** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

#### **Form 10-Q**

 

**(Mark-One)**

| **ý**                                              |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                                    |   |                                                                                          |
| ***For the quarterly period ended December 31, 2002.*** |
|                                                    |
| **OR**                                                  |
|                                                    |
| **o**                                                   |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |

** **

**For the transition period from             to            **

 

**Commission file number 001-14617**

 

| **ANDREW  CORPORATION**                                                             |
|-------------------------------------------------------------------------------------|
| (Exact name of  Registrant as specified in its charter)                             |
|                                                                                |   |   |
| **DELAWARE**                                                                        |   | **36-2092797** |
| (State or other  jurisdiction of incorporation or organization)                     |   | (IRS Employer  identification No.) |
|                                                                                |   |   |
|                                                                                |   |   |
| **10500 W. 153rd Street,  Orland Park, Illinois  60462**                       |
| (Address of principal  executive offices and zip code)                              |
|                                                                                |   |   |
| **(708)  349-3300**                                                            |
| (Registrant’s telephone  number, including area code)                          |
|                                                                                |   |   |
| **No Change**                                                                       |
| (Former name, former  address and former fiscal year, if changed since last report) |

 

Indicate by check mark whether the Registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period as theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

 

Yes  ý  No  o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in rule 12b-2of the Act)

 

Yes  ý  No  o

 

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of the latest practical date.

 

Common Stock, $.01 Par Value - 98,329,555 shares as of February 10,2003.

 

 

----

 

**INDEX**

**ANDREW CORPORATION**

 
| **PART I.**        | **FINANCIAL INFORMATION**                                                                    |
|--------------------|----------------------------------------------------------------------------------------------|
|               |                                                                                         |
| Item 1.            | Financial Statements (Unaudited)                                                             |
|               |                                                                                         |
|               | Consolidated  balance sheets—December 31, 2002 and September 30, 2002.                  |
|               |                                                                                         |
|               | Consolidated statements of income—Three  months ended December 31, 2002 and 2001.       |
|               |                                                                                         |
|               | Consolidated  statements of cash flows—Three months ended December 31, 2002 and 2001.   |
|               |                                                                                         |
|               | Notes  to consolidated financial statements—December 31, 2002.                          |
|               |                                                                                         |
| Item  2.           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations. |
|               |                                                                                         |
| Item  4.           | Controls  and Procedures.                                                                    |
|               |                                                                                         |
|               |                                                                                         |
| **PART II.**       | **OTHER INFORMATION**                                                                        |
|               |                                                                                         |
| Item  6.           | Exhibits  and Reports on Form 8-K.                                                           |
|               |                                                                                         |
|               |                                                                                         |
| **SIGNATURES**     |
|               |
| **CERTIFICATIONS** |

### ** **

2

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**ANDREW CORPORATION****CONSOLIDATED BALANCESHEET****(Dollars in thousands)**

 
|                                                                                                                  |   | **December  31  2002** |      | **September 30****2002** |   |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------|-----------|--------------------------|--------|
|                                                                                                                  |   | **(UNAUDITED)**        |      |                     |   |
| **ASSETS**                                                                                                            |   |                   |      |                     |   |
| **Current  Assets**                                                                                                   |   |                   |      |                     |   |
| Cash and cash  equivalents                                                                                            |   | $                      | 71,424    |                     | $      | 84,871 |   |
| Accounts  receivable, less allowances (Dec. 2002 - $7,654; Sept. 2002 - $6,516)                                       |   | 215,295                |      | 215,406                  |   |
| **Inventories**                                                                                                       |   |                   |      |                     |   |
| Finished  products                                                                                                    |   | 65,536                 |      | 61,963                   |   |
| Materials and  work in process                                                                                        |   | 75,706                 |      | 72,030                   |   |
|                                                                                                                  |   | 141,242                |      | 133,993                  |   |
| Other current  assets                                                                                                 |   | 21,961                 |      | 28,121                   |   |
| Current assets -  discontinued operations                                                                             |   | 8,340                  |      | 14,792                   |   |
| **Total  Current Assets**                                                                                             |   | 458,262                |      | 477,183                  |   |
|                                                                                                                  |   |                   |      |                     |   |
| **Other  Assets**                                                                                                     |   |                   |      |                     |   |
| Costs in excess  of net assets of businesses acquired                                                                 |   | 397,100                |      | 396,295                  |   |
| Intangible  assets, less amortization                                                                                 |   | 43,733                 |      | 47,344                   |   |
| Other assets                                                                                                          |   | 1,200                  |      | 1,809                    |   |
| Non-current  assets - discontinued operations                                                                         |   | 998                    |      | 2,000                    |   |
|                                                                                                                  |   |                   |      |                     |   |
| **Property,  Plant, and Equipment**                                                                                   |   |                   |      |                     |   |
| Land and land  improvements                                                                                           |   | 17,893                 |      | 17,890                   |   |
| Buildings                                                                                                             |   | 98,728                 |      | 98,714                   |   |
| Equipment                                                                                                             |   | 455,508                |      | 448,036                  |   |
| Allowance for  depreciation                                                                                           |   | (375,626               | )         | (365,605                 | )      |
|                                                                                                                  |   | 196,503                |      | 199,035                  |   |
| **TOTAL  ASSETS**                                                                                                     |   | $                      | 1,097,796 |                     | $      | 1,123,666 |   |
|                                                                                                                  |   |                   |      |                     |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                        |   |                   |      |                     |   |
| **Current  Liabilities**                                                                                              |   |                   |      |                     |   |
| Notes payable                                                                                                         |   | $                      | 46,738    |                     | $      | 66,184 |   |
| Accounts payable                                                                                                      |   | 67,967                 |      | 69,835                   |   |
| Accrued expenses  and other liabilities                                                                               |   | 36,609                 |      | 44,548                   |   |
| Compensation and  related expenses                                                                                    |   | 24,833                 |      | 28,434                   |   |
| Restructuring                                                                                                         |   | 11,684                 |      | 15,329                   |   |
| Current portion  of long-term debt                                                                                    |   | 7,002                  |      | 7,250                    |   |
| Current  liabilities - discontinued operations                                                                        |   | 3,429                  |      | 4,990                    |   |
| **Total  Current Liabilities**                                                                                        |   | 198,262                |      | 236,570                  |   |
| Deferred  Liabilities                                                                                                 |   | 27,706                 |      | 28,461                   |   |
| Long-Term Debt,  less current portion                                                                                 |   | 9,332                  |      | 13,391                   |   |
|                                                                                                                  |   |                   |      |                     |   |
| **STOCKHOLDERS’  EQUITY**                                                                                        |   |                   |      |                     |   |
| Common stock (par value, $.01 a share: 400,000,000  shares authorized: 102,718,210 shares issued, including treasury) |   | 1,027                  |      | 1,027                    |   |
| Additional  paid-in capital                                                                                           |   | 145,543                |      | 145,764                  |   |
| Accumulated  other comprehensive loss                                                                                 |   | (35,853                | )         | (46,089                  | )      |
| Retained  earnings                                                                                                    |   | 802,441                |      | 796,374                  |   |
| Treasury stock,  at cost (4,398,905 shares in Dec. 2002; 4,500,493 shares in Sept. 2002)                              |   | (50,662                | )         | (51,832                  | )      |
|                                                                                                                  |   | 862,496                |      | 845,244                  |   |
| **TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                  |   | $                      | 1,097,796 |                     | $      | 1,123,666 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

3

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## **ANDREW CORPORATIONCONSOLIDATED STATEMENTS OF INCOME(UNAUDITED)(Dollars in thousands, except per share amounts)**

** **
|                                                                 |   | **Three  Months Ended  December 31** |    |
|----------------------------------------------------------------------|--------|--------------------------------------|---------|
|                                                                 |   | **2002**                             |    | **2001** |   |
|                                                                 |   |                                 |    |   |   |
| **Sales**                                                            |   | $                                    | 254,526 |   | $ | 199,896 |   |
| Cost of products  sold                                               |   | 183,313                              |    | 136,521 |   |
| **Gross  Profit**                                                    |   | 71,213                               |    | 63,375 |   |
|                                                                 |   |                                 |    |   |   |
| **Operating  Expenses**                                              |   |                                 |    |   |   |
| Research and  development                                            |   | 19,899                               |    | 11,604 |   |
| Sales and  administrative                                            |   | 36,814                               |    | 37,070 |   |
| Intangible  amortization                                             |   | 3,682                                |    | 150 |   |
| Restructuring                                                        |   | 79                                   |    | — |   |
|                                                                 |   | 60,474                               |    | 48,824 |   |
|                                                                 |   |                                 |    |   |   |
| **Operating  Income**                                                |   | 10,739                               |    | 14,551 |   |
|                                                                 |   |                                 |    |   |   |
| **Other**                                                            |   |                                 |    |   |   |
| Interest expense                                                     |   | 1,060                                |    | 1,464 |   |
| Interest income                                                      |   | (323                                 | )       | (853 | ) |
| Other expense  (income), net                                         |   | 520                                  |    | (838 | ) |
| Gain on the sale  of equity investments                              |   | —                               |    | (8,651 | ) |
|                                                                 |   | 1,257                                |    | (8,878 | ) |
|                                                                 |   |                                 |    |   |   |
| **Income  from Continuing Operations Before Income Taxes**           |   | 9,482                                |    | 23,429 |   |
|                                                                 |   |                                 |    |   |   |
| Income taxes                                                         |   | 2,845                                |    | 5,755 |   |
|                                                                 |   |                                 |    |   |   |
| **Income  from Continuing Operations**                               |   | 6,637                                |    | 17,674 |   |
|                                                                 |   |                                 |    |   |   |
| **Discontinued  Operations**                                         |   |                                 |    |   |   |
| Loss from  operations of discontinued operations, net of tax benefit |   | 570                                  |    | 2,347 |   |
|                                                                 |   |                                 |    |   |   |
| **Net  Income**                                                      |   | $                                    | 6,067   |   | $ | 15,327 |   |
|                                                                 |   |                                 |    |   |   |
| **Basic  and Diluted Income per Share from Continuing Operations**   |   | $                                    | 0.07    |   | $ | 0.22 |   |
|                                                                 |   |                                 |    |   |   |
| **Basic  and Diluted Income per Share**                              |   | $                                    | 0.06    |   | $ | 0.19 |   |
|                                                                 |   |                                 |    |   |   |
| **Average  Shares Outstanding (in thousands)**                       |   |                                 |    |   |   |
| Basic                                                                |   | 98,285                               |    | 81,617 |   |
| Diluted                                                              |   | 98,288                               |    | 81,840 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

4

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**ANDREW CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)(Dollars in thousands)**

 
|                                                     |   | **Three  Months Ended  December 31** |   |
|----------------------------------------------------------|--------|--------------------------------------|--------|
|                                                     |   | **2002**                             |   | **2001** |   |
|                                                     |   |                                 |   |   |   |
| **Cash  Flows from Operations**                          |   |                                 |   |   |   |
| Net Income                                               |   | $                                    | 6,067  |   | $ | 15,327 |   |
|                                                     |   |                                 |   |   |   |
| **Adjustments  to Net Income**                           |   |                                 |   |   |   |
| Depreciation and  amortization                           |   | 16,393                               |   | 11,517 |   |
| Restructuring  costs                                     |   | (2,153                               | )      | — |   |
| Discontinued  operations costs                           |   | (963                                 | )      | — |   |
| Operating cash  flow from discontinued operations        |   | 4,030                                |   | 8,064 |   |
| Gain on the sale  of equity investments                  |   | —                               |   | (8,651 | ) |
| Other                                                    |   | (97                                  | )      | (353 | ) |
|                                                     |   |                                 |   |   |   |
| **Change  in Operating Assets / Liabilities**            |   |                                 |   |   |   |
| Decrease in  accounts receivable                         |   | 5,069                                |   | 46,225 |   |
| Increase in  inventories                                 |   | (6,375                               | )      | (3,647 | ) |
| Decrease/(Increase)  in other assets                     |   | 6,721                                |   | (1,892 | ) |
| (Decrease) in  accounts payable and other liabilities    |   | (16,037                              | )      | (19,972 | ) |
| **Net  Cash from Operations**                            |   | 12,655                               |   | 46,618 |   |
|                                                     |   |                                 |   |   |   |
| **Investing  Activities**                                |   |                                 |   |   |   |
| Capital  expenditures                                    |   | (9,432                               | )      | (12,000 | ) |
| Capital  expenditures related to discontinued operations |   | —                               |   | (27 | ) |
| Proceeds from  the sale of businesses and investments    |   | 3,508                                |   | 50,301 |   |
| Acquisition of  businesses, net of cash acquired         |   | (114                                 | )      | (121 | ) |
| Investments in  and advances to affiliates               |   | —                               |   | 64 |   |
| Proceeds from  sale of property, plant and equipment     |   | 388                                  |   | 223 |   |
| **Net  Cash (Used for) / from Investing Activities**     |   | (5,650                               | )      | 38,440 |   |
|                                                     |   |                                 |   |   |   |
| **Financing  Activities**                                |   |                                 |   |   |   |
| Long-term debt  payments, net                            |   | (4,350                               | )      | (408 | ) |
| Notes payable  payments, net                             |   | (19,526                              | )      | (36,911 | ) |
| Stock purchase  and option plans                         |   | 56                                   |   | 548 |   |
| **Net  Cash Used for Financing Activities**              |   | (23,820                              | )      | (36,771 | ) |
|                                                     |   |                                 |   |   |   |
| **Effect  of exchange rate changes on cash**             |   | 3,368                                |   | (1,240 | ) |
|                                                     |   |                                 |   |   |   |
| **(Decrease)  Increase for the Period**                  |   | (13,447                              | )      | 47,047 |   |
|                                                     |   |                                 |   |   |   |
| **Cash  and equivalents at beginning of period**         |   | 84,871                               |   | 112,377 |   |
| **Cash  and Equivalents at End of Period**               |   | $                                    | 71,424 |   | $ | 159,424 |   |

 

See Notes to ConsolidatedFinancial Statements.

 

5

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**ANDREW CORPORATION**

**NOTES****TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**NOTEA—BASIS OF PRESENTATION**

 

The accompanyingunaudited consolidated financial statements have been prepared in accordancewith generally accepted accounting principles for interim financial informationand with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.  Inthe opinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.  Operating results for the three-month periodended December 31, 2002 are not necessarily indicative of the results that maybe expected for the year ending September 30, 2003.  For further information, refer to the consolidated financialstatements and footnotes thereto included in the company’s annual report onForm 10-K for the year ended September 30, 2002.

 

**NOTEB—EARNINGS PER SHARE**

 

The following table sets forth the computation of basic and dilutedearnings per share:

 
|                                                 |   | **Three  Months Ended  December 31** |   |
|------------------------------------------------------|--------|--------------------------------------|--------|
|                                                 |   | **2002**                             |   | **2001** |   |
| **BASIC  EARNINGS PER SHARE**                        |   |                                 |   |   |   |
| Income from  continuing operations                   |   | $                                    | 6,637  |   | $ | 17,674 |   |
| Average basic  shares outstanding                    |   | 98,285                               |   | 81,617 |   |
| Basic income  from continuing operations per share   |   | $                                    | 0.07   |   | $ | 0.22 |   |
|                                                 |   |                                 |   |   |   |
| Net income                                           |   | $                                    | 6,067  |   | $ | 15,327 |   |
| Average basic  shares outstanding                    |   | 98,285                               |   | 81,617 |   |
| Basic net income  per share                          |   | $                                    | 0.06   |   | $ | 0.19 |   |
|                                                 |   |                                 |   |   |   |
| **DILUTED  EARNINGS PER SHARE**                      |   |                                 |   |   |   |
| Income from  continuing operations                   |   | $                                    | 6,637  |   | $ | 17,674 |   |
| Average basic  shares outstanding                    |   | 98,285                               |   | 81,617 |   |
| Effect of  dilutive securities: stock options        |   | 3                                    |   | 223 |   |
| Average diluted  shares outstanding                  |   | 98,288                               |   | 81,840 |   |
| Diluted income  from continuing operations per share |   | $                                    | 0.07   |   | $ | 0.22 |   |
|                                                 |   |                                 |   |   |   |
| Net income                                           |   | $                                    | 6,067  |   | $ | 15,327 |   |
| Average basic  shares outstanding                    |   | 98,285                               |   | 81,617 |   |
| Effect of  dilutive securities: stock options        |   | 3                                    |   | 223 |   |
| Average diluted shares outstanding                   |   | 98,288                               |   | 81,840 |   |
| Diluted net  income per share                        |   | $                                    | 0.06   |   | $ | 0.19 |   |

 

Options to purchase 6,547,991 shares of common stock, at prices rangingfrom $9.36 - $38.17 per share, were not included in the computation of dilutedearnings per share for the three months ended December 31, 2002 because theoptions’ exercise prices were greater than the average market price of thecommon shares.  Options to purchase4,008,833 shares of common stock, at prices ranging from $21.31 - $38.17 pershare, were not included in the December 31, 2001 diluted earnings per sharecalculation because the options’ exercise prices were higher than the averagemarket price of the common shares.

 

6

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**NOTE C—COMPREHENSIVE INCOME**

 

Statement of FinancialAccounting Standards No. 130, “Reporting Comprehensive Income” requires thecompany to report foreign currency translation adjustments, which werepreviously reported as a separate component of stockholders’ equity, as acomponent of other comprehensive income. Comprehensive income for the three months ended December 31, 2002 and2001 amounted to $16,303,000 and $14,441,000, respectively.

 

**NOTE D—RECENTLY ISSUED ACCOUNTINGPOLICIES**

 

In December 2002,the Financial Accounting Standards Board (FASB) issued Statement of FinancialAccounting Standards No. 148, “Accounting for Stock-Based CompensationTransition and Disclosure.”  StatementNo. 148 amends Statement No. 123, “Accounting for Stock-Based Compensation” to provide alternative methods oftransition to Statement No. 123’s fair value method of accounting forstock-based employee compensation.  FASB 148 does not require companies toaccount for employee stock options using the fair value method but does requireadditional footnote disclosures. The company will adopt these disclosurerequirements beginning in the second quarter of 2003.  The adoption of FASB 148 will not impact the company’s results ofoperations.

 

In June 2002, the FASBissued Statements of Financial Accounting Standards No. 146, Accounting forCosts Associated with Exit or Disposal Activities.  The provisions of this statement will be effective for exit ordisposal activities 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. The company accrued pre-tax charges of $36.0 million when the company’smanagement approved the current restructuring plan. If the company hadaccounted for this restructuring plan under FASB No. 146, certain costs such asemployee termination benefits of $11.8 million and lease and contractcancellation costs of $2.5 million accrued in this  $36.0 million would have been recognized over the restructuringperiod as incurred and not accrued in fiscal year 2002.

 

**NOTE E—ADOPTION OF NEW ACCOUNTINGPOLICIES**

 

At the beginning offiscal year 2003, the company adopted the FASB’s Statement No. 143, “Accountingand Reporting for Obligations Associated with the Retirement of TangibleLong-Lived Assets and the Associated Asset Retirement Costs” and FASB StatementNo.145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment ofStatement 13, and Technical Corrections”. FASB Statement No. 143 addressesfinancial accounting and reporting for obligations associated with theretirement of tangible long-lived assets and associated asset retirement costs.FASB Statement No. 145 modifies reporting of extinguishment of debt and amendsaccounting for leases.  The adoption ofthese statements did not impact the company’s results of operations.

 

**NOTE F—RESTRUCTURING**

 

In September 2002, the company initiated a plan to restructure itsmanufacturing operations.  The companyplans to close several manufacturing and engineering facilities and consolidateinto fewer, more efficient facilities. The company is in the processes of closing five locations in the UnitedStates.  The company has closed oneinternational facility and will close three additional internationalfacilities.  The company is in theprocesses of moving the operations of these facilities to existing facilitiesand to two new facilities the company plans to open in Mexico and Europe.  In addition, two new, smaller engineeringoffices will be established in Europe and Texas.  During the quarter the company paid $1.9 million of severance to170 employees who were terminated as part of these restructuring plans. Thecompany plans to terminate approximately another 830 employees as part of theserestructuring plans and anticipates that approximately 400 employees will behired at the new facilities.

 

7

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In the fourth quarter of fiscal year 2002, the company recorded a $36.0million pre-tax charge for these activities comprised of the following:

 
| **Dollars in  thousands**              |   | **Restructuring  Charge** |   | **Actual  Charges to Reserve  Three months Ended** |   | **Dec. 31,  2002  Reserve Balance** |   |
|----------------------------------------|--------|---------------------------|--------|----------------------------------------------------|--------|-------------------------------------|--------|
|                                   |   | **Sept. 30,  2002**       |   | **Dec. 31,  2002**                                 |   |                                |
|                                   |   |                      |   |                                               |   |                                |   |   |   |
| Inventory write  downs                 |   | $                         | 11,138 |                                               | $      | (11,138                             | )      | $ | — |   | $ | — |   |
| Employee  termination costs            |   | 11,877                    |   | —                                             |   | (1,915                              | )      | 9,962 |   |
| Equipment and  other asset write downs |   | 9,579                     |   | (9,579                                             | )      | —                              |   | — |   |
| Lease and  contract cancellation costs |   | 3,452                     |   | —                                             |   | (1,730                              | )      | 1,722 |   |
| Pre-tax charge                         |   | $                         | 36,046 |                                               | $      | (20,717                             | )      | $ | (3,645 | ) | $ | 11,684 |   |

 

**NOTE G—DISCONTINUED OPERATIONS**

 

In September 2002, the company discontinued three non-strategicbusinesses: equipment shelters, wireless accessories and satellite modems. InSeptember 2002, the company recognized an after-tax charge of $26.4 million toreduce the carrying value of these assets to their fair value. The companyestimated the fair value of these assets based on the projected proceeds fromsale of these assets, net of any related costs. These businesses employedapproximately 200 employees. The company closed its satellite modem business inSeptember 2002, sold its equipment shelter business in October 2002 and itswireless accessory business in January 2003.

 

The company has restated all periods presented to reflect its equipmentshelter, wireless accessory, and satellite modem businesses as discontinuedoperations.  The results of operationsfor the discontinued businesses are as follows:

** **

| **Dollars in  thousands**          |     | **Three  months ended  December 31** |     |
|------------------------------------|----------|--------------------------------------|----------|
|                               | **2002** |                                 | **2001** |   |
| Sales                              |     | $                                    | 6,854    |   | $ | 23,603 |   |
| Cost of products  sold             |     | 7,085                                |     | 23,658 |   |
| Gross Profit                       |     | (231                                 | )        | (55 | ) |
|                               |     |                                 |     |   |   |
| Operating  expenses                |     | 583                                  |     | 3,299 |   |
| Loss before  income taxes          |     | (814                                 | )        | (3,354 | ) |
|                               |     |                                 |     |   |   |
| Income tax  benefit                |     | (244                                 | )        | (1,007 | ) |
| Loss from  discontinued operations |     | $                                    | (570     | ) | $ | (2,347 | ) |

 

**NOTE H—SEGMENT**

 

The company manages itsbusiness as one operating segment.  Thissegment serves commercial markets, including coaxial cable, power amplifiers,terrestrial microwave antenna systems, and other products and services.

 

8

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| **ITEM 2****.** |   | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |
|-----------------|--------|-------------------------------------------------------------------------------------------------|

 

### **RESULTS OF OPERATIONS**

 

Sales for the first quarter of fiscal year 2003 were $254.5 million, anincrease of 27% compared to first quarter of 2002.  This increase was driven by power amplifier sales as a result ofthe company’s June 2002 acquisition of Celiant Corporation. Excluding theincrease in power amplifiers, sales decreased 6%, due mostly to a decrease incable sales. On a sequential basis, sales decreased 6% from the Septemberquarter, also driven by a decrease in cable sales.  The company has continued to see growth in both Europe andAsia.  Even excluding the increase inpower amplifier sales both Europe and Asia increased compared to the firstquarter of 2002.

 

From a market point of view, sales to the wireless infrastructuremarket were up significantly compared to the first quarter of fiscal year 2002,driven by power amplifiers. On a sequential basis, wireless infrastructuresales decreased from the fourth quarter of 2002, due mostly to a decrease inU.S. cable sales, with power amplifier sales essentially flat.  Sales to the fixed telecommunicationsnetwork market were flat compared to last year and decreased sequentially duemostly to a decrease in European sales. Sales to the broadcast and governmentmarket were essentially flat compared to both the prior year and prior quarter.

 

From a product standpoint, cable sales decreased compared to both thefirst quarter of 2002 and sequentially compared to the fourth quarter of 2002.The decrease in cable sales was due primarily to a decrease in the UnitedStates compared both to the first and fourth quarters of 2002 and a sequentialdecrease in Europe.  Cable salesdecreased due to lower volumes and lower cable prices.  Terrestrial microwave sales were up comparedto last year and were flat sequentially. Compared to the first quarter of 2002,terrestrial microwave sales showed good growth in all geographic regions,except Latin America. Other Antenna and support products increased compared toboth the first and fourth quarters of 2002 due to strong sales growth in basestation antennas, and distributed communication and in-building systems.

 

Gross margin as a percentage of sales was 28.0% for the first quarterof 2003, a decrease of 3.7 percentage points from the 31.7% for the firstquarter of 2002. Higher sales volumes and cost reductions were not enough toabsorb the effects of product mix, price declines and lower cable volumes.  The large increase in power amplifiers anddecrease in cable sales had a negative impact on product mix. The rest of thedecline in margin was caused by continued pricing pressure.  In the fourth quarter of 2002, excluding the$11.1 million of restructuring costs included in cost of products sold, thegross margin percentage was 27.0%. The 1.0 percentage point increase to the28.0% gross margin for the first quarter of 2003 was primarily due to improvedproduct mix.

 

Total operating expense was $60.5 million for the quarter as comparedto $48.8 million for the first quarter of 2002. This increase in totaloperating expense was driven by an $8.3 million increase in research anddevelopment and a $3.5 million increase in intangible amortization, both due tothe company’s acquisition of Celiant Corporation. Research and development was$19.9 million, a 71% increase, due almost entirely to the company’s increase inpower amplifier activity.  Excluding the$24.9 million of restructuring charges, total operating expenses were $60.4million for the September quarter, essentially flat in comparison with theDecember quarter.  A 5% decrease inresearch and development was offset by an increase in sales and administrativeexpenses.

 

Total other income and expense was expense of $1.3 million for thefirst quarter of 2003 and income of $8.9 million for the first quarter of2002.  The income generated in the firstquarter of 2002 was the result of an $8.7 million gain recognized on the saleof the company’s Russian telecommunication ventures. Interest income and interestexpense decreased compared to both the first and fourth quarter of 2002 due toreductions in both debt and short-term investments. Other income and expense,net resulted in income of $0.8 million for the first quarter of 2002 andexpense of $0.5 million in the first quarter of 2003, primarily due to foreignexchange gains and losses.

 

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Income taxes were 30% of income from continuing operations before taxesfor both the first quarter of 2003 and the fourth quarter of 2002. Income taxeswere 25% of income from continuing operations before income taxes for the firstquarter of 2002. If the $8.7 million gain recognized on the sale of thecompany’s Russian telecommunication ventures was excluded, the effective incometax rate would have been 30% for the first quarter of 2002.

 

The company recorded a loss from discontinued operations of $0.6million for the first quarter of 2003 as compared to losses of $2.3 million and$2.1 million for the first and fourth quarters of 2002, respectively.  In the fourth quarter of 2002, the companydecided to discontinue three non-strategic businesses: equipment shelters,wireless accessories and satellite modems. The company closed the satellitemodem business in September 2002, sold the equipment shelter business inOctober 2002, and sold the wireless accessory business in January 2003.

## ** **

**LIQUIDITY**

 

Cash and cash equivalents decreased $13.5 million during the firstquarter of 2003 to $71.4 million. Working capital on December 31, 2002 was$260.0 million compared to $240.6 million on September 30, 2002.  During the quarter, the company entered intoa new $160 million three year revolving credit agreement that replaces thecompany’s $150 million revolving credit agreement that was due to expire inMarch 2003.  The company uses thisrevolving line of credit to help it meet its short-term cash flow needs.Management believes that the company’s strong working capital position, lowdebt levels and ability to generate cash flow from operations will allow thecompany to meet its normal operating cash flow needs.

 

The company generated $12.7 million of cash from operations, down fromthe $46.6 million generated in the first quarter of 2002. The decrease in cashflow from operations was primarily the result of the change in accountsreceivable. In the first quarter of 2003, accounts receivable decreased $5.1million, compared to the $46.2 million decrease that occurred in the firstquarter of 2002.  The $46.2 milliondecrease in accounts receivable was driven mainly by the 23% sequential drop insales in the first quarter of 2002 compared to the 6% sequential decrease inthe first quarter of 2003. Days sales in billed receivables increased slightlyto 77 days at December 31, 2002 compared to 76 days at December 31, 2001.Sequentially, days sales in billed receivables were up 5 days from 72 days atSeptember 30, 2002 due primarily to lower sales in the December quarter.Extended credit terms given to certain European 3G customers and a 12-month financingagreement granted on a $10 million project in Asia also contributing to thisincrease.  Cash from operations includes$2.2 million and $1.0 million of cash payments for restructuring anddiscontinued operations, respectively, due mostly severance and lease payments.

 

Net cash used in investing activities was $5.7 million in the firstquarter of 2003, versus $38.4 million generated from investing activities inthe first quarter of 2002. The $38.4 million of cash flow generated frominvesting activities in the first quarter of 2002 was due primarily to the$50.3 million the company received for the sale of its Russiantelecommunication ventures. Investing activities in the first quarter of 2003includes $3.5 million of proceeds from the sale of the company’s equipmentshelter business. The company spent $9.4 million on capital expenditures in thequarter, a decrease of $2.6 million from the $12.0 million spent in the firstquarter of 2002, due mostly to lower expenditures on manufacturing equipment.

 

Net cash used for financing activities totaled $23.8 million.  The company reduced its net short-term notespayable borrowing by $19.5 million, decreasing borrowing under its revolvingcredit agreements. The company also decreased its long-term borrowing by $4.4million in the first quarter of 2003, due primarily to the repayment of anindustrial development bond associated with the company’s equipment shelterbusiness.

 

## **CRITICALACCOUNTING POLICIES**

 

There were no changes in critical accounting policies during thequarter.

 

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**SAFEHARBOR FOR FORWARD-LOOKING STATEMENTS**

 

We have made forward-looking statements in this Form 10-Q under“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  In addition, we or our representatives maymake other written or oral statements that constitute forward-lookingstatements.  Forward-looking statementsare based on management’s beliefs and assumptions and on information currentlyavailable to them.  These statementsoften contain words like believe, expect, anticipate, intend, contemplate,seek, plan, estimate, would, could or similar expressions.  We make these statements under theprotection afforded them by Section 21E of the Securities Exchange Act of 1934.

 

Forward-looking statements involve risks, uncertainties andassumptions, including those discussed in this report.  We operate in a continually changingbusiness environment, and new risk factors emerge from time to time. We cannotpredict those risk factors, nor can we assess the impact, if any, of those riskfactors on our business or the extent to which any factors may cause actualresults to differ materially from those projected in any forward-lookingstatements.  Forward-looking statementsdo not guarantee future performance, and you should not put undue reliance onthem.

 

While the company’s management is optimistic about our long-termprospects, you should consider the risks and uncertainties in evaluating itsgrowth outlook.  Risks that may affectus include the volatility of our stock price, fluctuations in our operatingresults, the impact of economic fluctuations, intense competition and pricingpressure, rapid technological change and pressure for us to develop newproducts and risks associated with our international operations.  For a more complete discussion of these andother risks, uncertainties and assumptions that may affect us, see thecompany’s Annual Report on Form 10-K for the year ended September 30, 2002.

 

##### **ITEM4**. CONTROLS ANDPROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

The company’s Chief Executive Officer and Chief Financial Officer havereviewed and evaluated the effectiveness of the company’s disclosure controlsand procedures (as defined in the Securities Exchange Act of 1934 Rules13a-14(c) and 15d-14(c) as of a date within 90 days of the filing date of thisquarterly report on Form 10-Q (the “Evaluation Date”).  Based on their review and evaluation, theChief Executive Officer and Chief Financial Officer have concluded that, as ofthe Evaluation Date, the company’s disclosure controls and procedures wereadequate and effective to ensure that material information relating to thecompany and its consolidated subsidiaries would be made known to them by otherswithin those entities in a timely manner, particularly during the period inwhich this quarterly report on Form 10-Q was being prepared, and that nochanges are required at this time.

 

(b) Changes in Internal Controls

 

There were no significant changes in the company’s internal controls orin other factors that could significantly affect the company’s internalcontrols subsequent to the Evaluation Date, or any significant deficiencies ormaterial weaknesses in such internal controls requiring correctiveactions.  As a result, no correctiveactions were taken.

 

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**PART II****—OTHERINFORMATION**

 
| **ITEM 6****.** |   | **EXHIBITS  AND REPORTS ON FORM 8-K** |
|-----------------|--------|---------------------------------------|

 

**(a)Exhibit index**

 
| **Exhibit  No.** |   | **Description**                                                       |
|------------------|--------|-----------------------------------------------------------------------|
| 10               |   | Amended and Restated  Credit Agreement, dated as of December 19, 2002 |
|             |   |                                                                  |
| 99.1             |   | Certificate of Chief Executive and Chief Financial  Officers          |

 

**(b)Reports on Form 8-K**

 

There were no reports on form 8-K during the quarter ended December 31,2002.

 

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SIGNATURES

 

 

Pursuant to the requirements of the Securities s Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
| Date  | February 10, 2003 |                                                       | by: | /s/ Charles R. Nicholas |   |
|------------|-------------------|------------------------------------------------------------|-----|-------------------------|--------|
|       |              | Charles R.  Nicholas                                       |
|       |              | Chief Financial  Officer and Vice Chairman                 |
|       |              | (Duly Authorized  Officer and Principal Financial Officer) |

 

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### **CERTIFICATIONS**

 

I, Floyd L. English, certify that:

 

1.  I have reviewed this quarterly report on Form 10-Q of AndrewCorporation;

 

2.  Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3.  Based on my knowledge, the financial statements, and otherfinancial information included in this quarterly report, fairly present in allmaterial respects the financial condition, results of operations and cash flowsof the registrant as of, and for, the periods presented in this quarterlyreport;

 

4.  The registrant’s other certifying officers and I are responsiblefor establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a) Designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols

and procedures based on ourevaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officersand I have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of registrant’s board of directors (or personsperforming the equivalent functions):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b) any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6.  The registrant’s other certifying officers and I have indicatedin this quarterly report whether there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 
| Date: 02/10/2003 | /s/ Floyd L. English              |   |
|------------------|-----------------------------------|--------|
|             |                              |
|             | Floyd L. English                  |
|             | Chairman, Chief Executive Officer |

 

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I, Charles R. Nicholas, certify that:

 

1.  I have reviewed this quarterly report on Form 10-Q of AndrewCorporation;

 

2.  Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

 

3.  Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

 

4.  The registrant’s other certifying officers and I are responsiblefor establishing and maintaining disclosure controls and procedures (as definedin Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

 

a) designed such disclosurecontrols and procedures to ensure that material information relating to theregistrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which thisquarterly report is being prepared;

 

b) evaluated the effectivenessof the registrant’s disclosure controls and procedures as of a date within 90days prior to the filing date of this quarterly report (the “Evaluation Date”);and

 

c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols

and procedures based on ourevaluation as of the Evaluation Date;

 

5.  The registrant’s other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent functions):

 

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b) any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant’s internal controls; and

 

6.  The registrant’s other certifying officers and I have indicatedin this quarterly report whether there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 
| Date: 02/10/2003 | /s/ Charles R. Nicholas |   |
|------------------|-------------------------|--------|
|             |                    |
|             | Charles R. Nicholas     |
|             | Chief Financial Officer |

 

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