants                     |   | **731**          | ** ** | 701 |   |
| Benefits  and expenses paid                            |   | **(1,376**       | **)**      | (1,909 | ) |
| Foreign currency translation  adjustment               |   | **2,158**        | ** ** | 1,731 |   |
| Fair  value of plan assets at end of the year          |   | **36,951**       | ** ** | 28,833 |   |
|                                                   |   |             |       |   |   |
| Funded  status of the plan                             |   | **(29,172**      | **)**      | (21,913 | ) |
| Unrecognized  prior service costs                      |   | **128**          | ** ** | 162 |   |
| Unrecognized actuarial  loss                           |   | **27,601**       | ** ** | 22,001 |   |
| **Net  amount recognized**                             |   | **(1,443**       | **)**      | 250 |   |
|                                                   |   |             | ** ** |   |   |
| **Amounts recognized on balance sheet consist of:**    |   |             | ** ** |   |   |
| Deferred  liabilities                                  |   | **(4,654**       | **)**      | (5,633 | ) |
| Prepaid  pension cost                                  |   | **—**       | ** ** | 251 |   |
| Other  long-term assets                                |   | **128**          | ** ** | 162 |   |
| Accumulated other  comprehensive loss                  |   | **3,083**        | ** ** | 5,470 |   |
| **Net amount recognized**                              |   | **$**            | **(1,443** | **)** | $ | 250 |   |

 

The components of netperiodic pension costs recognized in income are as follows:

 
| **DOLLARS IN THOUSANDS**                          |   | **2003**   |       | **2002**   |   | **2001** |   |
|---------------------------------------------------|--------|------------|------------|------------|--------|----------|--------|
|                                              |   |       | ** ** |       |   |     |   |
| Service  costs                                    |   | **$**      | **1,176**  | ** ** | $      | 1,622    |   | $ | 1,680 |   |
| Interest  costs                                   |   | **2,854**  | ** ** | 2,386      |   | 2,315    |   |
| Expected  return                                  |   | **(1,964** | **)**      | (2,300     | )      | (2,489   | )      |
| Amortization  of unrecognized net assets          |   | **—** | ** ** | (21        | )      | (21      | )      |
| Amortization  of unrecognized prior service costs |   | **42**     | ** ** | 40         |   | 38       |   |
| Amortization of net  loss                         |   | **1,012**  | ** ** | 203        |   | —   |   |
|                                              |   | **$**      | **3,120**  |       | $      | 1,930    |   | $ | 1,523 |   |

 

----

 
| 40  NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW CORPORATION 2003 |
|------------------------------------------------------|--------|-------------------------|

 

Thefollowing actuarial rate assumptions were used in determining the net periodicpension costs recognized in income:

 
|                              |   | **2003** |   | **2002** |   | **2001** |   |
|-----------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                              |   |     |   |     |   |     |   |
| Discount  rate                    |   | **5.50** | **%**  | 6.25     | %      | 6.50     | %      |
| Annual  compensation increase     |   | **3.50** | **%**  | 4.00     | %      | 4.50     | %      |
| Expected  return on plan assets   |   | **6.50** | **%**  | 7.00     | %      | 7.00     | %      |
| Post-retirement  pension increase |   | **2.50** | **%**  | 2.50     | %      | 2.75     | %      |

 

The weighted averageactuarial rate assumptions used to determine the projected benefit obligationat September 30, 2003 were as follows: discount rate 5.30%, annual compensationincrease 3.70%, expected return on plan assets 6.50% and post-retirementpension increase 2.70%.

 

**PLANS ACQUIRED FROM ALLEN TELECOM** With the acquisition of Allen Telecomon July 15, 2003, the company assumed the Allen noncontributory defined benefitplans as well as post-retirement medical and life insurance plans. The definedbenefit plans cover approximately 1,760 current and former employees, includingthe majority of the full-time domestic salaried and hourly employees of theformer Allen Telecom. The pension benefits provided to salaried employees arebased on years of service and compensation during the ten-year period prior toretirement, while the benefits provided to hourly employees are based onspecified amounts for each year of service. Domestic pension costs are fundedin compliance with requirements of the Employee Retirement Income Security Actof 1974, as amended, as employees become eligible to participate. At July 15,2003 the accumulated benefit obligation under these plans was $77.9 million,which exceeded the fair value of the plan assets by $51.2 million. After thecompletion of the merger, these plans were frozen, resulting in a decrease inliability of $6.5 million to $44.7 million. In addition to the reserves of$16.9 million acquired from Allen, the company recorded a one-time purchaseaccounting adjustment of $27.8 million.

 

The post-retirementmedical and life insurance plans provide health care and life insurancebenefits for certain retired employees who reach retirement age while workingwith the company. The company’s accumulated benefit obligation under theseplans was $4.3 million as of July 15, 2003. In addition to reserves of $1.6million acquired from Allen, the company recorded a one-time purchaseaccounting adjustment of $2.8 million for these post-retirement medical andlife insurance plans.

 

A reconciliation of theplans’ projected benefit obligation, fair value of plan assets, and fundedstatus are as follows:

 
| **DOLLARS IN THOUSANDS**                                          |   | **RETIREMENT  PLANS  PENSION BENEFITS  2003** | ** ** | **POST-RETIREMENT  MEDICAL PLANS  OTHER BENEFITS  2003** | ** ** |
|-------------------------------------------------------------------|--------|-----------------------------------------------|------------|----------------------------------------------------------|------------|
|                                                              |   |                                          | ** ** |                                                     | ** ** |
| **Change  in projected benefit obligation**                       |   |                                          | ** ** |                                                     | ** ** |
| Projected  benefit obligation at July 15, 2003                    |   | $                                             | 77,911     |                                                     | $          | 4,339 | ** ** |
| Service  costs                                                    |   | 38                                            |       | —                                                   |       |
| Interest  costs                                                   |   | 505                                           |       | 31                                                       |       |
| Curtailments                                                      |   | (6,451                                        | )          | —                                                   |       |
| Disbursements                                                     |   | (1,584                                        | )          | (27                                                      | )          |
| Projected  benefit obligation at end of the year                  |   | 70,419                                        |       | 4,343                                                    |       |
|                                                              |   |                                          |       |                                                     |       |
| **Change in plan assets**                                         |   |                                          | ** ** |                                                     | ** ** |
| Fair  value of plan assets at July 15, 2003                       |   | 26,710                                        |       | —                                                   |       |
| Return  on plan assets                                            |   | 1,767                                         |       | —                                                   |       |
| Company  contribution                                             |   | 1,034                                         |       | 27                                                       |       |
| Disbursements                                                     |   | (1,584                                        | )          | (27                                                      | )          |
| Fair  value of plan assets at end of the year                     |   | 27,927                                        |       | —                                                   |       |
|                                                              |   |                                          |       |                                                     |       |
| Funded  status of the plan                                        |   | (42,492                                       | )          | (4,343                                                   | )          |
| Unrecognized actuarial  gain                                      |   | (1,288                                        | )          | (19                                                      | )          |
| **Net accrued pension costs (recorded in deferred  liabilities)** |   | $                                             | (43,780    | )                                                        | $          | (4,362 | ) |

 

The components of netperiodic pension costs are as follows:

 
| **DOLLARS IN THOUSANDS**      |   | **RETIREMENT  PLANS  PENSION BENEFITS****2003** |   | **POST-RETIREMENT  MEDICAL PLANS  OTHER BENEFITS****2003** |       |
|-------------------------------|--------|-------------------------------------------------|--------|------------------------------------------------------------|------------|
|                          |   |                                            |   |                                                       | ** ** |
| Service costs                 |   | $                                               | 38     |                                                       | $          | — |   |
| Interest  costs               |   | 505                                             |   | 31                                                         |       |
| Actual  return on plan assets |   | (1,767                                          | )      | —                                                     |       |
| Amortization  of net loss     |   | 1,319                                           |   | —                                                     |       |
|                          |   | $                                               | 95     |                                                       | $          | 31 |   |

 

----

 
| ANDREW CORPORATION 2003 |   | NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS  41 |
|-------------------------|--------|------------------------------------------------------|

 

Assumptions usedin developing the benefit obligations were as follows:

 
| **WEIGHTED AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30** |   | **PENSIONS****2003** | ** ** | **OTHER  POST-RETIREMENT  BENEFITS****2003** | ** ** |
|-----------------------------------------------------|--------|----------------------|------------|----------------------------------------------|------------|
|                                                |   |                 | ** ** |                                         | ** ** |
| Discount rate                                       |   | **2.90**             | **%**      | 2.90                                         | **%**      |
| Expected  return on plan assets                     |   | **7.00**             | **%**      | NA                                           |       |

 

The company anticipatesfunding these plans over the next three to five years. The 2.9% discount ratereflects the bond yield on four year investment grade corporate bonds at July15, 2003. For measurement purposes, a 10.0% annual rate of increase in the percapita cost of covered health care benefits was assumed for 2003. The rate wasassumed to decrease gradually to 5.0% for 2008 and remain at that levelthereafter. A one-percentage-point change in the assumed health care cost trendrates would not have a material effect on the post-retirement benefitobligation or on the aggregate service cost and interest cost components.

 

**6. Profit Sharing and Other Compensation Plans**

 

Most employees of AndrewCorporation and its subsidiaries participate in various retirement plans,principally defined contribution profit sharing plans. The amounts charged toearnings for these plans in 2003, 2002, and 2001 were $6,098,000, $6,801,000,and $10,248,000, respectively.

 

**7. Financing**

 

**LINES OF CREDIT AND SHORT-TERM BORROWINGS** The company maintains a $160 millionrevolving line of credit with a group of nine lenders led by Bank of America,NA as lead arranger and administrative agent. This agreement expires in Decemberof 2005. The maximum outstanding during 2003 under the line of credit was $50.8million and the weighted average interest rate for borrowings under this linein fiscal year 2003 was 3.29%. The outstanding balance under this line ofcredit was $0 at September 30, 2003 and $50.8 million at September 30, 2002.

 

Several of the company’sforeign subsidiaries maintain credit agreements. The company’s Braziliansubsidiary has a $3.0 million multicurrency line of credit agreement withABN-AMRO. The outstanding balance at September 30, 2003 was $0.3 million andwas the only borrowing under this line of credit in 2003. The company’s Chinesesubsidiary has a $7.5 million line of credit agreement with Bank of America,which had no borrowings during fiscal year 2003.

 

**LONG-TERM DEBT** Long-term debt at September 30, 2003 consisted of the following:

 
| **DOLLARS IN THOUSANDS**                                                                                                          |   | **2003**   |        | **2002** |       |
|-----------------------------------------------------------------------------------------------------------------------------------|--------|------------|-------------|----------|------------|
|                                                                                                                              |   |       | ** **  |     | ** ** |
| Convertible subordinated notes                                                                                                    |   | **$**      | **240,000** |     | $          | **—** |   |
| 9.52% senior notes payable to insurance companies  in annual installments through 2005                                            |   | **9,091**  |        | 13,635   |       |
| 6.60% senior notes payable to insurance companies  in annual installments through 2004                                            |   | **3,000**  |        | —   |       |
| 6.65%  senior notes payable to insurance companies in annual installments through  2008                                           |   | **39,167** |        | —   |       |
| 6.74%  senior notes payable to insurance companies in 2008                                                                        |   | **9,000**  |        | —   |       |
| EURO  loans from Italian Ministry of Industry; $708 at average fixed rate of 8.90%,  and $3,397 at an average fixed rate of 3.10% |   | **4,105**  |        | —   |       |
| EURO  loans from SanPaolo Bank; $3,900 at average fixed rate of 2.06% and $5,005 at  a variable rate                              |   | **8,905**  |        | —   |       |
| Capital  lease obligations (see Note 11)                                                                                          |   | **4,969**  |        | —   |       |
| Other                                                                                                                             |   | **593**    |        | 7,006    |       |
| Less: Current portion                                                                                                             |   | **17,466** |        | 7,250    |       |
| Total Long-Term Debt                                                                                                              |   | **$**      | **301,364** |     | $          | 13,391 |   |

 

----

 
| 42  NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW CORPORATION 2003 |
|------------------------------------------------------|--------|-------------------------|

 

In August 2003, thecompany sold $240.0 million of 3.25% convertible subordinated notes due in2013. Holders may convert the notes into shares of common stock at a conversionrate of 73.0482 shares per $1,000 principal amount of notes, subject toadjustment, before the close of business on August 15, 2013 only under thefollowing circumstances: (1) during any fiscal quarter commencing afterSeptember 30, 2003, if the closing sale price of common stock exceeds 120% ofthe conversion price for at least 20 trading days in the 30 consecutive tradingdays ending on the last trading day of the preceding fiscal quarter; (2) duringthe five business day period after any five consecutive trading day period inwhich the trading price per $1,000 principal amount of the notes for each dayof that period was less than 98% of the product of the closing sale price ofcommon stock and the number of shares of common stock issuable upon conversionof $1,000 principal amount of the notes; (3) if the notes have been called forredemption; or (4) upon the occurrence of certain specified corporatetransactions. The company may not redeem the notes prior to August 20, 2008,after which time it may redeem the notes at 100% of their principal amount plusaccrued and unpaid interest, if any. Holders may require the company torepurchase the notes at 100% of the principal amount of the notes plus accruedand unpaid interest on August 15, 2008.

 

In July 2003, the companypurchased Allen Telecom, Inc. As a result of the merger, the company assumed$51.2 million of senior notes payable. The outstanding balance of these notesis due in fiscal years 2004 through 2008. Also in connection with the merger,the company assumed Euro loans from the Italian Ministry of Industry and fromSanPaolo Bank, and certain capital lease obligations (see Note 11).

 

The amounts of long-termdebt maturing after September 30, 2003 are as follows:

 
| **DOLLARS IN THOUSANDS** |   | **2004** |   | **2005** |   | **2006** |   | **2007** |   | **2008** |   | **THEREAFTER** |   |
|--------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------------|--------|
|                     |   |     |   |     |   |     |   |     |   |     |   |           |   |
|                     |   | $        | 17,466 |     | $      | 14,410   |   | $        | 9,719  |     | $      | 10,583         |   | $ | 19,512 |   | $ | 247,140 |   |
|                          |        |          |        |          |        |          |        |          |        |          |        |                |        |  |  |  |  |  |  |

 

Under the company’samended and restated credit agreement dated December 19, 2002, the company mustmeet various requirements, including maintaining net worth, maintaining a ratioof earnings before interest, taxes, depreciation and amortization (EBITDA) tototal debt, maintaining a fixed charges coverage ratio and limits on the amountof assets that the company can dispose of in a fiscal year. These requirementsmay limit the amount of borrowing under this credit agreement. Under the mostrestrictive of these requirements, the company was limited to a maximumborrowing of $134.0 million at September 30, 2003. The company must report onthese requirements quarterly. The company is in compliance with all of theserequirements as of September 30, 2003.

 

Cash payments forinterest on all borrowings were $3,261,000, $4,348,000, and $8,574,000 in 2003,2002 and 2001, respectively.

 

In total, the carryingamount of long-term debt as of September 30, 2003 approximates fair value. Theexception to this is the senior notes payable to insurance companies. Thecombined book value of these senior notes is $60,258,000. The company estimatesfair value of these notes to be $63,684,000. The fair value was determined bydiscounting the future cash outflows based upon an estimate of the currentmarket rates for instruments with similar risk and term to maturity.

 

----

 
| ANDREW CORPORATION 2003 |   | NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS  43 |
|-------------------------|--------|------------------------------------------------------|

 

**8. Restructuring**

 

In September 2002, thecompany initiated a plan to restructure its operations. The company has closedseveral manufacturing and engineering facilities and consolidated itsoperations into fewer, more efficient facilities. As part of these plans, thecompany relocated certain manufacturing operations to new facilities in Mexicoand the Czech Republic. The company plans to complete the relocation of severaladditional manufacturing operations to these new facilities early in 2004. Aspart of these restructuring plans, the company has paid $13.0 million ofseverance to 885 employees who were terminated in 2003. Including discontinuedoperations (see Note 9), the company has terminated 1,058 employees.Restructuring costs charged to income in 2003 were $9.2 million, consisting of$1.3 million of restructuring expense for the relocation of fixed assets andinventory that was expensed as incurred and $7.9 million for severance andaccrued lease and contract termination costs. During 2003, the company charged$14.3 million against the restructuring reserve, of which $13.7 million wasactual cash costs.

 

As part of the Allenacquisition, the company accrued $13.7 million of integration costs foremployee termination, lease cancellation and other costs. These plans will resultin the termination of approximately 380 Allen employees. The company incurred$2.2 million of cash costs for employee termination in 2003.

 
| **DOLLARS IN THOUSANDS**              |   | **2002  RESTRUCTURING  ACCRUAL** |       | **CHARGES  TO RESERVE  IN 2002** |       | **SEPT.  30, 2002  RESERVE  BALANCE** |       |
|---------------------------------------|--------|----------------------------------|------------|----------------------------------|------------|---------------------------------------|------------|
|                                  |   |                             | ** ** |                             | ** ** |                                  | ** ** |
| **2002  Restructuring Activity**      |   |                             |       |                             |       |                                  |       |
| Inventory  provisions                 |   | $                                | 11,138     |                             | $          | (11,138                               | )          | $ | — |   |
| Employee  termination costs           |   | 11,877                           |       | —                           |       | 11,877                                |       |
| Equipment  and other asset provisions |   | 9,579                            |       | (9,579                           | )          | —                                |       |
| Lease and contract cancellation costs |   | 3,452                            |       | —                           |       | 3,452                                 |       |
| Restructuring  activity               |   | $                                | 36,046     |                             | $          | (20,717                               | )          | $ | 15,329 |   |

 
| **DOLLARS IN THOUSANDS**              |   | **SEPT.  30, 2002  RESERVE  BALANCE** |       | **CHARGES  TO RESERVE  IN 2003** |       | **2003  RESTRUCTURING  ACCRUAL** |       | **ALLEN  INTEGRATION  ACCRUAL** |       | **ALLEN  INTEGRATION  CHARGES** |       | **SEPT.  30, 2003  RESERVE  BALANCE** |       |
|---------------------------------------|--------|---------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|---------------------------------|------------|---------------------------------|------------|---------------------------------------|------------|
|                                  |   |                                  |       |                             |       |                             |       |                            |       |                            |       |                                  |       |
| **2003 Restructuring Activity**       |   |                                  | ** ** |                             | ** ** |                             | ** ** |                            | ** ** |                            | ** ** |                                  | ** ** |
| Employee termination costs            |   | $                                     | 11,877     |                             | $          | (13,021                          | )          | $                               | 1,144      |                            | $          | 11,728                                |       | $ | (539 | ) | $ | 11,189 |   |
| Equipment and other asset provisions  |   | —                                |       | —                           |       | —                           |       | —                          |       | —                          |       | —                                |       |
| Lease and contract cancellation costs |   | 3,452                                 |       | (1,320                           | )          | 6,775                            |       | 1,952                           |       | (1,634                          | )          | 9,225                                 |       |
| Restructuring activity                |   | $                                     | 15,329     |                             | $          | (14,341                          | )          | $                               | 7,919      |                            | $          | 13,680                                |       | $ | (2,173 | ) | $ | 20,414 |   |

 

----

 
| 44  NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW CORPORATION 2003 |
|------------------------------------------------------|--------|-------------------------|

 

**9. Discontinued Operations**

 

In September 2002, thecompany discontinued three non-strategic businesses: equipment shelters,wireless accessories and satellite modems. The company recognized an after-taxcharge of $26.4 million to reduce the carrying value of these assets to theirfair value. The company estimated the fair value of these assets based on theprojected proceeds from sale of these assets, net of any related costs. This$26.4 million charge consisted of a pre-tax charge of $34.7 million net of an$8.3 million tax benefit. Included in this $26.4 million was $2.1 million ofgoodwill, which was the portion of the company’s total goodwill attributable tothese discontinued operations. These businesses employed approximately 170employees. The company closed its satellite modem business in September 2002and sold its equipment shelter business in October 2002 and its wirelessaccessories business in January 2003.

 

The company has restatedall periods presented to reflect its equipment shelter, wireless accessories, andsatellite modem businesses as discontinued operations. The results ofoperations for the discontinued businesses are as follows:

 
| **DOLLARS IN THOUSANDS**           |     | **YEAR ENDED SEPTEMBER 30** |       |
|------------------------------------|----------|-----------------------------|------------|
|                               | **2003** | ** **                  | **2002**   | ** ** | **2001** | ** ** |
|                               |     |                        |       |   |   |   |   |
| Sales                              |     | **$**                       | **8,214**  | ** ** | $ | 54,108 |   | $ | 114,219 |   |
| Cost of sales                      |     | **9,807**                   | ** ** | 58,010 |   | 106,643 |   |
| Gross  profit (loss)               |     | **(1,593**                  | **)**      | (3,902 | ) | 7,576 |   |
|                               |     |                        |       |   |   |   |   |
| Operating expenses                 |     | **2,956**                   | ** ** | 11,077 |   | 18,347 |   |
| Loss  before income taxes          |     | **(4,549**                  | **)**      | (14,979 | ) | (10,771 | ) |
|                               |     |                        |       |   |   |   |   |
| Income tax benefit                 |     | **(1,365**                  | **)**      | (4,495 | ) | (3,445 | ) |
| Loss from discontinued  operations |     | **$**                       | **(3,184** | **)** | $ | (10,484 | ) | $ | (7,326 | ) |

 

The company had no assetsor liabilities relating to these discontinued businesses at September 30, 2003.At September 30, 2002, included in other current assets, other assets andaccrued expenses and other liabilities the company had $14.8 million, $2.0million and $5.0 million, respectively, of assets and liabilities relating tothese businesses.

 

----

 
| ANDREW CORPORATION 2003 |   | NOTES TO CONSOLIDATED  FINANCIAL STATEMENTS  45 |
|-------------------------|--------|------------------------------------------------------|

 

**10. Income Taxes**

 

The composition of theprovision for income tax expense is as follows:

 
| **DOLLARS IN  THOUSANDS**                                                       |     | **YEAR ENDED  SEPTEMBER 30** |        |
|---------------------------------------------------------------------------------|----------|------------------------------|-------------|
|                                                                            | **2003** |                         | **2002**    |   | **2001** |   |
|                                                                            |     |                         |        |   |   |   |   |
| **Currently Payable**                                                           |     |                         |        |   |   |   |   |
| Federal                                                                         |     | **$**                        | **1,767**   | ** ** | $ | 4,189 |   | $ | 8,546 |   |
| Non-United States                                                               |     | **10,057**                   | ** **  | 10,518 |   | 12,227 |   |
| State                                                                           |     | **(768**                     | **)**       | (1,451 | ) | 958 |   |
|                                                                            |     | **11,056**                   |        | 13,256 |   | 21,731 |   |
| **Deferred (Credit)**                                                           |     |                         | ** **  |   |   |   |   |
| Federal  & State                                                            |     | **(5,915**                   | **)**       | (10,678 | ) | 10,713 |   |
| Non-United States                                                               |     | **(519**                     | **)**       | — |   | — |   |
|                                                                            |     | **(6,434**                   | **)**       | (10,678 | ) | 10,713 |   |
| **Provision  for Income Tax Expense**                                           |     | **$**                        | **4,622**   | ** ** | $ | 2,578 |   | $ | 32,444 |   |
|                                                                            |     |                         | ** **  |   |   |   |   |
| Income Taxes Paid                                                               |     | **$**                        | **7,814**   | ** ** | $ | 12,033 |   | $ | 16,450 |   |
|                                                                            |     |                         | ** **  |   |   |   |   |
| **Components of Income (Loss) from Continuing Operations  before Income Taxes** |     |                         | ** **  |   |   |   |   |
| United  States                                                                  |     | **$**                        | **(17,665** | **)** | $ | (26,101 | ) | $ | 17,204 |   |
| Non-United States                                                               |     | **40,991**                   | ** **  | 39,171 |   | 84,188 |   |
|                                                                            |     | **$**                        | **23,326**  |   | $ | 13,070 |   | $ | 101,392 |   |

 

Thecompany’s effective income tax rate varied from the statutory United Statesfederal income tax rate because of the following:

 
|                                                                    |   | **YEAR ENDED SEPTEMBER 30** |       |
|-------------------------------------------------------------------------|--------|-----------------------------|------------|
|                                                                    |   | **2003**                    |       | **2002** | ** ** | **2001** | ** ** |
|                                                                    |   |                        |       |   |   |   |   |
| Statutory  United States federal tax rate                               |   | **35.0**                    | **%**      | 35.0 | % | 35.0 | % |
| Foreign  Sales Corporation (FSC) / Extra-Territorial Income (ETI)       |   | **(7.5**                    | **)**      | (13.4 | ) | (2.5 | ) |
| State  income taxes, net of federal tax effect                          |   | **(2.5**                    | **)**      | (2.5 | ) | 0.5 |   |
| Rate  differential on foreign earnings                                  |   | **(3.8**                    | **)**      | (5.8 | ) | (3.0 | ) |
| Rate  differential of restructuring and disposition of equity interests |   | **0.0**                     | ** ** | 1.4 |   | 0.0 |   |
| Capital  loss utilization                                               |   | **(12.4**                   | **)**      | 0.0 |   | 0.0 |   |
| Valuation  allowance for foreign tax credits                            |   | **14.4**                    | ** ** | 0.0 |   | 0.0 |   |
| Permanent  items and other                                              |   | **(3.4**                    | **)**      | 5.0 |   | 2.0 |   |
| Effective Tax Rate                                                      |   | **19.8**                    | **%**      | 19.7 | % | 32.0 | % |

 

----

 
| 46  NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW CORPORATION 2003 |
|------------------------------------------------------|--------|-------------------------|

 

Thecomponents of the deferred tax assets and liabilities are as follows:

 
|                                                  |   | **SEPTEMBER 30** |        |
|-------------------------------------------------------|--------|-----------------------|-------------|
| **DOLLARS IN THOUSANDS**                              |   | **2003**              |        | **2002** |   |
|                                                  |   |                  | ** **  |   |   |
| **Deferred  Tax Assets**                              |   |                  | ** **  |   |   |
| Restructuring  reserves                               |   | **$**                 | **33,373**  | ** ** | $ | 13,453 |   |
| Recoverable  taxes                                    |   | **7,387**             | ** **  | 15,107 |   |
| Net operating  loss and other attribute carryforwards |   | **60,941**            | ** **  | 29,145 |   |
| Other accrued  liabilities & reserves             |   | **42,786**            | ** **  | 20,123 |   |
| Total Deferred  Tax Assets                            |   | **144,487**           | ** **  | 77,828 |   |
| Valuation  allowances                                 |   | **(16,056**           | **)**       | (2,678 | ) |
| Net Deferred Tax  Assets                              |   | **$**                 | **128,431** | ** ** | $ | 75,150 |   |
|                                                  |   |                  | ** **  |   |   |
| **Deferred  Tax Liabilities**                         |   |                  | ** **  |   |   |
| Depreciation and  amortization                        |   | **$**                 | **(44,705** | **)** | $ | (33,822 | ) |
| Undistributed  foreign earnings                       |   | **(19,203**           | **)**       | (13,958 | ) |
| LIFO Reserve                                          |   | **(6,064**            | **)**       | (5,934 | ) |
| Other deferred  income/expense                        |   | **(18,743**           | **)**       | (1,930 | ) |
| Total Deferred  Tax Liabilities                       |   | **(88,715**           | **)**       | (55,644 | ) |
|                                                  |   |                  | ** **  |   |   |
| **Net  Deferred Tax Asset**                           |   | **$**                 | **39,716**  | ** ** | $ | 19,506 |   |
|                                                  |   |                  | ** **  |   |   |
| **Deferred  Taxes as Recorded on the Balance Sheet**  |   |                  | ** **  |   |   |
| Current deferred  tax asset                           |   | **$**                 | **25,414**  | ** ** | $ | 35,229 |   |
| Non-current  deferred tax asset (liability)           |   | **14,302**            | ** **  | (15,723 | ) |
|                                                  |   |                  | ** **  |   |   |
| **Net  Deferred Tax Asset**                           |   | **$**                 | **39,716**  | ** ** | $ | 19,506 |   |

 

Thecurrent deferred tax asset is reported, net of current taxes payable, in othercurrent assets on the consolidated balance sheet. The non-current deferred taxasset is included in other assets on the consolidated balance sheet for theyear ended September 30, 2003. The non-current deferred tax liability isincluded in deferred liabilities on the consolidated balance sheet for the yearended September 30, 2003. The classification of certain detailed deferredtax asset and liability items for the year ended September 30, 2002 hasbeen revised to reflect items related to acquired companies.

 

A tax asset has beenrecorded to reflect benefits associated with domestic net operating losscarryforwards of approximately $135.0 million, which will expire in 2018through 2023. Another deferred tax asset has been recorded for foreign taxcredit carryforwards of approximately $10.7 million, which will expire in 2007through 2008. A valuation allowance of $7.0 million has been establishedagainst these foreign tax credit carryforwards due to uncertainty as to thecompany’s ability to utilize these credits within the carryforward period. Avaluation allowance of $9.0 million has been established for certain foreignnet operating losses. No valuation allowance has been recorded for theremainder of the company’s deferred tax assets as the company expects theturnaround of deferred tax liabilities, higher taxable income in the UnitedStates and tax planning strategies would make the realization of these deferredtax assets more likely than not. At September 30, 2003, the company alsohas alternative minimum tax credits in the amount of $4.0 million available toreduce future federal income tax liabilities.

 

----

 
| ANDREW  CORPORATION 2003 |   | NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS  47 |
|--------------------------|--------|------------------------------------------------------|

 

No provision has beenmade for income taxes of approximately $50.3 million at September 30,2003, which would be payable in the event that all undistributed earnings ofsubsidiaries located outside the United States were distributed as dividends.The company plans to continue its non-United States operations, and anticipatesthe ability to use tax planning opportunities to offset the additional taxliability if dividends are declared and paid from these operations. A taxprovision in the amount of approximately $19.2 million has been recorded toreflect the United States tax cost associated with the repatriation of thatportion of undistributed earnings of Andrew’s Chinese subsidiary that are notconsidered to be permanently reinvested.

 

**11. Commitments and Contingencies**

 

**LEASES  **The company’s leasesconsist primarily of facilities and equipment and expire between 2004 and 2013.Annual rental expense for operating leases included in results from continuingoperations were $14.0 million, $9.6 million, and $9.8 million in 2003, 2002,and 2001 respectively. Future minimum payments under noncancellable operatingand capital leases having a remaining term in excess of one year atSeptember 30, 2003 are as follows:

 
| **DOLLARS IN THOUSANDS**           |   | **OPERATING** |   | **CAPITAL** |   |
|------------------------------------|--------|---------------|--------|-------------|--------|
|                               |   |          |   |        |   |
| 2004                               |   | $             | 13,097 |        | $      | 922 |   |
| 2005                               |   | 9,986         |   | 925         |   |
| 2006                               |   | 8,756         |   | 923         |   |
| 2007                               |   | 8,303         |   | 924         |   |
| 2008                               |   | 8,140         |   | 923         |   |
| Thereafter                         |   | 23,415        |   | 1,230       |   |
| Total minimum  lease payments      |   | $             | 71,697 |        | $      | 5,847 |   |
| Less amount  representing interest |   |          |   | (878        | )      |
|                               |   |          |   | $           | 4,969  |   |

 

At September 30,2003, the company had $3.4 million of assets recorded under capital leases thatare included in Property, Plant and Equipment.

 

**WARRANTY RESERVES** The company offers warranties on most of its products. Thespecific terms and conditions of the warranties offered by the company varydepending upon the product sold. The company estimates the costs that may beincurred under its warranty plans and records a liability in the amount of suchcosts at the time product revenue is recognized. Factors that affect the company’swarranty liability include the number of units sold, the type of products sold,historical and anticipated rates of warranty claims and cost per claim. Thecompany periodically assesses the adequacy of its recorded warranty liabilitiesand adjusts the amounts as necessary. The following is an analysis of productwarranty reserves:

 
|                                                                        |   | **SEPTEMBER 30** |       |
|-----------------------------------------------------------------------------|--------|-----------------------|------------|
| **DOLLARS IN THOUSANDS**                                                    |   | **2003**              |       | **2002** |   |
|                                                                        |   |                  |       |   |   |
| **Warranty  reserves at beginning of the year**                             |   | **$**                 | **9,932**  | ** ** | $ | 520 |   |
| Accrual for  warranties issued                                              |   | **3,134**             | ** ** | 2,450 |   |
| Reserve balances  acquired (2003: Allen Telecom, 2002: Celiant Corporation) |   | **3,469**             | ** ** | 8,205 |   |
| Warranty  settlements made                                                  |   | **(4,116**            | **)**      | (1,309 | ) |
| Warranty  expirations and adjustments                                       |   | **51**                | ** ** | 66 |   |
| **Warranty  reserves at end of the year**                                   |   | **$**                 | **12,470** | ** ** | $ | 9,932 |   |

 

**LETTERS OF CREDIT** The company utilizes letters of credit to back certain financinginstruments, insurance policies and payment obligations. These letters ofcredit are with various financial institutions and have terms of three years orless. The contract amounts and fair values of letters of credit atSeptember 30, 2003 and 2002 were $13.0 million and $11.7 million,respectively.

 

**LEGAL PROCEEDINGS** On December 11, 2001, a lawsuit was filed against Allen inthe United States District Court for the District of Delaware by a competitor,TruePosition, Inc., and its subsidiary, KSI, Inc. In their original complaint,the plaintiffs alleged that Allen, through its Grayson Wireless division,infringed three patents in connection with Allen’s GEOMETRIX wirelessgeolocation business. On July 16, 2002, the plaintiffs amended theircomplaint to include four additional patents in the lawsuit. In Allen’s answerto the original complaint, filed on January 18, 2002, and to the amendedcomplaint, filed on July 30, 2002, it has denied all of the plaintiffs’allegations and asserted a patent infringement counterclaim of one of Allen’spatents and asserted antitrust and business tort counterclaims based onplaintiffs’ bad faith initiation of the present litigation. Allen and plaintiffshave agreed to withdraw claims of infringement with respect to three ofplaintiffs’ seven patents in suit and Allen’s patent in suit. The lawsuitrelates to all of the geolocation products of the company’s Allen subsidiary,which products have accounted for approximately $221.7 million of total salessince their introduction and approximately $37.1 million since the acquisitionof Allen (July 16, 2003 to September 30, 2003). Plaintiffs areseeking damages for lost profits, price erosion and royalties due to Allen’salleged infringement and have requested that such damages be trebled as aresult of alleged willful infringement by Allen. The company believes thatplaintiffs have suffered no damages. Plaintiffs are also seeking to enjoinAllen’s alleged infringement. A trial date of April 13, 2004 has been set.The company believes that Allen has meritorious defenses against the claimsasserted by the plaintiffs, and the company intends to vigorously defend thelawsuit. There can be no assurance, however, that the company will ultimatelyprevail in this action. Whether the company ultimately wins or loses,litigation could be time-consuming and costly and injure the company’sreputation. If the plaintiffs prevail in this action, the company may berequired to pay a substantial

 

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| 48  NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW CORPORATION 2003 |
|------------------------------------------------------|--------|-------------------------|

 

judgment and/or negotiateroyalty or license agreements with respect to the patents at issue, and may notbe able to enter into such agreements on acceptable terms. Any limitation onthe company’s ability to provide a service or product could cause the companyto lose revenue-generating opportunities and require the company to incuradditional expenses, either of which could have a material adverse effect onits business. The company may also be required to indemnify its customers forany expenses or liabilities resulting from the claimed infringements. Thesepotential costs and expenses, as well as the need to pay any damages awarded infavor of the plaintiffs, which may be material in amount, could increase thecompany’s selling, general and administrative expenses, reduce the company’sincome and adversely affect the company’s liquidity.

 

The company is also aparty to various other legal proceedings, lawsuits and other claims arising inthe ordinary course of its business. The company does not believe that suchother litigation, if adversely determined, would have a material effect on thecompany’s business, financial position, results of operations or cash flow.

 

**12. Stockholders’ Equity**

 

**COMMON STOCK** Stockholders of the company have authorized the issuance of400,000,000 shares of common stock with a par value of $.01 per share. As ofSeptember 30, 2003, 158,292,367 shares of common stock were outstanding.Each outstanding common share has attached to it a one share purchase rightthat, until exercisable, cannot be transferred apart from the company’s commonstock. The rights will only become exercisable if a person or group acquires15% or more of the company’s common stock or announces an offer to acquire 15%or more of the company’s common stock. In the event the rights becomeexercisable, each right may entitle the holder to purchase common stock ofeither the surviving or acquired company at one-half its market price.

 

In 1997, the company’sBoard of Directors authorized the company to repurchase up to 15 million commonshares. Under this plan, the company repurchased a total of 11,785,432 sharesat a cost of $222.2 million from 1997 to 2000. In August 2003, thecompany’s Board of Directors authorized the company to repurchase an additional15 million shares of its common stock. These repurchases may be made on theopen market or in negotiated transactions and the timing and amount of sharesrepurchased will be determined by the company’s management. InAugust 2003, the company repurchased 5,000,000 shares at a cost of $49.6million under these stock buy-back programs.

 

Common stock issued,outstanding and held in treasury is summarized in the tables below:

 

|                                              |   | **YEAR ENDED  SEPTEMBER 30** |       |
|---------------------------------------------------|--------|-----------------------------------|------------|
|                                              |   | **2003**                          |       | **2002** |   | **2001** |   |
|                                              |   |                              |       |   |   |   |   |
| **Shares  of Common Stock–Issued**           |   |                              |       |   |   |   |   |
| Balance at  beginning of year                     |   | **102,718,210**                   | ** ** | 102,718,210 |   | 102,718,210 |   |
| Shares issued in  Allen Telecom acquisition       |   | **55,229,795**                    | ** ** | — |   | — |   |
| Shares issued  for conversion of preferred stock  |   | **2,942,652**                     | ** ** | — |   | — |   |
| Shares issued  for stock options                  |   | **10,000**                        | ** ** | — |   | — |   |
| Balance at End  of Year                           |   | **160,900,657**                   | ** ** | 102,718,210 |   | 102,718,210 |   |
|                                              |   |                              | ** ** |   |   |   |   |
| **Shares  of Common Stock–Held in Treasury** |   |                              | ** ** |   |   |   |   |
| Balance at  beginning of year                     |   | **4,500,493**                     | ** ** | 21,187,764 |   | 21,476,101 |   |
| Stock repurchase                                  |   | **5,000,000**                     | ** ** | — |   | — |   |
| Stock issued in  Celiant acquisition              |   | **—**                        | ** ** | (16,278,805 | ) | — |   |
| Shares issued  for conversion of preferred stock  |   | **(6,362,863**                    | **)**      | — |   | — |   |
| Stock options  and other plans                    |   | **(529,340**                      | **)**      | (408,466 | ) | (288,337 | ) |
| Balance at End  of Year                           |   | **2,608,290**                     | ** ** | 4,500,493 |   | 21,187,764 |   |

 

AtSeptember 30, 2003 the company had 12,386,340 shares of common stock thatcould potentially be issued under various stock plans described in Note 13. Inaddition, 2,117,557 shares could potentially be issued if the company’soutstanding convertible preferred stock is converted (see Convertible PreferredStock), and 17,531,568 shares could potentially be issued if the company’sconvertible notes are converted (see Note 7). 

 

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| ANDREW  CORPORATION 2003 |   | NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS  49 |
|--------------------------|--------|------------------------------------------------------|

 

**CONVERTIBLE PREFERRED STOCK**In connection with the Allen Telecom merger, thecompany issued 991,070 shares of Series A 7.75% convertible preferred stock.The convertible preferred stock has no par value and a liquidation preferenceof $50.00 per share plus accrued and unpaid dividends. These convertiblepreferred shares will gain limited voting rights only if the company does notpay dividends for six consecutive quarters.

 

Dividends on theconvertible preferred stock may be paid in cash, common stock, or a combinationthereof. Unpaid and/or undeclared dividends do not accumulate, but the numberof common shares that the preferred stockholders are entitled to receive upon conversionof the preferred stock will automatically increase, as specified in thecompany’s Certificate of Incorporation. In 2003, the company paid $808,000 inregular preferred stock dividends.

 

Each share of preferredstock is convertible, at the option of the holder at any time, into shares ofcommon stock of the company, par value $.01 per share, at an initial conversionrate of $4.338 per share (equivalent to a conversion rate of 11.526 shares ofcommon stock at a liquidation preference of $50.00), subject to adjustmentunder certain conditions, including the occurrence of certain change of controltransactions. On or after February 20, 2005, the company may, at itsoption as discussed below, cause all of the outstanding shares of preferredstock to be automatically converted into common stock at the then prevailingconversion ratio. The company may exercise that conversion right if, for atleast 20 trading days within any consecutive 30-day trading period (includingthe last trading day), the closing price of its common stock equals or exceeds125% of the then prevailing conversion price of the preferred stock.

 

Subject to legalavailability of funds, the shares of preferred stock are mandatorily redeemableby the company for cash at their liquidation preference on or afterFebruary 15, 2014 (unless previously converted into common shares of thecompany) and are not redeemable by the company before that date.

 

In a series of privatelynegotiated transactions, the company paid $7.00 per share of preferred stock toinduce early conversion into Andrew common stock. In the fourth quarter of2003, the company paid approximately $5.7 million to convert 807,350 sharesinto 9,305,515 shares of Andrew common stock. The company issued 6.4 millionshares out of treasury stock and 2.9 million new shares were issued for theconversion (see table at the beginning of this note). This $5.7 million hasbeen included on the statement of operations as preferred stock dividends. AtSeptember 30, the company had 183,720 shares of convertible preferredstock outstanding.

 

**13. Stock-Based Compensation**

 

The company currentlymaintains a long-term Management Incentive Program (MIP), which provides forthe issuance of up to 9,112,500 common shares in the form of stock options andawards and the awarding of performance units payable in cash or stock to keyofficers and other employees. On February 8, 2000, the company’sshareholders ratified a new long-term Management Incentive Program (MIP), whichprovided for the issuance of up to an additional 4,000,000 common shares in theform of stock options and awards and the awarding of performance units payablein cash or stock to key officers and other employees. On February 11,2003, the company’s shareholders approved an increase of these shares from4,000,000 to 8,000,000 shares. Options previously granted under these plansvest over a four-year period and expire ten years after the grant date. Infiscal year 2003, there were 1,107,475 options granted under these plans. AtSeptember 30, 2003, there were 4,247,548 options available for grant underthese plans.

 

The company maintained aStock Option Plan for Non-Employee Directors that provided for the issuance ofup to 1,012,500 common shares. Options granted under this plan vest over afive-year period and expire ten years after grant. In fiscal year 1998, thisplan was terminated due to an insufficient number of shares available for newgrants. On February 10, 1998, the company’s shareholders ratified a newStock Option Plan for Non-Employee Directors that provided for the issuance ofup to 400,000 common shares. On February 11, 2003, the company’sshareholders approved an increase of these shares from 400,000 to 800,000shares. Options under this plan vest over a five-year period and expire tenyears after grant. In fiscal year 2003, there were 84,000 options granted underthis plan. At September 30, 2003, there were 344,000 options available forgrant under this plan.

 

In connection with theAllen Telecom merger, Allen stock options outstanding at July 15, 2003were converted into Andrew stock options. The company granted a total of430,473 options for these conversions. These options are fully vested andexpire at various dates over the next three years.

 

The company has anEmployee Stock Purchase Plan (ESPP) that was amended and restated onNovember 12, 1998 and expires on February 1, 2009. All U.S. andcertain non-U.S. employees with six months of service as of the annual offeringdate are eligible to participate in this plan and can contribute up to 5% oftheir base salary to this plan. The plan authorizes up to 1,771,875 shares ofcommon stock to be sold to employees at 85% of market value. All shares issuedunder this plan are restricted and cannot be sold for one year following thedate of purchase. In fiscal year 2003, there were 390,858 shares purchased byemployees under the plan.

 

----

 
| 50  NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW CORPORATION 2003 |
|------------------------------------------------------|--------|-------------------------|

 

A summary of thecompany’s stock option activity and related information follows:

 
|                                 |   | **YEAR ENDED  SEPTEMBER 30** |       |
|--------------------------------------|--------|-----------------------------------|------------|
|                                 |   | **2003**                          |       | **2002** |   | **2001** |   |
|                                 |   |                              |       |   |   |   |   |
| Outstanding at  beginning of year    |   | **5,690,317**                     | ** ** | 4,673,740 |   | 3,719,158 |   |
| Granted                              |   | **1,621,948**                     | ** ** | 1,321,180 |   | 1,326,700 |   |
| Expired or  cancelled                |   | **(438,272**                      | **)**      | (139,788 | ) | (338,320 | ) |
| Exercised                            |   | **(55,876**                       | **)**      | (164,815 | ) | (33,798 | ) |
| Outstanding at  End of Year          |   | **6,818,117**                     | ** ** | 5,690,317 |   | 4,673,740 |   |
|                                 |   |                              | ** ** |   |   |   |   |
| Exercisable at  End of Year          |   | **4,193,768**                     | ** ** | 2,914,767 |   | 2,331,288 |   |
|                                 |   |                              | ** ** |   |   |   |   |
| **Weighted  Average Exercise Price** |   |                              | ** ** |   |   |   |   |
| Outstanding at  beginning of year    |   | **$**                             | **22.20**  | ** ** | $ | 22.36 |   | $ | 22.48 |   |
| Granted                              |   | **9.87**                          | ** ** | 20.59 |   | 22.31 |   |
| Expired or  cancelled                |   | **23.20**                         | ** ** | 23.81 |   | 24.01 |   |
| Exercised                            |   | **8.03**                          | ** ** | 12.72 |   | 16.70 |   |
| Outstanding at  End of Year          |   | **19.32**                         | ** ** | 22.20 |   | 22.36 |   |
| Exercisable at  End of Year          |   | **$**                             | **21.26**  | ** ** | $ | 23.01 |   | $ | 22.85 |   |

 

Theweighted average fair value of options granted during fiscal years 2003, 2002,and 2001 was $4.42, $10.40, and $11.38, per share, respectively. The weightedaverage life of options outstanding as of September 30, 2003 was 6.18years. The range of exercise prices for options outstanding atSeptember 30, 2003, was $3.44 to $38.17.

 
| **RANGE OF EXERCISE PRICES** |   | **$3.44-$10.17** |   | **$11.69-$15.77** |   | **$16.00-$20.56** |   | **$21.31-$22.65** |   | **$23.13-$24.94** |   | **$27.19-$38.17** |   | **TOTAL** |   |
|------------------------------|--------|------------------|--------|-------------------|--------|-------------------|--------|-------------------|--------|-------------------|--------|-------------------|--------|-----------|--------|
|                         |   |             |   |              |   |              |   |              |   |              |   |              |   |      |   |
| Outstanding Options          |   | 1,287,889        |   | 586,730           |   | 1,433,417         |   | 1,868,706         |   | 1,105,100         |   | 536,275           |   | 6,818,117 |   |
| Exercisable Options          |   | 206,689          |   | 531,730           |   | 1,097,267         |   | 881,253           |   | 940,679           |   | 536,150           |   | 4,193,768 |   |
| Weighted Average             |   |             |   |              |   |              |   |              |   |              |   |              |   |      |   |
| Exercise Price               |   | $                | 6.89   |              | $      | 13.25             |   | $                 | 17.88  |              | $      | 22.35             |   | $         | 23.54  |   | $ | 35.89 |   | $ | 21.26 |   |
| Average Life                 |   | 8.30             |   | 3.45              |   | 5.50              |   | 7.28              |   | 5.58              |   | 3.27              |   | 6.18      |   |
|                              |        |                  |        |                   |        |                   |        |                   |        |                   |        |                   |        |           |        |  |  |  |  |  |  |  |

 

----

 
| ANDREW  CORPORATION 2003 |   | NOTES TO  CONSOLIDATED FINANCIAL STATEMENTS  51 |
|--------------------------|--------|------------------------------------------------------|

 

**14. Segment and Geographic Information**

 

The company manages itsbusiness as one operating segment. The major product categories in this segmentare: Antennas, Base Station Subsystems, Cable Products, Network Solutions, andWireless Innovations. The company sells to a wide range of customers in thesemarkets. In 2003, sales to Lucent Technologies were $165.4 million or 16% ofthe company’s total revenue. In 2002, sales to Lucent Technologies were $94.8million or 11% of the company’s total revenue. In 2001, no single customer madeup 10% or more of the company’s total revenue.

 

Principal financial databy major product group and geographic selling location is as follows:

 
|                                        |   | **YEAR ENDED SEPTEMBER 30** |          |
|---------------------------------------------|--------|----------------------------------|---------------|
| **DOLLARS IN THOUSANDS**                    |   | **2003**                         |          | **2002** |   | **2001** |   |
|                                        |   |                             |          |   |   |   |   |
| **Sales by Product Group**                  |   |                             | ** **    |   | ** ** |   | ** ** |
| Antennas                                    |   | **$**                            | **264,775**   | ** ** | $ | 255,779 |   | $ | 320,225 |   |
| Base  Station Subsystems                    |   | **236,150**                      | ** **    | 96,303 |   | 7,837 |   |
| Cable  Products                             |   | **428,189**                      | ** **    | 490,165 |   | 579,030 |   |
| Network  Solutions                          |   | **43,772**                       | ** **    | — |   | — |   |
| Wireless Innovations                        |   | **41,600**                       | ** **    | 22,554 |   | 28,184 |   |
| **Total Sales**                             |   | **$**                            | **1,014,486** | ** ** | $ | 864,801 |   | $ | 935,276 |   |
|                                        |   |                             | ** **    |   |   |   |   |
| **Sales by Geographic Area**                |   |                             | ** **    |   | ** ** |   | ** ** |
| United  States–Domestic                |   | **$**                            | **446,964**   | ** ** | $ | 428,549 |   | $ | 405,585 |   |
| United  States–Export                  |   | **72,774**                       | ** **    | 38,255 |   | 40,499 |   |
| Europe,  Middle East, Africa                |   | **278,326**                      | ** **    | 188,737 |   | 171,068 |   |
| China                                       |   | **73,649**                       | ** **    | 59,134 |   | 141,100 |   |
| Other Asia-Pacific                          |   | **70,641**                       | ** **    | 84,868 |   | 72,364 |   |
| Other Americas                              |   | **72,132**                       | ** **    | 65,258 |   | 104,660 |   |
| **Total Sales**                             |   | **$**                            | **1,014,486** | ** ** | $ | 864,801 |   | $ | 935,276 |   |
|                                        |   |                             | ** **    |   |   |   |   |
| **Assets Identifiable to**                  |   |                             | ** **    |   | ** ** |   | ** ** |
| United  States                              |   | **$**                            | **544,813**   | ** ** | $ | 323,402 |   | $ | 361,216 |   |
| United  States–discontinued operations |   | **—**                       | ** **    | 16,792 |   | 73,645 |   |
| Europe,  Middle East, Africa                |   | **378,129**                      | ** **    | 165,393 |   | 146,777 |   |
| China                                       |   | **117,932**                      | ** **    | 89,049 |   | 137,371 |   |
| Other  Asia-Pacific                         |   | **40,579**                       | ** **    | 42,423 |   | 39,616 |   |
| Other  Americas                             |   | **77,296**                       | ** **    | 42,968 |   | 54,325 |   |
| Goodwill & Other Intangible Assets      |   | **914,484**                      | ** **    | 443,639 |   | 44,782 |   |
| **Consolidated Assets**                     |   | **$**                            | **2,073,233** | ** ** | $ | 1,123,666 |   | $ | 857,732 |   |

 

----

 
| 52  NOTES  TO CONSOLIDATED FINANCIAL STATEMENTS |   | ANDREW CORPORATION 2003 |
|------------------------------------------------------|--------|-------------------------|

 

**15. Selected QuarterlyFinancial Information (Unaudited)**

 

Due to variability of shipmentsunder large contracts, customers’ seasonal installation considerations,variations in product mix and in profitability of individual orders, thecompany can experience wide quarterly fluctuations in sales and operatingresults. Consequently, it is more meaningful to focus on annual rather thanquarterly results.

 
| **DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS**                   |   | **DECEMBER** |        | **MARCH**  |       | **JUNE**    |       | **SEPTEMBER** |             | **TOTAL**   |   |
|----------------------------------------------------------------------|--------|--------------|-------------|------------|------------|-------------|------------|---------------|------------------|-------------|--------|
|                                                                 |   |         | ** **  |       | ** ** |        | ** ** |          | ** **       |        |   |
| **2003**                                                             |   |         | ** **  |       | ** ** |        | ** ** |          | ** **       |        |   |
| **Sales**                                                            |   | **$**        | **254,526** | ** ** | **$**      | **201,318** | ** ** | **$**         | **213,721**      | ** **  | **$**  | **344,921** | **(2) ** | **$** | **1,014,486** |   |
| **Gross profit**                                                     |   | **71,213**   | ** **  | **51,717** | ** ** | **54,630**  | ** ** | **97,585**    | ** **       | **275,145** |   |
| **Income  (loss) from continuing operations before income taxes**    |   | **9,482**    | ** **  | **(2,388** | **)**      | **8,046**   | **(1)**    | **8,186**     | **(3),(4)**      | **23,326**  |   |
| **Income (loss) from continuing operations**                         |   | **6,637**    | ** **  | **(1,671** | **)**      | **8,417**   | **(1)**    | **5,321**     | **(3),(4)**      | **18,704**  |   |
| **Net income (loss)**                                                |   | **6,067**    | ** **  | **(3,431** | **)**      | **7,629**   | ** ** | **5,255**     | **(3),(4)**      | **15,520**  |   |
| **Preferred stock dividends**                                        |   | **—**   | ** **  | **—** | ** ** | **—**  | ** ** | **6,459**     | ** **       | **6,459**   |   |
| **Net income (loss) available to common shareholders**               |   | **6,067**    | ** **  | **(3,431** | **)**      | **7,629**   | **(1)**    | **(1,204**    | **)(3),(4)**     | **9,061**   |   |
|                                                                 |   |         | ** **  |       | ** ** |        | ** ** |          | ** **       |        |   |
| **Basic and  diluted income (loss) from continuing operations**      |   | **0.07**     | ** **  | **(0.02**  | **)**      | **0.09**    | **(1)**    | **(0.01**     | **)(3),(4),(5)** | **0.11**    |   |
| **Basic and  diluted net income (loss) per share**                   |   | **0.06**     | ** **  | **(0.03**  | **)**      | **0.08**    | **(1)**    | **(0.01**     | **)(3),(4),(5)** | **0.08**    |   |
|                                                                 |   |         | ** **  |       | ** ** |        | ** ** |          | ** **       |        |   |
| **Common Stock Price Range:**                                        |   |         | ** **  |       | ** ** |        | ** ** |          | ** **       |        |   |
| **High**                                                             |   | **12.45**    | ** **  | **11.27**  | ** ** | **10.04**   | ** ** | **14.17**     | ** **       |        |   |
| **Low**                                                              |   | **$**        | **6.06**    | ** ** | **$**      | **5.50**    | ** ** | **$**         | **5.73**         | ** **  | **$**  | **9.34** | ** ** |   |   |
|                                                                 |   |         |        |       |       |        |       |          |             |        |   |
| 2002                                                                 |   |         |        |       |       |        |       |          |             |        |   |
| Sales                                                                |   | $            | 199,896     |       | $          | 189,326     |       | $             | 203,753          |        | $      | 271,826 | (7) | $ | 864,801 |   |
| Gross profit                                                         |   | 63,375       |        | 54,853     |       | 57,155      |       | 62,325        | (8)              | 237,708     |   |
| Income (**loss**) from continuing operations before  income taxes    |   | 23,429       | (6)         | 9,901      |       | 6,245       |       | (26,505       | )(8)             | 13,070      |   |
| Income (loss) from  continuing operations                            |   | 17,674       | (6)         | 6,930      |       | 4,371       |       | (18,483       | )(8)             | 10,492      |   |
| Net income (loss)                                                    |   | 15,327       | (6)         | 3,306      |       | 1,993       |       | (47,005       | )(8),(9)         | (26,379     | )      |
|                                                                 |   |         |        |       |       |        |       |          |             |        |   |
| Basic and diluted income (loss) from continuing operations per share |   | 0.22         | (6)         | 0.08       |       | 0.05        |       | (0.19         | )(8)             | 0.12        |   |
| Basic and diluted net  income (loss) per share                       |   | 0.19         | (6)         | 0.04       |       | 0.02        |       | (0.48         | )(8),(9)         | (0.30       | )      |
|                                                                 |   |         |        |       |       |        |       |          |             |        |   |
| Common Stock Price Range:                                            |   |         |        |       |       |        |       |          |             |        |   |
| High                                                                 |   | 23.82        |        | 24.43      |       | 18.00       |       | 14.36         |             |        |   |
| Low                                                                  |   | $            | 17.38       |       | $          | 15.79       |       | $             | 13.35            |        | $      | 6.50 |   |   |   |

 

----

(1)          Includes$9.3 million pre-tax and after-tax gain on the sale of assets.

(2)          Theincrease in sales in the September 2003 quarter was primarily driven bythe July acquisition of Allen Telecom, Inc.

(3)          Includes$2.8 million pre-tax, $1.8 million after-tax gain related to the sale ofassets.

(4)          Includesrestructuring charges of $8.5 million pre-tax, $5.6 million after-tax.

(5)          Pershare calculations are based on income available to common shareholders, whichincluded preferred stock dividends of $6.5 million in the fourth quarter of2003.

(6)          Includes$8.7 million pre-tax, $7.3 million after-tax gain on the sale of Russian jointventures.

(7)          Theincrease in sales in the September 2002 quarter was primarily driven bythe June acquisition of Celiant Corporation.

(8)          Includesrestructuring charges of $36.0 million pre-tax and $25.2 million after-tax.

(9)          Includesloss on the disposal of discontinued operations of $26.4 million.

 

----

 
| ANDREW  CORPORATION 2003 |   | REPORT OF  INDEPENDENT AUDITORS  53 |
|--------------------------|--------|------------------------------------------|

 

**To the Stockholders and Board of Directors of AndrewCorporation**

 

We have audited theaccompanying consolidated balance sheets of Andrew Corporation and subsidiariesas of September 30, 2003 and 2002, and the related consolidated statementsof operations, stockholders’ equity and cash flows for each of the three yearsin the period ended September 30, 2003. These financial statements are theresponsibility of the company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

We conducted our auditsin accordance with auditing standards generally accepted in the United States.Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation.We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, theconsolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Andrew Corporationand subsidiaries at September 30, 2003 and 2002, and the consolidatedresults of their operations and their cash flows for each of the three years inthe period ended September 30, 2003 in conformity with generally acceptedaccounting principles, generally accepted in the United States.

 

 
| /s/ Ernst & Young  LLP |   |
|----------------------------|--------|
|                       |
|                       |
| Chicago, Illinois          |
| October 24, 2003      |

 

----

 
| 54   ELEVEN-YEAR FINANCIAL SUMMARY (UNAUDITED) |   | ANDREW CORPORATION 2003 |
|-----------------------------------------------------|--------|-------------------------|

 
| **DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS**                      |   | **2003**      |          | **2002**   |   | **2001**  |   |
|-------------------------------------------------------------------------|--------|---------------|---------------|------------|--------|-----------|--------|
|                                                                    |   |          |          |       |   |      |   |
| **Operations**                                                          |   |          |          |       |   |      |   |
| Sales                                                                   |   | **$**         | **1,014,486** |       | $      | 864,801   |   | $ | 935,276 |   |
| Gross  profit                                                           |   | **275,145**   | ** **    | 237,708    |   | 309,909   |   |
| Operating  income                                                       |   | **13,683**    | ** **    | 9,395      |   | 108,602   |   |
| Other  (income) expense                                                 |   | **(9,643**    | **)**         | (3,675     | )      | 7,210     |   |
| Income  from continuing operations before taxes                         |   | **23,326**    | ** **    | 13,070     |   | 101,392   |   |
| Income  from continuing operations                                      |   | **18,704**    | ** **    | 10,492     |   | 68,948    |   |
| Discontinued  Operations:                                               |   |          | ** **    |       |   |      |   |
| Loss  (income) from operations of discontinued operations, net of taxes |   | **3,184**     | ** **    | 10,484     |   | 7,326     |   |
| Loss  on disposal of discontinued operations, net of taxes              |   | **—**    | ** **    | 26,387     |   | —    |   |
| Net  income (loss)                                                      |   | **15,520**    | ** **    | (26,379    | )      | 61,622    |   |
| Net  income (loss) available to common shareholders*                    |   | **9,061**     | ** **    | (26,379    | )      | 61,622    |   |
| Basic  income from continuing operations per share                      |   | **0.11**      | ** **    | 0.12       |   | 0.85      |   |
| Diluted  income from continuing operations per share                    |   | **0.11**      | ** **    | 0.12       |   | 0.85      |   |
| Basic  net income per share                                             |   | **0.08**      | ** **    | (0.30      | )      | 0.76      |   |
| Diluted net  income per share                                           |   | **0.08**      | ** **    | (0.30      | )      | 0.76      |   |
| **Orders  and Backlog**                                                 |   |          | ** **    |       |   |      |   |
| Orders  entered                                                         |   | **999,859**   | ** **    | 903,171    |   | 1,002,979 |   |
| Order backlog  at year end                                              |   | **327,264**   | ** **    | 195,318    |   | 191,997   |   |
| **Financial  Position**                                                 |   |          | ** **    |       |   |      |   |
| Working  capital                                                        |   | **615,474**   | ** **    | 240,613    |   | 376,082   |   |
| Total  assets                                                           |   | **2,073,233** | ** **    | 1,123,666  |   | 857,732   |   |
| Long-term  debt                                                         |   | **301,364**   | ** **    | 13,391     |   | 39,905    |   |
| Stockholders’  equity                                              |   | **1,423,970** | ** **    | 845,244    |   | 600,650   |   |
| **Cash  Flow**                                                          |   |          | ** **    |       |   |      |   |
| From  operations                                                        |   | **62,366**    | ** **    | 155,121    |   | 160,152   |   |
| From  (used for) investing activities                                   |   | **39,383**    | ** **    | (170,238   | )      | (79,070   | )      |
| From  (used for) from financing activities                              |   | **89,634**    | ** **    | (17,891    | )      | (16,119   | )      |
| Cash and  equivalents                                                   |   | **$**         | **286,269**   | ** ** | $      | 84,871    |   | $ | 112,377 |   |
| **Ratios  and Other Data**                                              |   |          | ** **    |       |   |      |   |
| Current  ratio                                                          |   | **3.2**       | ** **    | 2.0        |   | 3.1       |   |
| Return  on Sales:                                                       |   |          | ** **    |       |   |      |   |
| Income  from continuing operations                                      |   | **1.8**       | **%**         | 1.2        | %      | 7.4       | %      |
| Net  income                                                             |   | **1.5**       | **%**         | (3.1       | )%     | 6.6       | %      |
| Return  on average assets                                               |   | **1.0**       | **%**         | (2.7       | )%     | 7.4       | %      |
| Return on  average stockholders’ equity                            |   | **1.4**       | **%**         | (3.6       | )%     | 10.8      | %      |
| Stockholders’  equity per share outstanding                        |   | **$**         | **9.00**      | ** ** | $      | 8.61      |   | $ | 7.37 |   |
| Research  and development                                               |   | **84,151**    | ** **    | 57,977     |   | 39,934    |   |
| Additions to  property, plant and equipment for continuing operations   |   | **$**         | **31,859**    | ** ** | $      | 40,496    |   | $ | 70,293 |   |
| Number  of full-time equivalent employees at year end:                  |   |          | ** **    |       |   |      |   |
| Outside  United States                                                  |   | **4,557**     | ** **    | 2,115      |   | 1,944     |   |
| Total  employees                                                        |   | **7,228**     | ** **    | 4,757      |   | 4,768     |   |
| Average  basic shares of stock outstanding (thousands)                  |   | **109,822**   | ** **    | 87,197     |   | 81,382    |   |
| Average  diluted shares of stock outstanding (thousands)                |   | **109,866**   | ** **    | 87,295     |   | 81,542    |   |
| Total  shares of stock outstanding at year-end (thousands)              |   | **158,292**   | ** **    | 98,218     |   | 81,530    |   |
| Registered  stockholders at year end                                    |   | **5,078**     | ** **    | 3,665      |   | 3,622     |   |

 

----

All data presented has been updated for the disposal of discontinuedoperations in 1997 and 2002.

* In 2003, the company paid preferredstock dividends of $6.5 million.         key statistics

 

----

 
| ANDREW  CORPORATION 2003 |   | ELEVEN-YEAR  FINANCIAL SUMMARY (UNAUDITED)  55 |
|--------------------------|--------|-----------------------------------------------------|

 
| **DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS**                      |   | **2000** |    | **1999** |   | **1998** |   | **1997** |    | **1996** |   | **1995** |   | **1994** |    | **1993** |   |
|-------------------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|----------|---------|----------|--------|----------|--------|----------|---------|----------|--------|
|                                                                    |   |     |    |     |   |     |   |     |    |     |   |     |   |     |    |     |   |
| **Operations**                                                          |   |     |    |     |   |     |   |     |    |     |   |     |   |     |    |     |   |
| Sales                                                                   |   | $        | 902,898 |     | $      | 708,038  |   | $        | 780,738 |     | $      | 766,195  |   | $        | 702,081 |     | $      | 575,666 |   | $ | 512,115 |   | $ | 378,736 |   |
| Gross profit                                                            |   | 322,322  |    | 242,051  |   | 323,001  |   | 340,933  |    | 310,252  |   | 253,780  |   | 208,169  |    | 148,164  |   |
| Operating income                                                        |   | 140,189  |    | 50,867   |   | 163,901  |   | 167,438  |    | 146,330  |   | 120,369  |   | 83,929   |    | 48,262   |   |
| Other (income) expense                                                  |   | 11,050   |    | (1,267   | )      | 2,452    |   | (2,359   | )       | 4,150    |   | 3,256    |   | 6,669    |    | 2,818    |   |
| Income from continuing  operations before taxes                         |   | 129,139  |    | 52,134   |   | 161,449  |   | 169,797  |    | 142,180  |   | 117,113  |   | 77,260   |    | 45,444   |   |
| Income from continuing  operations                                      |   | 87,815   |    | 32,437   |   | 106,556  |   | 110,368  |    | 90,995   |   | 74,844   |   | 49,353   |    | 28,949   |   |
| Discontinued  Operations:                                               |   |     |    |     |   |     |   |     |    |     |   |     |   |     |    |     |   |
| Loss (income) from  operations of discontinued operations, net of taxes |   | 8,214    |    | 2,010    |   | 2,709    |   | 5,940    |    | 598      |   | 4,889    |   | 3,586    |    | (454     | )      |
| Loss on disposal of  discontinued operations, net of taxes              |   | —   |    | —   |   | —   |   | 16,086   |    | —   |   | —   |   | —   |    | —   |   |
| Net income (loss)                                                       |   | 79,601   |    | 30,427   |   | 103,847  |   | 88,342   |    | 90,397   |   | 69,955   |   | 45,767   |    | 29,403   |   |
| Net income (loss)  available to common shareholders*                    |   | 79,601   |    | 30,427   |   | 103,847  |   | 88,342   |    | 90,397   |   | 69,955   |   | 45,767   |    | 29,403   |   |
| Basic income from  continuing operations per share                      |   | 1.08     |    | 0.39     |   | 1.21     |   | 1.21     |    | 1.01     |   | 0.84     |   | 0.56     |    | 0.34     |   |
| Diluted income from  continuing operations per share                    |   | 1.08     |    | 0.39     |   | 1.21     |   | 1.21     |    | 1.00     |   | 0.83     |   | 0.55     |    | 0.33     |   |
| Basic net income per  share                                             |   | 0.98     |    | 0.37     |   | 1.18     |   | 0.97     |    | 1.00     |   | 0.78     |   | 0.52     |    | 0.34     |   |
| Diluted net income per share                                            |   | 0.98     |    | 0.37     |   | 1.18     |   | 0.97     |    | 0.99     |   | 0.78     |   | 0.51     |    | 0.33     |   |
| **Orders and Backlog**                                                  |   |     |    |     |   |     |   |     |    |     |   |     |   |     |    |     |   |
| Orders entered                                                          |   | 926,933  |    | 706,830  |   | 797,096  |   | 779,622  |    | 725,201  |   | 635,127  |   | 510,076  |    | 386,098  |   |
| Order backlog at year end                                               |   | 133,192  |    | 115,555  |   | 129,375  |   | 119,178  |    | 153,372  |   | 135,692  |   | 83,086   |    | 85,875   |   |
| **Financial Position**                                                  |   |     |    |     |   |     |   |     |    |     |   |     |   |     |    |     |   |
| Working capital                                                         |   | 350,658  |    | 303,853  |   | 320,117  |   | 332,721  |    | 284,602  |   | 227,164  |   | 171,705  |    | 142,675  |   |
| Total assets                                                            |   | 817,197  |    | 666,090  |   | 682,903  |   | 691,154  |    | 631,229  |   | 505,114  |   | 425,326  |    | 343,876  |   |
| Long-term debt                                                          |   | 65,843   |    | 48,760   |   | 38,031   |   | 35,693   |    | 40,423   |   | 45,255   |   | 46,092   |    | 52,467   |   |
| Stockholders’ equity                                               |   | 542,945  |    | 484,010  |   | 508,778  |   | 509,123  |    | 456,214  |   | 357,191  |   | 276,553  |    | 221,872  |   |
| **Cash Flow**                                                           |   |     |    |     |   |     |   |     |    |     |   |     |   |     |    |     |   |
| From operations                                                         |   | 49,974   |    | 72,835   |   | 149,852  |   | 151,680  |    | 66,796   |   | 55,816   |   | 52,343   |    | 54,911   |   |
| From (used for)  investing activities                                   |   | (95,364  | )       | (70,074  | )      | (64,117  | )      | (61,427  | )       | (78,683  | )      | (55,367  | )      | (38,692  | )       | (33,295  | )      |
| From (used for) from  financing activities                              |   | 55,386   |    | (44,655  | )      | (100,361 | )      | (25,499  | )       | (1,972   | )      | 4,570    |   | 4,259    |    | (5,938   | )      |
| Cash and equivalents                                                    |   | $        | 44,865  |     | $      | 38,287   |   | $        | 78,395  |     | $      | 93,823   |   | $        | 31,295  |     | $      | 46,064 |   | $ | 40,714 |   | $ | 22,001 |   |
| **Ratios and Other Data**                                               |   |     |    |     |   |     |   |     |    |     |   |     |   |     |    |     |   |
| Current ratio                                                           |   | 3.0      |    | 3.8      |   | 3.7      |   | 3.6      |    | 3.4      |   | 3.4      |   | 2.8      |    | 3.2      |   |
| Return on Sales:                                                        |   |     |    |     |   |     |   |     |    |     |   |     |   |     |    |     |   |
| Income from continuing  operations                                      |   | 9.7      | %       | 4.6      | %      | 13.6     | %      | 14.4     | %       | 13.0     | %      | 13.0     | %      | 9.6      | %       | 7.6      | %      |
| Net income                                                              |   | 8.8      | %       | 4.3      | %      | 13.3     | %      | 11.5     | %       | 12.9     | %      | 12.2     | %      | 8.9      | %       | 7.8      | %      |
| Return on average  assets                                               |   | 10.7     | %       | 4.5      | %      | 15.1     | %      | 13.4     | %       | 15.9     | %      | 15.0     | %      | 11.9     | %       | 8.9      | %      |
| Return on average stockholders’ equity                             |   | 15.5     | %       | 6.1      | %      | 20.4     | %      | 18.3     | %       | 22.2     | %      | 22.1     | %      | 18.4     | %       | 14.2     | %      |
| Stockholders’ equity  per share outstanding                        |   | $        | 6.68    |     | $      | 5.89     |   | $        | 6.02    |     | $      | 5.68     |   | $        | 5.03    |     | $      | 3.97 |   | $ | 3.12 |   | $ | 2.61 |   |
| Research and  development                                               |   | 31,684   |    | 26,967   |   | 24,082   |   | 38,738   |    | 28,026   |   | 19,688   |   | 18,762   |    | 16,650   |   |
| Additions to property, plant and  equipment for continuing operations   |   | $        | 74,181  |     | $      | 49,298   |   | $        | 55,417  |     | $      | 46,061   |   | $        | 50,431  |     | $      | 45,614 |   | $ | 27,095 |   | $ | 17,876 |   |
| Number of full-time  equivalent employees at year end:                  |   |     |    |     |   |     |   |     |    |     |   |     |   |     |    |     |   |
| Outside United States                                                   |   | 1,822    |    | 1,261    |   | 1,219    |   | 1,185    |    | 1,162    |   | 763      |   | 661      |    | 584      |   |
| Total employees                                                         |   | 4,703    |    | 3,626    |   | 3,586    |   | 3,724    |    | 4,028    |   | 3,409    |   | 3,096    |    | 2,924    |   |
| Average basic shares of  stock outstanding (thousands)                  |   | 80,944   |    | 82,675   |   | 87,941   |   | 90,947   |    | 90,263   |   | 89,177   |   | 87,845   |    | 86,193   |   |
| Average diluted shares  of stock outstanding (thousands)                |   | 81,418   |    | 82,813   |   | 88,306   |   | 91,539   |    | 91,033   |   | 89,964   |   | 89,204   |    | 87,831   |   |
| Total shares of stock  outstanding at year-end (thousands)              |   | 81,242   |    | 82,192   |   | 84,508   |   | 89,581   |    | 90,648   |   | 90,075   |   | 88,526   |    | 85,024   |   |
| Registered stockholders at year end                                     |   | 3,688    |    | 4,365    |   | 4,727    |   | 4,599    |    | 3,242    |   | 2,340    |   | 1,482    |    | 1,133    |   |

 

All data presented hasbeen updated for the disposal of discontinued operations in 1997 and 2002.

 

----

*In 2003, the company paid preferred stockdividends of $6.5 million.

 

----

 
| 70  CORPORATE OFFICERS |   | ANDREW CORPORATION 2003 |
|-----------------------------|--------|-------------------------|

 

**PAUL R. COX,** 44, group president, antennas, joined AndrewCorporation in September 2000 as vice president, satelliteproducts/systems and government antennas. Prior to joining Andrew, he was vicepresident and general manager of the Space & Technology Group/Atlanta atEMS Technologies, Inc. He holds a Bachelor of Science in Electrical Engineering(BSEE) from Auburn University and a Master of Science (MS) in the samediscipline from Southern Methodist University.

 

**JOHN E. DESANA,** 54, group president, cable products, joinedAndrew in March 1991 as operations manager, HELIAX® cable products andbecame vice president, HELIAX® cable and accessories in November 1996.Prior to joining Andrew, he was employed by Litton Industries and Belden Wireand Cable. He graduated from Xavier University with a Bachelor of Arts (BA) ineconomics.

 

**JOHN R.D. DICKSON,** 48, vice president, corporate marketing andglobal information systems since 1996, joined Andrew in 1975 and has heldnumerous management positions in engineering, business development, marketingand business unit management. He holds a Higher National Diploma (HND) inphysics from Napier University, Edinburgh, Scotland.

 

**FLOYD L. ENGLISH,** 69, chairman since 1994, served as presidentand chief executive officer of Andrew from 1983 to 2000 and from 2001 to 2003.Dr. English joined Andrew in 1980 as vice president, corporate development andbecame vice president, U.S. operations in February 1981 and president in1982. Dr. English is a member of the boards of the Executive Club of Chicagoand the Illinois Mathematics and Science Academy Fund for Advancement ofEducation.

 

**RALPH E. FAISON,** 45, president and chief executive officer,joined Andrew in June 2002 as president and chief operating officer. Hewas formerly president and chief executive officer of Celiant Corporation sinceJune 2001. Prior to joining Celiant, he was vice president of New VenturesGroup at Lucent Technologies from 1997. Previously, he was vice president ofadvertising and brand management. Prior to Lucent, he held various positions atAT&T, including vice president and general manager of AT&T’s wirelessbusiness unit and manufacturing vice president for its consumer products unitin Bangkok, Thailand. He holds a Bachelor of Science (BS) in marketing fromGeorgia State University and a MS in management from Stanford University. He isa member of the board of directors for WatchMark Corporation, NETGEAR, Inc.,the Executive Club of Chicago, and Board of Advisors for New Venture PartnersLLC, the general partner of New Venture Partners II LP. New Venture Partners IILP was an investor in Celiant Corporation and owned 5.3% of Andrew’soutstanding stock on September 30, 2003 as a result of the acquisition ofCeliant by Andrew.

 

**TERRY N. GARNER,** 54, group president, network solutions,served as president of Grayson Wireless, a division of Allen Telecom, Inc.,since 1986. Prior to founding Grayson Wireless, he spent fifteen years withGeneral Electric Mobile Communications in Lynchburg, Virginia. He graduatedwith a BSEE from Louisiana State University.

 

**M. JEFFREY GITTELMAN,** 55, vice president and treasurer, joinedAndrew in 1992. Previously, he was vice president and treasurer of Holnam Inc.and assistant treasurer of Storage Technology Corporation. He holds a Bachelorof Business Administration (BBA) in finance from Hofstra University and aMaster of Business Administration (MBA) from Adelphi University. He is a memberof the National Association of Corporate Treasurers organization.

 

**DANIEL J. HARTNETT,** 48, vice president, tax, joined Andrew inApril 1997 as tax director and was elected vice president inJuly 2003. Prior to joining Andrew, he was employed by Sara LeeCorporation and the public accounting firm of Touche Ross. He holds a JurisDoctorate (JD), Master of Science and Tax (MST) from DePaul University and a BAfrom Northern Illinois University. He is a member of the Illinois Bar, theAmerican Institute of Certified Public Accountants (AICPA) and Tax ExecutivesInstitute.

 

**ROBERT J. HUDZIK,** 54, vice president, corporate development,joined Andrew in July 1996. He was formerly director, marketing and sales,network services for PTT Telecom of the Netherlands from January 1994until 1996. He was vice president, marketing for Ameritech Services from 1990to 1994. He holds a BSEE from the University of Illinois at Urbana and a MBAfrom the University of Chicago.

 

**J.C. HUANG,** 45, chief technology and strategy officer,joined Andrew in August 2003. He has over twenty years’ experience invarious roles in the wireless industry. He has been a managing director andgeneral partner of Ericsson Venture Partners, a management consultant withMcKinsey & Co., and a principal scientist at Raytheon. He holds a PhD inapplied physics from Cornell University and a MBA in finance from the WhartonSchool.

 

**MARTY R. KITTRELL,** 46, chief financial officer, joined Andrew inJune 2002 as vice president, strategic planning. He was formerly vicepresident and chief financial officer of Celiant Corporation. Between 1997 and2000, he held various executive positions at BlueStar Battery SystemsInternational, Worldtex, Inc. and Enfinity Corporation. Prior to that, he wasvice president and chief financial officer from 1989 to 1997 of ExideElectronics Group, Inc. He holds a BS in accounting from Lipscomb University.He is a CPA, member of Financial Executives International (FEI), NationalInvestor Relations Institute and AICPA.

 

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| ANDREW  CORPORATION 2003 |   | CORPORATE  OFFICERS  71 |
|--------------------------|--------|------------------------------|

 

**JAMES L. LEPORTE III,** 49, vice president, sales operations, joinedAndrew in July 2003. He was formerly vice president, finance of AllenTelecom Inc. since 1999. Prior to 1999, he was vice president, treasurer andcontroller from 1995-1999 and vice president and controller from 1990-1995 atAllen and he also held several managerial positions with Allen Telecom from1981-1990. Prior to Allen, he was employed by General Electric Company where heheld various financial management positions and graduated from GE’s financialmanagement program. He holds a BA in economics from Hamilton College.

 

**FRED H. LIETZ,** 48, vice president, procurement, joinedAndrew in December 2000 from the consumer goods industry where he wasemployed by Philips in Europe and later by Whirlpool Corporation in the US. Heholds a degree in business administration from IHK, Stuttgart, Germany.

 

**GREGORY F. MARUSZAK,** 55, vice president and chief complianceofficer, joined Andrew in 1982 as financial reporting manager. Prior to hisnewly created role, he was vice president, finance and administration and chiefaccounting officer. He was employed at the public accounting firm of Ernst& Young. He received a BA in accounting from Lewis University. He is a CPA,member of the AICPA and the Illinois CPA society.

 

**JAMES D.MCILVAIN,** 43, interim group president, worldwide sales,joined Andrew in 1986 and served in a number of sales and sales managementpositions. He was named vice president, Asia-Pacific and global OEM sales in2000, having previously been director, Asia-Pacific and global OEM sales since1999. Prior to joining Andrew, he was employed by S.K. Products. He holds BA inmarketing from North Central College.

 

**CHARLES R. NICHOLAS,** 57, vice chairman of Andrew sinceSeptember 2000 and will become chairman in February 2004. He joinedAndrew in 1980 as treasurer, was named vice president, finance in 1982, chieffinancial officer in 1986 and executive vice president, administration andfinance and chief financial officer from 1995 to 2003. He was formerly a seniorexecutive in the public accounting firm of Ernst & Young. He holds a BA inaccounting from St. Ambrose University. He is a CPA, a member of AICPA,Illinois CPA Society and FEI.

 

**MARK A. OLSON,** 45, vice president, corporate controller andchief accounting officer, joined Andrew in 1993 as group controller. He wasnamed corporate controller in 1998, vice president and corporate controller in2000 and chief accounting officer in 2003. Prior to joining the company, he wasemployed by Nortel and Johnson & Johnson. He received a BA in accountingand Spanish from Lewis University and a MBA from DePaul University. He is a CPAand a member of the AICPA and the Illinois CPA Society.

 

**ROBERTG. PAUL,** 61, interim grouppresident, base station subsystems since July 2003. He previously waspresident and CEO from 1991 until July 2003 at Allen Telecom Inc. He holdsa Bachelor of Science in Mechanical Engineering (BSME) from the University ofWisconsin and a MBA from Stanford University. Mr. Paul also serves as aDirector of Rogers Corporation.

 

**JAMES F. PETELLE,** 52, vice president, law and secretary, joinedAndrew as secretary and general attorney in 1990. He was elected vice presidentin February, 2000. Before joining Andrew, he was senior attorney with A. B.Dick Company. He holds a BA in psychology from the University of Notre Dame anda JD from the University of Michigan.

 

**KAREN A. QUINN-QUINTIN,** 46, vice president and chief human resourcesofficer since July 2003. She has over 20 years’ experience in humanresources, most recently as vice president, human resources for TextronIndustrial Products. Prior to joining Textron, she worked for Johnson &Higgins, Sheaffer Eaton and Massachusetts Mutual Life Insurance Company,holding positions in benefits, compensation and group pensions. She holds a BAin criminal justice and political science from Stonehill College.

 

**GIANPIERO VILLA,** 51, group president, wireless innovations,joined Andrew in July 2003. He was formerly president & CEO of Foremsrl, a division of Allen Telecom Inc. since 1999 and president of the RF, Opticand System division of Allen Telecom since 2001. Prior to joining Allen Telecomhe worked for Telettra and Merloni Progetti. He graduated in electronics fromP. Hensemberger technical institute of Monza (Italy).

 

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