<PAGE>
EXHIBIT 13
RESULTS OF OPERATIONS
Fiscal year 2000 financial results showed significant improvement over fiscal
year 1999. Sales increased 29% to a record level of $1.019 billion and net
income, excluding 1999's restructuring charges, increased 36%. Sales showed
substantial growth in most major product and market areas. The largest
increases were driven by strong growth in the U.S., the Asia-Pacific region and
Latin America. Growth in the U.S. was driven by sales to wireless communication
providers and fiber-optic network companies. Sales to the Asia-Pacific region
increased 82% largely due to sales more than tripling in China. The company has
continued to expand its manufacturing facilities in China to serve this rapidly
growing market. The company also saw substantial growth in Latin America driven
by sales in Brazil, Argentina and Mexico.
Net income increased $49.2 million, or 162%, in 2000, primarily driven by the
29% increase in sales and the impact of restructuring charges incurred in 1999.
In March 1999, the company initiated a restructuring plan. In connection with
these restructuring activities, the company recognized pre-tax charges of $36.7
million in the second quarter of 1999. On an after-tax basis, restructuring
charges were $28.1 million, or $0.34 per share. The company completed these
restructuring efforts in 2000. Over the last two years, the company sold its
government electronics business, SciComm, discontinued its small earth station
product line, discontinued its tower manufacturing operations and reorganized
its wireless products manufacturing operations. While these steps negatively
impacted 1999 results, they have allowed the company to focus on its core
businesses and become more competitive in the wireless products market.
SALES in 2000 increased $227.4 million, or 29%, to $1.019 billion. U.S. sales
were 50% of 2000 sales and increased $124.1 million, or 32%, while
international sales increased $103.3 million, or 25%. Sales in 1999 decreased
$61.2 million, or 7%, to $791.8 million. U.S. sales were 48% of 1999 sales and
decreased $50.0 million, or 12%, while international sales decreased $11.2
million, or 3%, in 1999.
The company's sales trends are mostly influenced by the wireless infrastructure
market, which accounted for 71% of sales in 2000, 68% in 1999 and 69% in 1998.
Sales of wireless infrastructure products grew in all major markets in 2000,
with the most notable growth in the U.S., the Asia-Pacific region and Latin
America. U.S. wireless infrastructure sales increased significantly in 2000 due
to wireless operators resuming their spending on new cell sites. U.S. wireless
infrastructure sales decreased in 1999 due to a slowdown in spending on new
cell sites as wireless communications providers focused their spending on
upgrading existing cell sites. The largest percentage increase in wireless
infrastructure sales was in the Asia-Pacific region. This was predominantly due
to the significant increase in sales in China, where the company has continued
to increase production capacity to meet the demand of this rapidly growing
market. Wireless infrastructure sales improved dramatically in Latin America
during 2000. This was due principally to an improvement in the Brazilian
economy from 1999, the opening of a new distribution center in Mexico and new
PCS operators in Argentina. While the European market was the only market that
showed significant growth in 1999, European sales increased only modestly in
2000 due to pricing pressure and weaker currencies.
<PAGE>
Sales to the fixed-line telecommunications networks market increased 26% in
2000, whereas they decreased 2% in 1999. Continued growth in equipment shelter
sales to U.S. fiber-optic network providers and fixed broadband wireless
products was the main reason for the increase in 2000. Growth in LMDS and MMDS
antenna system sales to competitive access and Internet service providers
contributed to the improvement in fixed telecommunications network sales for
2000. Sales to broadcast, government and other markets continued to decline,
decreasing 7% in 2000 and 3% in 1999. This is due largely to the company's
divestiture of its SciComm government electronics business and delays in the
rollout of digital TV systems in the U.S. Wireless accessory sales rebounded
after decreasing 12% in 1999 due to pricing pressure and the exit from the
European market. Wireless accessory sales climbed 23% in 2000 due to new
product sales to the automotive market and new hands-free kit solutions for
mobile phones. Sales of mobile antennas, GPS products and cable assemblies to
General Motors' OnStar and Ford's RESCU programs increased substantially in
2000.
From a product standpoint in 2000, coaxial cable sales increased 35% to $564.4
million, terrestrial microwave systems increased 4% to $156.4 million, other
antennas and support products increased 38% to $233.7 million and wireless
accessories increased 23% to $64.7 million. In 1999, coaxial cable sales
decreased 14% to $418.5 million, terrestrial microwave systems increased 2% to
$150.8 million, other antennas and support products increased 8% to $169.8
million and wireless accessories decreased 12% to $52.7 million.
GROSS MARGIN as a percentage of sales was 32.6% in 2000, 31.8% in 1999 and
38.8% in 1998. Included in the gross margin for 1999 is $6.9 million of the
$36.7 million pre-tax restructuring charges. Excluding restructuring charges,
gross margin as a percentage of sales was 32.7% of sales in 1999. Without
restructuring charges, gross margin as a percentage of sales remained
relatively unchanged from 1999 to 2000. Competitive market conditions caused
the company to continue to lower prices on many of its cable products in order
to maintain market share. These price reductions were offset by productivity
and efficiency gains. All four of the company's cable production facilities in
the U.S., China, Brazil and the U.K. significantly increased cable production
in 2000, creating economies of scale and decreasing average cable costs.
Product mix had a slightly negative impact on margins for 2000. Cable product
mix improved while sales of lower margin products such as equipment shelters
and base station antennas increased significantly. The decrease in gross margin
in 1999 was due mainly to pricing concessions required by a competitive
wireless infrastructure market. Unfavorable product mix also contributed to
this decline, with sales of
<PAGE>
higher margin cable products decreasing and sales of lower margin products
increasing.
RESEARCH AND DEVELOPMENT expense increased $10.6 million, or 36%, in 2000 and
$3.8 million, or 15%, in 1999. Research and development expense was 4.0% of
sales in 2000, 3.7% in 1999 and 3.0% in 1998. The company continues to focus on
the development of new products for existing and new markets. Major research
and development efforts have been centered on power amplifiers, satellite
modems and broadband wireless products.
SALES AND ADMINISTRATIVE expenses increased $19.3 million, or 13%, in 2000 and
decreased $1.0 million, or 1%, in 1999. Sales and administrative expenses were
16.1% of sales in 2000, 18.2% in 1999 and 17.0% in 1998. In 2000, marketing
related expenses increased $9.9 million, or 15%, due primarily to increases in
product line management and other marketing efforts. Administrative expenses
grew $9.4 million, or 12%, in 2000. The growth in administrative expenses was
driven mainly by increases in incentive bonuses, profit sharing, management
information systems and goodwill amortization relating to the Chesapeake
Microwave Technologies Inc. (CMTI) and Conifer Corporation acquisitions. The
$1.0 million decline in sales and administrative expenses in 1999 was due to
decreases in incentive bonuses and profit sharing offset by increases in
expense related to the company's management information systems.
OTHER INCOME AND EXPENSE resulted in an expense of $11.0 million in 2000,
income of $1.3 million in 1999 and an expense of $2.5 million in 1998. Other
income and expense is comprised primarily of net interest income or expense,
foreign exchange gains or losses, minority interest and equity in losses from
the company's joint ventures. Net interest was an expense of $6.8 million in
2000 and income of $4.9 million in 1999 and $1.6 million in 1998. The increase
in net interest expense in 2000 was due to an increase in borrowing and a
decrease in interest earned on loans to the company's joint ventures in Russia.
The increase in net interest income in 1999 was due mainly to an increase in
interest income from loans to the company's joint ventures in Russia. Other
expense, net was $4.3 million in 2000, $3.6 million in 1999 and $4.0 million in
1998. Other expenses increased in 2000, due to an increase in minority interest
expense for the company's minority partner's share of higher Brazilian
operating income, and an increase in equity in losses from the company's joint
ventures in Russia. This was offset by foreign exchange gains of $1.7 million
in 2000, compared to foreign exchange losses of $2.4 million in 1999.
INCOME TAXES were 32% of pre-tax income in 2000, 38% in 1999 and 34% in 1998.
The increase in the effective tax rate for 1999 was due to the inclusion of
$14.1 million of non-deductible goodwill in the restructuring charges
recognized during 1999. Excluding the impact of the non-deductible goodwill,
the effective tax rate for 1999 was 32%. The decrease in the effective tax rate
from 1998 was due to the company generating a larger percentage of its income
outside of the U.S. in countries with lower effective tax rates.
LIQUIDITY
Cash and cash equivalents were $44.9 million in 2000, $38.3 million in 1999 and
$78.4 million in 1998. Working capital was $350.7 million in 2000, $303.9
million in 1999 and $320.1 million in 1998. Management believes the current
level of working capital will be adequate to meet the company's liquidity needs
related to normal operations.
<PAGE>
NET CASH FROM OPERATIONS was $50.0 million in 2000, $72.8 million in 1999 and
$149.9 million in 1998. During 2000, the company generated $50.0 million in
cash from operations, principally from net income of $79.6 million, which
included non-cash charges of $47.7 million for depreciation and amortization.
This was offset by increases in accounts receivable of $72.6 million and
inventories of $50.8 million and increased by growth in accounts payable and
other liabilities of $39.9 million. These increases were driven by the 29%
increase in sales in 2000. Days sales in billed receivables remained constant
for 2000 and 1999 at 81 days. During 1999, the company generated $72.8 million
in cash from operations, principally from net income of $30.4 million, which
included non-cash charges of $33.6 million for restructuring charges and $39.2
million for depreciation and amortization. This was offset by an increase in
accounts receivable. Days sales in billed receivables increased from 70 days in
1998 to 81 days in 1999. The increase in the time required to collect
receivables was due partially to an increase in international sales in
countries with less favorable payment terms, such as China.
NET CASH USED FOR INVESTING ACTIVITIES was $95.4 million in 2000, $70.1 million
in 1999 and $64.1 million in 1998. Net cash used for investing activities is
driven mainly by the company's capital expenditures, or investment in property,
plant and equipment. Capital expenditures increased 62% in 2000 to $83.5
million. This increase is due largely to the expansion of cable production
capacity in the U.S., China, Brazil and the U.K. The company also expanded its
shelter production capacity and upgraded some of its facilities in Texas.
Capital expenditures for the company's management information systems increased
$6.0 million in 2000. Capital expenditures were $51.4 million in 1999, which
included a $7.0 million increase in capital expenditures related to the
company's management information systems. Capital expenditures were $58.5
million in 1998, which included $8.3 million relating to the construction of a
cable manufacturing facility in China and $10.7 million for the construction of
new facilities in Texas.
During 2000, the company spent $16.3 million on acquisitions. In December 1999,
the company acquired Conifer Corporation for $13.0 million. Conifer Corporation
designs and manufactures MMDS subscriber products, Wireless LAN equipment and
Direct Broadcast Satellite (DBS) accessories. In October 1999, the company also
acquired a controlling interest in Comtier Corporation for $2.0 million. The
company had previously accounted for its minority investment in Comtier
Corporation under the equity method of accounting. Comtier Corporation
manufactures and designs high-speed broadband modems for use with satellite
systems. As part of the 1999 acquisition of CMTI, the company paid $1.3 million
of additional purchase consideration to certain CMTI shareholders in 2000.
<PAGE>
During 1999, the company spent $15.1 million on acquisitions. In March 1999,
the company acquired Passive Power Products, Inc., a Maine-based supplier of
radio frequency (RF) products to the broadcast market for $4.3 million. In
September 1999, the company acquired the stock of CMTI, a Glen Rock,
Pennsylvania company that designs and develops RF and microwave amplifiers and
assemblies, for $8.6 million. In February 1999, the company purchased the
remaining 20% interest in the South African Satcom Group of companies for $1.2
million. In 1998, the company spent $3.0 million on acquisitions. In October
1997, the company purchased an additional 19% interest in its Brazilian
operations for $3.0 million, bringing the company's ownership to 70%.
The company`s net investment in telecommunications joint ventures decreased
$4.2 million in 2000 and increased $4.3 million in 1999 and $3.2 million in
1998. This was due to an increase in investments in and advances to the joint
ventures, net of the company's share of these ventures' losses. The company
currently has an investment of $51.8 million in nine joint ventures that are
engaged in communication and data transmission in Russia, the Ukraine and
Mexico. The company is in the process of considering possible strategic options
that may involve the divestiture of all or a significant portion of these
ventures.
NET CASH FROM FINANCING ACTIVITIES was $55.4 million in 2000, primarily due to
the company increasing its net borrowing by $65.8 million. The company used
$44.7 million for financing activities in 1999 and $100.4 million in 1998,
mainly due to the purchase of treasury stock.
The company increased its net long-term borrowing by $23.1 million in 2000.
This was due mainly to an increase in borrowing in China and a decrease in
long-term borrowing in the U.S. The company's China operations increased its
net borrowing by $30.9 million in Chinese Renminbi denominated debt. This new
debt was used to finance expansion in China and to hedge the company's assets
in China. At September 30, 2000, the company had $40.6 million in Renminbi
denominated debt outstanding in China, with maturity dates ranging from 2002 to
2003. The company currently has $22.7 million in senior notes outstanding, of
which $4.5 million is due annually until 2005. In 2000, the company paid off
$1.4 million of higher interest rate debt that had been acquired as part of the
CMTI and Conifer Corporation acquisitions.
During 1999, the company's China operations borrowed $9.6 million U.S. dollars
in Renminbi denominated debt, of which $1.9 million was paid off in 2000. In
1999, the company's Brazilian operations restructured its debt to obtain lower
interest rates. Total debt from the company's Brazilian operations decreased
from $17.1 million at September 30, 1998 to $13.3 million at September 30,
1999. During 1998, the company's Brazilian operations initiated a $12.0 million
line of credit agreement with Bank Austria Creditanstalt, which had $5.5
million outstanding as of September 30, 1998. In 1999, this line of credit was
converted into $8.8 million in long-term variable rate debt due in December
2000. During 1998, the company entered into a loan agreement with Banco
Nacional De Desenvolvimento Economico E Social for $7.0 million, the proceeds
of which were used to pay down a portion of the company's outstanding line of
credit with ABN-AMRO. Portions of this loan were paid down in 1999 and in 2000,
leaving $3.2 million outstanding at September 30, 2000. Portions of this loan
will be paid off annually through 2003.
<PAGE>
The company increased its net short-term borrowings by $42.8 million in 2000.
During 2000, the company increased its revolving line of credit agreement led
by Bank of America from $50 million to $150 million. At September 30, 2000,
there was $39.8 million outstanding under this agreement, including $16.4
million denominated in Swiss francs, $2.3 million denominated in Japanese yen
and $1.0 million denominated in Hong Kong dollars. Under this credit agreement,
in 1999, the company paid off $3.8 million denominated in French francs and
borrowed $2.3 million denominated in Japanese yen. In 2000, the company opened
a Canadian dollar revolving line of credit with Bank of America Canada. As of
September 30, 2000, the company had $6.0 million in Canadian dollar denominated
debt outstanding. Borrowings under these credit agreements were used to meet
the company's short-term financing needs and to provide a hedge against
exposures in various foreign currencies.
The company received cash from the sale of stock under employee and director
option plans, employee stock purchase plans and the company's profit sharing
plan. Under these plans, the company generated $14.2 million in 2000, $3.1
million in 1999 and $2.9 million in 1998.
In 1997, the company implemented a stock buy-back program. The company's Board
of Directors has authorized the company to repurchase up to 15.0 million shares
under this program. The company purchased 1.8 million shares at a cost of $24.6
million in 2000, 3.0 million shares at a cost of $50.5 million in 1999 and 5.5
million shares at a cost of $105.4 million in 1998. The company has repurchased
a total of 11.8 million shares at a total cost of $222.2 million under this
stock buy-back program since the plan was implemented in 1997. Shares
repurchased under this program will be held for potential future acquisitions
and to meet employee compensation needs. Although the company has never paid
cash dividends, the Board of Directors periodically reviews this practice and,
to date, has elected to retain earnings in the business to finance future
investments and operations.
RISK FACTORS
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS. We have made forward-looking
statements in this annual report under "Management's Discussion and Analysis of
Financial Condition and Results of Operations." In addition, other written or
oral statements that constitute forward-looking statements may be made by or on
behalf of the company. Although we have based these statements on the beliefs
and assumptions of our management and on information currently available to
them, they are subject to risks and uncertainties. We wish to ensure
<PAGE>
that such statements are accompanied by meaningful cautionary statements, so as
to obtain the protections of the safe harbor established in the Private
Securities Litigation Reform Act of 1995. Accordingly, such statements are
qualified by reference to the discussion below of certain important factors
that could cause actual results to differ materially from those projected in
such forward-looking statements.
We caution the reader that the list of factors may not be exhaustive. We
operate in a continually changing business environment, and new risk factors
emerge from time to time. We cannot predict such risk factors, nor can we
assess the impact, if any, of such risk factors on our business or the extent
to which any factors may cause actual results to differ materially from those
projected in any forward-looking statements. Accordingly, undue reliance should
not be put on any forward-looking statements. We undertake no obligation to
update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise. While Andrew Corporation's management
is optimistic about the company's long-term prospects, the following risks and
uncertainties, among others, should be considered in evaluating its growth
outlook.
SHARE PRICE VOLATILITY. The market price of our common stock is very volatile.
We believe the price fluctuates in response to changes in the company's sales,
net income and cash flow; volatility in the U.S. stock market in general and in
wireless equipment stocks in particular; changes in analysts' estimates and
changes in general economic conditions. We expect that the price of our common
stock will fluctuate in the future, perhaps substantially.
FLUCTUATIONS IN OPERATING RESULTS. Historically, our quarterly and annual sales
and operating results have fluctuated. We expect similar fluctuations in the
future. In addition to general economic and political conditions, the following
factors affect our sales: timing of significant customer orders, inability to
forecast future sales due to our just-in-time supply approach, changes in
competitive pricing and wide variations in profitability by product line. Since
our quarterly and annual sales and operating results vary, we believe that
period-to-period comparisons are not necessarily meaningful and such
comparisons should not be relied on as indicators of our future performance.
CUSTOMER FINANCING AND SPENDING PATTERNS. Demand for the company's products is
influenced by customer spending patterns and their ability to obtain financing.
Fluctuations and temporary slowdowns in the company's sales trends are impacted
by customer spending on non-Andrew-provided infrastructure such as upgrades and
conversions to digital technology and spending on switching equipment. Customer
spending on new radio spectrum licenses may cause fluctuations in sales of the
company's wireless infrastructure products.
INTENSE COMPETITION AND PRICING PRESSURE. We believe that to be profitable in
the future, we must respond effectively to increased competitive pressure. We
consider our principal competitive factors to include product quality and
performance, service and support, pricing and proprietary technology. Over the
past several years, in response to aggressive pricing practices by our
competitors, we have significantly lowered prices for most of our products. If
we are unable to compete successfully, we may lose market share. We expect that
a significant loss in market share would have a material negative effect on our
business, financial condition and operating results.
<PAGE>
RAPID TECHNOLOGICAL CHANGE AND PRESSURE TO DEVELOP NEW PRODUCTS. We believe
that our future success depends on our ability to effectively anticipate and
respond to changes in technology, customer needs and industry standards.
Failure to anticipate changes, to adapt current products, to develop and
introduce new products on a timely basis or to gain market acceptance for new
products would impair our competitiveness and could have a material negative
impact on our business and operating results.
INTERNATIONAL RISK. Approximately half of our sales are outside the U.S., and
in recent years we have significantly increased our international manufacturing
capabilities. We anticipate that international sales will continue to represent
a substantial portion of our sales and that continued growth and profitability
will require further international expansion. International business risks
include currency fluctuations, tariffs and other trade barriers, longer
customer payment cycles, adverse taxes, restrictions on the repatriation of
earnings, compliance with local laws and regulations, political and economic
instability, and difficulties in managing and staffing operations. We believe
that international risk factors could materially impact our future sales,
financial condition and operating results.
ABILITY TO ATTRACT AND RETAIN QUALIFIED PEOPLE. We believe that our future
success significantly depends on our ability to attract and retain highly
qualified personnel. We cannot be sure that we will be able to attract and
retain key personnel in the future. We believe our inability to do so could
negatively impact our business, financial condition and operating results.
DEPENDENCE ON INTELLECTUAL PROPERTY RIGHTS. Others could obtain or use our
intellectual property without our permission, develop equivalent or superior
technology or claim that we have infringed on their intellectual property
rights. We rely on a combination of patent, copyright, trademark and trade
secret laws, and non-disclosure and non-competition agreements to protect our
rights. We are dependent on our intellectual property rights as a whole;
however, we do not believe that the loss of exclusivity with respect to any one
right would have a significant negative impact on our business, financial
condition or operating results.
IMPACT OF GOVERNMENTAL REGULATION. We are not directly regulated in the U.S.,
but most of our customers and the telecommunications industry generally are
subject to Federal Communications Commission regulation. We believe that
regulatory changes could have a significant negative effect on our business
and operating results by restricting our customers' development efforts,
making current products obsolete or increasing competition. Internationally,
where many of our customers are government owned and operated entities, we
also are at risk of changes in economic policy and communications regulation.
In addition, our joint ventures in Russia and Mexico require
telecommunications licenses, which may limit or otherwise affect the
operations of the ventures.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended September 30
Amount in thousands, except per share amounts 2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
Sales $1,019,174 $791,760 $852,915
Cost of products sold 687,171 540,075 521,996
------------- ------------- -------------
Gross Profit 332,003 251,685 330,919
Operating Expenses
Research and development 40,262 29,622 25,810
Sales and administrative 163,631 144,335 145,313
Restructuring - 29,817 -
------------- ------------- -------------
203,893 203,774 171,123
------------- ------------- -------------
Operating Income 128,110 47,911 159,796
Other
Interest expense 8,862 5,329 6,060
Interest income (2,083) (10,198) (7,615)
Other expense, net 4,271 3,602 4,007
------------- ------------- -------------
11,050 (1,267) 2,452
------------- ------------- -------------
Income Before Income Taxes 117,060 49,178 157,344
Income taxes 37,459 18,751 53,497
------------- ------------- -------------
Net Income 79,601 30,427 103,847
============= ============= =============
Basic and Diluted Net Income per Average
Share of Common Stock Outstanding $0.98 $0.37 $1.18
============= ============= =============
Average Basic Shares Outstanding 80,944 82,675 87,941
Average Diluted Shares Outstanding 81,418 82,813 88,306
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
Dollars in thousands 2000 1999
------------ ------------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 44,865 $ 38,287
Accounts receivable, less allowances (2000--$2,983; 1999--$3,403) 263,016 200,068
Inventories
Finished products 77,082 58,225
Materials and work in process 127,086 106,261
------------ ------------
204,168 164,486
Miscellaneous current assets 12,632 10,662
------------ ------------
Total Current Assets 524,681 413,503
Other Assets
Costs in excess of net assets of businesses acquired,
less accumulated amortization (2000--$8,625; 1999--$4,654) 37,799 21,498
Investments in and advances to affiliates 51,759 63,992
Other assets 7,698 6,297
Property, Plant and Equipment
Land and land improvements 19,291 17,016
Buildings 95,510 83,850
Equipment 370,286 335,125
Allowances for depreciation and amortization (289,827) (275,191)
------------ ------------
195,260 160,800
------------ ------------
Total Assets $817,197 $666,090
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable $ 45,771 $ 3,053
Accounts payable 58,538 43,105
Restructuring reserve - 12,128
Accrued expenses and other liabilities 18,557 21,212
Compensation and related expenses 30,303 21,947
Income taxes 5,639 -
Current portion of long-term debt 15,215 8,205
------------ ------------
Total Current Liabilities 174,023 109,650
Deferred Liabilities 25,132 18,602
Long-Term Debt, less current portion 65,843 48,760
Minority Interest 9,254 5,068
Stockholders' Equity
Common stock (par value, $.01 per share: 400,000,000 shares authorized;
102,718,210 shares issued, including treasury) 1,027 1,027
Additional paid-in capital 64,136 55,802
Accumulated other comprehensive income (35,801) (21,755)
Retained earnings 761,131 681,530
Treasury stock, at cost (21,476,101 shares in 2000; 20,527,072 shares in 1999) (247,548) (232,594)
------------ ------------
542,945 484,010
------------ ------------
Total Liabilities and Stockholders' Equity $817,197 $666,090
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30
Dollars in thousands 2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operations
Net Income $79,601 $30,427 $103,847
Adjustments to Net Income
Restructuring costs 2,820 33,580 (864)
Depreciation and amortization 47,668 39,155 37,494
(Increase) decrease in accounts receivable (72,611) (25,107) 3,637
Increase in inventories (50,846) (4,238) (107)
(Increase) decrease in miscellaneous current and other assets (566) (3,756) 1,117
Decrease in receivables from affiliates 22 4,201 3,150
Increase (decrease) in accounts payable and other liabilities 39,938 (1,303) 1,754
Other 3,948 (124) (176)
------------ ------------ ------------
Net Cash from Operations 49,974 72,835 149,852
Investing Activities
Capital expenditures (83,542) (51,418) (58,529)
Acquisition of businesses, net of cash acquired (16,262) (15,107) (3,000)
Investments in and advances to affiliates, net 4,152 (4,308) (3,195)
Proceeds from sale of property, plant and equipment 288 759 607
------------ ------------ ------------
Net Cash Used for Investing Activities (95,364) (70,074) (64,117)
Financing Activities
Long-term borrowings (payments)--net 23,054 6,385 2,223
Short-term borrowings (payments)--net 42,761 (3,587) (38)
Stock purchase and option plans 14,201 3,059 2,859
Purchase of treasury stock (24,630) (50,512) (105,405)
------------ ------------ ------------
Net Cash from (Used for) Financing Activities 55,386 (44,655) (100,361)
Effect of exchange rate changes on cash (3,418) 1,786 (802)
------------ ------------ ------------
Increase (Decrease) for the Year 6,578 (40,108) (15,428)
Cash and cash equivalents at beginning of year 38,287 78,395 93,823
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $44,865 $38,287 $78,395
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-In Comprehensive Retained Treasury
Dollars in thousands Stock Capital Income Earnings Stock Total
--------- ---------- --------------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 $1,027 $51,810 $(4,532) $547,256 $(86,438) $509,123
Repurchase of shares (105,405) (105,405)
Stock purchase and option plans 1,499 2,799 4,298
Foreign Currency Translation Adjustment (3,085) (3,085)
Net Income 103,847 103,847
---------------
Comprehensive Income 100,762
========= ========== =============== ============ ============= ===============
Balance at September 30, 1998 $1,027 $53,309 $(7,617) $651,103 $(189,044) $508,778
Repurchase of shares (50,512) (50,512)
Stock purchase and option plans 2,493 6,962 9,455
Foreign Currency Translation Adjustment (14,138) (14,138)
Net Income 30,427 30,427
---------------
Comprehensive Income 16,289
========= ========== =============== ============ ============= ===============
Balance at September 30, 1999 $1,027 $55,802 $(21,755) $681,530 $(232,594) $484,010
Repurchase of shares (24,630) (24,630)
Stock purchase and option plans 8,334 9,676 18,010
Foreign Currency Translation Adjustment (14,046) (14,046)
Net Income 79,601 79,601
---------------
Comprehensive Income 65,555
--------- ---------- --------------- ------------ ------------- ---------------
Balance at September 30, 2000 $1,027 $64,136 $(35,801) $761,131 $(247,548) $542,945
========= ========== =============== ============ ============= ===============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the company and
its majority-owned subsidiaries in which the company exercises control. All
significant intercompany accounts and transactions have been eliminated.
CASH EQUIVALENTS
The company considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents. The carrying amount of cash
equivalents approximates fair value due to the relative short-term maturity of
these investments.
INVENTORIES
Inventories are stated at the lower of cost or market. Inventories stated under
the last-in, first-out (LIFO) method represent 55% of total inventories in 2000
and 57% of total inventories in 1999. The remaining inventories are valued on
the first-in, first-out (FIFO) method.
If the FIFO method, which approximates current replacement cost, had been used
for all inventories, the total amount of inventories would have remained
unchanged at September 30, 2000 and September 30, 1999.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is computed
using accelerated methods based on estimated useful lives of the assets for both
financial reporting and tax purposes. Buildings are depreciated over 10 to 30
years and equipment is depreciated over 3 to 8 years. Depreciation expense was
$43.7 million, $37.1 million and $35.4 million for 2000, 1999 and 1998,
respectively.
COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED
The company amortizes the cost in excess of net assets of businesses acquired on
the straight-line basis over periods ranging from 10 to 40 years. Amortization
expense was $4.0 million, $2.0 million and $2.1 million for 2000, 1999 and 1998,
respectively.
Management periodically reviews the valuation and amortization of goodwill. As
part of this review, the company estimates the value and future benefits of the
cash flows generated by the related assets to determine if any impairment has
occurred.
<PAGE>
INVESTMENTS IN AFFILIATES
Investments in affiliates are accounted for using the equity method, under which
the company's share of earnings or losses of these affiliates is reflected in
income as earned and dividends are credited against the investment in affiliates
when received.
REVENUE RECOGNITION
Revenue is recognized from sales when a product is shipped or a service is
performed. Long-term contracts in progress are reviewed monthly, and sales and
earnings are adjusted in the current accounting period based on revisions in
contract value and estimated costs at completion. Estimated losses on contracts
are provided when identified.
FOREIGN CURRENCY TRANSLATION
The functional currency for the company's foreign operations is predominantly
the applicable local currency. Accounts of foreign operations are translated
into U.S. dollars using year-end exchange rates for assets and liabilities and
average monthly exchange rates for revenue and expense accounts. Adjustments
resulting from translation are included in accumulated other comprehensive
income, a separate component of stockholders' equity. Gains and losses resulting
from foreign currency transactions are included in determining net income. Net
gains and losses resulting from foreign currency transactions that are included
in other expense, net were income of $(1.7) million, losses of $2.4 million and
losses of $3.0 million for 2000, 1999 and 1998, respectively.
HEDGING AND DERIVATIVE INSTRUMENTS
The company is exposed to changes in foreign exchange rates as a result of its
foreign operations. The company primarily manages its foreign currency risk by
making use of naturally offsetting positions. These natural hedges include the
establishment of local manufacturing facilities that conduct business in local
currency and the use of borrowings denominated in local currencies (see
Borrowings note). The company also selectively utilizes derivative instruments
such as forward exchange contracts to manage the risk of exchange fluctuation.
These instruments held by the company are not leveraged and are not held for
trading or speculative purposes.
INCOME TAXES
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes.
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING POLICIES
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities." FASB
No. 133 requires all derivatives to be recorded on the balance sheet at fair
value. FASB Statement No. 133 was amended by FASB Statement No. 137 in June 1999
and FASB Statement No. 138 in June 2000. The company will adopt these FASB
statements in the first quarter of fiscal year 2001. Adoption of these
statements is not expected to have a material effect on the company's financial
statements.
In July 2000, the FASB's Emerging Issues Task Force (EITF) reached a conclusion
on EITF Issue 00-10, accounting for shipping and handling fees and costs. The
company will adopt EITF Issue 00-10 starting in the fourth quarter of fiscal
year 2001. Adoption of Issue 00-10 will not have a material effect on the
company's financial statements. EITF Issue 00-10 requires that shipping and
handling expenses billed to customers be recorded as part of sales revenue and
that the related expenses be recorded in cost of products sold. The company
currently passes any shipping costs on to its customers at cost and does not
record any shipping charges as part of sales revenue or cost of products sold.
Adoption of EITF Issue 00-10 will not impact income or gross profit but will
cause the gross profit percentage to decrease from what has historically been
reported.
In December 1999, the staff of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements." The company will adopt SAB No. 101 in the fourth quarter
of fiscal year 2001. Adoption of SAB No. 101 is not expected to have a material
effect on the company's financial statements.
BUSINESS ACQUISITIONS
In February 1999, the company purchased the remaining 20% interest in Satcom
Group of Companies, located in South Africa, for $1.2 million. In March 1999,
the company acquired the stock of Passive Power Products, Inc., a Maine-based
supplier of RF products to the broadcast market, for $4.3 million, net of cash
acquired. In September 1999, the company acquired the stock of Chesapeake
Microwave Technologies Inc. (CMTI), a Glen Rock, Pennsylvania company that
designs and develops radio frequency (RF) and microwave amplifiers and
assemblies. In addition to the $8.6 million, net of cash acquired paid at
closing, the CMTI purchase agreement contains a provision for deferred payments
of up to $4.0 million payable to certain CMTI shareholders. In September 2000,
the company paid $1.3 million to these CMTI shareholders and has possible
deferred payments of up to $2.7 million remaining. These payments have been and
will be accounted for as additional purchase consideration when paid.
The 1999 acquisitions were accounted for as purchases, resulting in $13.9
million of goodwill that will be amortized over 10 years. Pro forma results of
operations, assuming these transactions occurred at the beginning of the fiscal
year, are not materially different from the reported results of operations.
In October 1999, the company purchased a controlling interest in Comtier
Corporation for $2.0 million. The company had previously accounted for its
minority investment in Comtier under the equity method of accounting. Comtier
manufactures and designs high-speed broadband modems for use with satellite
systems. In December 1999, the company acquired the capital stock of Conifer
Corporation for $13.0 million, net of cash acquired. Conifer designs and
manufactures Multichannel Multipoint Distribution Service (MMDS) subscriber
products, Wireless LAN equipment and Direct Broadcast Satellite (DBS)
accessories.
The 2000 acquisitions were accounted for as purchases, resulting in $17.4
million of goodwill that will be amortized over 10 years. Pro forma results of
operations, assuming these transactions occurred at the beginning of the fiscal
year, are not materially different from the reported results of operations.
<PAGE>
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
Dollars in thousands, except per share amounts 2000 1999 1998
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Numerator:
Numerator for net income per share $ 79,601 $ 30,427 $103,847
Denominator:
Weighted average shares outstanding 80,944 82,675 87,941
============ ============= ============
Net income per share--basic $0.98 $0.37 $1.18
============ ============= ============
DILUTED EARNINGS PER SHARE
Numerator:
Numerator for net income per share $ 79,601 $ 30,427 $103,847
Denominator:
Weighted average shares outstanding 80,944 82,675 87,941
Effect of dilutive securities:
Stock options 474 138 365
------------ ------------- ------------
81,418 82,813 88,306
============ ============= ============
Net income per share--diluted $ 0.98 $ 0.37 $ 1.18
============ ============= ============
</TABLE>
Options to purchase 1,191,000, 2,681,000 and 1,285,000 shares of common stock in
2000, 1999 and 1998, respectively, were not included in the computation of
diluted earnings per share because the options' exercise prices were greater
than the average market price of the common shares.
INVESTMENTS IN AND ADVANCES TO AFFILIATES
The company has various investments in ventures that are accounted for by the
equity method. Nine of the ventures are engaged in communication and data
transmission in Russia, the Ukraine and Mexico. The company has minority
interest holdings in six of the ventures and a majority interest holding in
three of the ventures. The company does not consolidate the majority owned
ventures because of governmentally imposed uncertainties that significantly
affect the company's ability to exercise control. The method of accounting is
evaluated on a periodic basis for appropriateness based on the existing
conditions and the company's ability to exercise control. The company has no
investments in ventures that are accounted for by the cost method. The combined
operating results of the ventures and the company's share thereof were not
material to the company's 2000, 1999 and 1998 operating results. The company
guarantees a $41.0 million line of credit with ABN-AMRO, which is used by its
ventures. As of September 30, 2000, there was $33.1 million outstanding under
the agreement.
UNBILLED RECEIVABLES
At September 30, 2000, unbilled receivables of $3,201,000 are included in
accounts receivable, compared to $4,551,000 at September 30, 1999. These amounts
will be billed in accordance with contract terms and delivery schedules and are
generally expected to be collected within one year.
PROFIT SHARING PLANS
Most employees of Andrew Corporation and its subsidiaries participate in various
retirement plans, principally defined contribution profit sharing plans. The
amounts charged to earnings for these plans in 2000, 1999 and 1998 were
$9,722,000, $9,203,000 and $14,967,000, respectively.
<PAGE>
BORROWINGS
LINES OF CREDIT
The company maintains a $150 million revolving line of credit agreement with a
group of ten banks led by Bank of America, NA as administrative agent. During
2000, this revolving credit agreement was increased from $50 million to $150
million. The maximum outstanding during 2000 under the line of credit was $75.3
million with a weighted average interest rate of 7.28%. The outstanding balance
at September 30, 2000 was $39.8 million, including foreign currency borrowings
of $2.3 million U.S. dollars in Japanese yen, $1.0 million U.S. dollars in Hong
Kong dollars and $16.4 million U.S. dollars in Swiss francs.
The company also maintains a $11.4 million line of credit agreement with
ABN-AMRO for its Brazilian operations. The company had no borrowings under this
agreement during 2000.
The company maintains a $20 million Canadian dollar line of credit with the Bank
of America Canada. The maximum outstanding during 2000 was $9.0 million Canadian
dollars, at an average rate of 6.72%. Outstanding at September 30, 2000 was $9.0
million Canadian dollars, or $6.0 million U.S. dollars.
LONG-TERM DEBT
Long-term debt at September 30 consisted of the following:
<TABLE>
<CAPTION>
Dollars in thousands 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
9.52% senior notes payable to insurance companies
in annual installments from 1995 to 2005 $22,726 $27,272
Variable rate Industrial Development Revenue Bond
with Coweta County, Georgia 3,800 3,800
6.66% RMB loan from the Agricultural Bank of China,
supported by a Bank of America letter of credit 7,732 9,678
6.56% RMB loan from the Shanghai Pudong Development Bank,
supported by a Bank One letter of credit 11,598 -
6.74% RMB loan from Bank of America Shanghai 1,932 -
6.66% RMB loan from the Agricultural Bank of China,
supported by a Bank One letter of credit 19,330 -
Variable rate loan from BBA Creditanstalt Bank Limited 8,800 8,800
12.00% loan agreement with Banco Nacional De
Desenvolvimento Economico E Social 3,223 4,477
Other 1,917 2,938
Less: Current Portion 15,215 8,205
------------ ------------
Total Long-Term Debt $65,843 $48,760
============ ============
</TABLE>
Under the terms of the loan agreements, the company has agreed to maintain
certain levels of working capital and net worth. At September 30, 2000, all
these requirements have been met.
The principal amounts of long-term debt maturing after September 30, 2000 are:
<TABLE>
<CAPTION>
Dollars in thousands 2001 2002 2003 2004 2005 Thereafter
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$15,215 $25,613 $26,519 $4,750 $8,551 $410
</TABLE>
Cash payments for interest on all borrowings were $8,128,000, $5,091,000 and
$7,146,000 in 2000, 1999 and 1998, respectively.
The carrying amount of long-term debt as of September 30, 2000 approximates fair
value. The fair value was determined by discounting the future cash outflows
based upon the current market rates for instruments with a similar risk and term
to maturity.
RESTRUCTURING
In March 1999, the company initiated a plan to restructure the manufacturing
operations of its towers and wireless accessories businesses, phaseout of its
AVS small aperture earth station product line and divest itself of its SciComm
government electronics business.
In connection with these restructuring activities, the company planned to
terminate approximately 600 employees and 280 temporary/contract workers.
Estimated employee termination costs of $5.2 million were accrued in the second
quarter of 1999. In addition to termination costs, these restructuring charges
included a goodwill write-off of $14.1 million, long-term lease commitments of
$3.5 million and inventory, equipment and other asset write-downs of $13.9
million. Of the total $36.7 million employee termination and exit costs
recognized, $6.9 million was classified as Cost of Sales and $29.8 million as
Restructuring in the Operating Expense section of the income statement. On an
after-tax basis, restructuring charges were $28.1 million, or $0.34 per share.
Actual costs charged against the restructuring reserve in 1999 were $24.6
million, including termination costs of $2.8 million paid to 424 terminated
employees, a $14.1 million goodwill write-off, and inventory and other asset
write-downs of $7.4 million.
The company completed its restructuring efforts in 2000. Actual costs charged
against the restructuring reserve in 2000 were $12.1 million. This included
termination costs of $1.6 million paid to 281 terminated employees; inventory,
equipment and other asset write-offs of $10.0 million; and lease payments of
$0.5 million.
<PAGE>
INCOME TAXES
The composition of the provision for income taxes follows:
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
Dollars in thousands 2000 1999 1998
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently Payable:
Federal $ 6,336 $ 2,554 $ 24,539
Non-United States 19,085 15,553 17,043
State 2,782 933 4,708
------------- ------------ ------------
28,203 19,040 46,290
Deferred (Credit):
Federal and State 9,019 384 7,091
Non-United States 237 (673) 116
------------- ------------ ------------
9,256 (289) 7,207
------------- ------------ ------------
$ 37,459 $ 18,751 $ 53,497
============= ============ ============
Income Taxes Paid $ 25,522 $ 29,411 $ 56,162
============= ============ ============
Components of Income Before Income Taxes:
United States $ 35,963 $(8,078) $ 97,909
Non-United States 81,097 57,256 59,435
------------- ------------ ------------
$117,060 $ 49,178 $157,344
============= ============ ============
</TABLE>
The company's effective income tax rate varied from the statutory United States
federal income tax rate because of the following:
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
2000 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
Statutory United States federal tax rate 35.0% 35.0% 35.0%
Foreign Sales Corporation (FSC) (1.3) (4.2) (2.0)
State income taxes, net of federal tax effect 1.5 1.3 2.2
Net tax effect of restructuring - 6.1 -
Foreign tax rate differential (4.4) (4.3) (1.0)
Other items 1.2 4.2 (0.2)
------------- ------------ ------------
Effective Tax Rate 32.0% 38.1% 34.0%
</TABLE>
The tax effect of temporary differences has given rise to gross deferred tax
assets of $12,936,000 in 2000 and $16,980,000 in 1999, primarily due to accrued
expenses and inventory. The tax effect of temporary differences has created
gross deferred tax liabilities of $27,771,000 in 2000 and $22,779,000 in 1999,
primarily due to depreciation. The company has not recorded valuation allowances
for deferred tax assets in 2000 or 1999, because the existing net deductible
temporary differences will reverse during periods in which the company expects
to generate taxable income.
The increase in the effective tax rate for the year ended September 30, 1999 was
attributable to the inclusion of non-deductible goodwill in the restructuring
charges recognized during the year. Excluding the impact of the restructuring
charges, the effective tax rate for the year ended September 30, 1999 was 32.0%,
as compared to an effective tax rate of 34.0% for the year ended September 30,
1998.
No provision has been made for income taxes of approximately $21,925,000 at
September 30, 2000, which would be payable should all undistributed net income
of subsidiaries located outside the United States be distributed as dividends.
The company plans to continue its non-United States operations, and anticipates
the ability to use tax planning opportunities to reduce the tax liability if any
dividends are declared or paid from these operations.
STOCKHOLDERS' EQUITY
COMMON STOCK
The company has authorized 400,000,000 shares of common stock with a par value
of $.01 per share. As of September 30, 2000, 81,242,109 shares of common stock
were outstanding. Each outstanding common share has attached to it a one Share
Purchase Right that, until exercisable, cannot be transferred apart from the
company's common stock. The Rights will become exercisable only if a person or
group acquires 15% 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
become exercisable, each Right may entitle the holder to purchase common stock
of either the surviving or acquired company at one-half its market price.
During the third quarter of fiscal year 1997, the company implemented a stock
buy-back program. The company's Board of Directors has authorized the company to
repurchase up to 15 million common shares. The company repurchased 5,472,732
shares of common stock at a cost of $105,405,000 in 1998, 2,967,700 shares at a
cost of $50,512,000 in 1999 and 1,800,000 shares at a cost of $24,630,000 in
2000. The company has repurchased a total of 11,785,432 shares, at a total cost
of $222,175,000, under the stock buy-back program since 1997. The common shares
repurchased under this program may be used to meet employee compensation needs
or used in future acquisitions.
Common stock issued and outstanding and held in treasury is summarized in the
table below:
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
2000 1999 1998
--------------- -------------- ---------------
<S> <C> <C> <C>
SHARES OF COMMON STOCK--ISSUED
Balance at End of Year 102,718,210 102,718,210 102,718,210
--------------- -------------- ---------------
SHARES OF COMMON STOCK--HELD IN TREASURY
Balance at beginning of year 20,527,072 18,210,250 13,060,876
Stock repurchase 1,800,000 2,967,700 5,472,732
Stock purchase, option and other plans (850,971) (650,878) (323,358)
--------------- -------------- ---------------
Balance at End of Year 21,476,101 20,527,072 18,210,250
=============== ============== ===============
</TABLE>
As of September 30, 2000, 7,785,994 shares of common stock were reserved for the
various stock plans described on the following pages.
<PAGE>
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," encourages, but does not require, companies to record
compensation expense for stock-based employee compensation plans at fair value.
The company has chosen to continue to account for stock-based compensation using
the intrinsic value method described in Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Under APB No. 25, compensation expense is measured as the
excess of market price over the price the employee must pay to acquire the stock
on the grant date. All options are granted by the company at market price and,
as a result, no compensation expense is recorded.
The company currently maintains a long-term Management Incentive Program (MIP),
which provides for the issuance of up to 9,112,500 common shares in the form of
stock options and awards and the awarding of performance units payable in cash
or stock to key officers and other employees. On February 8, 2000, the company's
shareholders ratified a new long-term MIP that provides for the issuance of up
to 4,000,000 common shares in the form of stock options and awards and the
awarding of performance units payable in cash or stock to key officers and other
employees. Options under these plans vest over a four-year period and expire ten
years after the grant date. In fiscal year 2000, there were 971,600 options
granted under these plans.
The company also maintained a Stock Option Plan for Non-Employee Directors that
provided for the issuance of up to 1,012,500 common shares. Options under this
plan vest over a five-year period and expire ten years after grant. In fiscal
year 1998, this plan was terminated due to an insufficient number of shares
available for new grants. On February 10, 1998, the company's shareholders
ratified a new Stock Option Plan for Non-Employee Directors that provides for
the issuance of up to 400,000 common shares. Options under this plan vest over a
five-year period and expire ten years after grant. In fiscal year 2000, there
were 84,000 options granted under this plan.
The company also has an Employee Stock Purchase Plan (ESPP) that was amended and
restated on November 12, 1998 and expires on February 1, 2009. All U.S. and
certain non-U.S. employees with six months of service as of the annual offering
date are eligible to participate in this plan. The plan authorizes up to
1,096,970 shares of common stock to be sold to employees at 85% of market value.
All shares issued under this plan are restricted and cannot be sold for one year
following the date of purchase. In fiscal year 2000, there were 69,210 shares
purchased by employees under the plan.
Pro forma information regarding net income and earnings per share is required by
Statement No. 123, and has been determined as if the company had accounted for
its stock option plans under the fair value method of that statement. The fair
value of these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 2000,
1999 and 1998, respectively: a risk-free interest rate of 5.68%, 5.98% and
4.39%; a dividend yield of 0%; a volatility factor of .499, .490 and .477; and a
weighted average expected life of the options of six years.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The company's pro
forma information follows:
<TABLE>
<CAPTION>
Year Ended September 30
Dollars in thousands, except per share amounts 2000 1999 1998
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income $74,373 $26,161 $99,891
Pro forma net income per share
Basic 0.92 0.32 1.14
Diluted $ 0.91 $ 0.32 $ 1.13
============ ============ ============
</TABLE>
The effects on pro forma disclosures of applying Statement No. 123 are not
likely to be representative of the effects of such disclosures in future
years. Because Statement No. 123 is applicable only to options granted
subsequent to September 30, 1995, the pro forma effect is not fully reflected
in fiscal years 2000, 1999 and 1998.
<PAGE>
A summary of the company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
2000 1999 1998
------------- ------------ ------------
<S> <C> <C> <C>
Outstanding at beginning of year 3,489,140 2,911,831 2,648,033
Granted 1,055,600 1,014,480 659,150
Expired or canceled (148,600) (229,748) (136,098)
Exercised (676,982) (207,423) (259,254)
------------- ------------ ------------
Outstanding at End of Year 3,719,158 3,489,140 2,911,831
============= ============ ============
Exercisable at End of Year 1,595,017 1,604,529 1,232,536
Weighted Average Exercise Price
Outstanding at beginning of year $20.99 $21.81 $20.26
Granted 23.76 17.13 23.69
Expired or canceled 22.94 24.89 27.01
Exercised 16.71 9.15 8.12
Outstanding at end of year 22.48 20.99 21.81
Exercisable at end of year $22.57 $20.14 $17.26
============= ============ ============
</TABLE>
The weighted average fair value of options granted during fiscal years 2000,
1999 and 1998 was $12.22, $8.63 and $12.93 per share, respectively. The weighted
average life of options outstanding as of September 30, 2000 was 7.26 years. The
range of exercise prices for options outstanding at September 30, 2000 was $2.71
to $38.17.
<TABLE>
<CAPTION>
Range of Exercise Prices $2.71-$9.58 $12.38-$15.56 $16.00-$18.19 $19.33-$24.50 $27.19-$38.17 Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding Options 202,817 234,887 842,049 1,798,793 640,612 3,719,158
Exercisable Options 202,817 117,512 266,581 569,427 438,680 1,595,017
Weighted Average
Exercise Price $ 7.63 $ 14.13 $ 17.50 $ 22.82 $ 35.83 $ 22.48
Average Life 2.95 5.92 7.64 8.03 6.44 7.26
</TABLE>
<PAGE>
SEGMENT AND GEOGRAPHIC INFORMATION
The company manages its business as one operating segment. This segment serves
commercial markets, including coaxial cable, terrestrial microwave systems,
wireless accessories and other products and services. The company sells to a
wide range of customers in these markets; no single customer makes up 10% or
more of the company's total revenue. Principal financial data by major product
group and geographic selling location is as follows:
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------
Dollars in thousands 2000 1999 1998
------------- ------------- --------------
<S> <C> <C> <C>
Product Sales:
Coaxial Cable $ 564,394 $418,496 $486,788
Terrestrial Microwave Systems and Millimeter Wave 156,374 150,795 148,614
Wireless Accessories 64,698 52,665 59,601
Other Antennas and Support Products 233,708 169,804 157,912
------------- ------------- --------------
Total Product Sales $1,019,174 $791,760 $852,915
------------- ------------- --------------
Sales:
United States--Domestic $ 506,656 $382,557 $432,539
United States--Export 67,196 61,843 97,738
Europe, Africa and Middle East 189,626 184,575 175,021
China 64,636 20,220 4,171
Other Asia-Pacific 76,760 57,423 55,611
Other Americas 114,300 85,142 87,835
------------- ------------- --------------
Total Sales $1,019,174 $791,760 $852,915
------------- ------------- --------------
Assets Identifiable to:
United States $ 475,245 $410,783 $411,545
Europe, Africa and Middle East 138,288 129,519 144,137
China 86,375 37,213 21,716
Other Asia-Pacific 45,969 26,632 30,284
Other Americas 71,320 61,943 75,221
------------- ------------- --------------
Consolidated Assets $ 817,197 $666,090 $682,903
============= ============= ==============
</TABLE>
<PAGE>
SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Due to variability of shipments under large contracts, customers' seasonal
installation considerations, variations in product mix and in profitability of
individual orders, the company can experience wide quarterly fluctuations in net
sales and income. Consequently, it is more meaningful to focus on annual rather
than quarterly results.
<TABLE>
<CAPTION>
Dollars in thousands, except per share amounts December March June September Total
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000:
Sales $233,568 $242,663 $259,214 $283,729 $1,019,174
Gross profit 76,044 77,975 85,146 92,838 332,003
Income before income taxes 24,654 25,441 30,742 36,223 117,060
Net income 16,766 17,300 20,905 24,630 79,601
Basic and diluted net income per share 0.21 0.21 0.26 0.30 0.98
Common Stock Closing Price:
High 18.94 29.81 41.00 33.88
Low 11.25 18.00 21.31 24.56
------------- ------------ ------------ ------------ -------------
1999:
Sales $218,573 $172,006 $186,079 $215,102 $ 791,760
Gross profit 79,532 45,166* 59,131 67,856 251,685*
Income before income taxes 35,122 (25,725)* 20,043 19,738 49,178*
Net income 23,181 (20,849)* 14,735 13,360 30,427*
Basic and diluted net income per share 0.28 (0.25)* 0.18 0.16 0.37*
Common Stock Closing Price:
High 18.50 20.56 19.06 22.06
Low 11.31 11.13 11.56 16.31
-------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes restructuring charges of $6,888 in gross profit, $36,706 pre-tax,
$28,120 after-tax, $0.34 per share.
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Andrew Corporation
We have audited the accompanying consolidated balance sheets of Andrew
Corporation and subsidiaries as of September 30, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended September 30, 2000. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Andrew Corporation
and subsidiaries at September 30, 2000 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2000, in conformity with accounting principles, generally
accepted in the United States.
/s/ Ernst & Young LLP
Chicago, Illinois
October 20, 2000
<PAGE>
ELEVEN YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
Dollars in thousands, except per share amounts 2000 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Operations(1),(2)
Sales $1,019,174 $791,760 $ 852,915 $869,475 $766,007 $624,743
Gross profit 332,003 251,685 330,919 355,666 320,486 264,013
Operating income 128,110 47,911 159,796 163,793 151,304 116,803
Other (income) expense 11,050 (1,267) 2,452 (1,989) 4,738 4,362
Income from continuing operations before taxes 117,060 49,178 157,344 165,782 146,566 112,441
Income from continuing operations 79,601 30,427 103,847 107,758 93,802 71,854
Discontinued Operations:
Loss (income) from operations of network business,
net of taxes - - - 3,330 3,405 1,899
Loss on disposal of network business, net of taxes - - - 16,086 - -
Net income 79,601 30,427 103,847 88,342 90,397 69,955
Basic income from continuing operations per share 0.98 0.37 1.18 1.18 1.04 0.81
Diluted income from continuing operations per share 0.98 0.37 1.18 1.18 1.03 0.80
Basic net income per share 0.98 0.37 1.18 0.97 1.00 0.78
Diluted net income per share 0.98 0.37 1.18 0.97 0.99 0.78
------------- ---------- ---------- ---------- ---------- ----------
Financial Position
Working capital 350,658 303,853 320,117 332,721 284,602 227,164
Total assets 817,197 666,090 682,903 691,154 631,229 505,114
Long-term debt 65,843 48,760 38,031 35,693 40,423 45,255
Stockholders' equity 542,945 484,010 508,778 509,123 456,214 357,191
------------- ---------- ---------- ---------- ---------- ----------
Cash Flow
From operations 49,974 72,835 149,852 151,680 66,796 55,816
Used in investing activities (95,364) (70,074) (64,117) (61,427) (78,683) (55,367)
From (used for) financing activities 55,386 (44,655) (100,361) (25,499) (1,972) 4,570
Cash and equivalents $ 44,865 $ 38,287 $ 78,395 $ 93,823 $ 31,295 $ 46,064
------------- ---------- ---------- ---------- ---------- ----------
Ratios and Other Data
Current ratio
Return on Sales: 3.0 3.8 3.7 3.6 3.4 3.4
Income from continuing operations 7.8% 3.8% 12.2% 12.4% 12.2% 11.5%
Net income 7.8% 3.8% 12.2% 10.2% 11.8% 11.2%
Return on average assets 10.7% 4.5% 15.1% 13.4% 15.9% 15.0%
Return on average stockholders' equity 15.5% 6.1% 20.4% 18.3% 22.2% 22.1%
------------- ---------- ---------- ---------- ---------- ----------
Stockholders' equity per share outstanding $6.68 $5.89 $6.02 $5.68 $5.03 $3.97
Foreign exchange gain (loss) 1,684 (2,372) (2,988) 3,433 972 (1,612)
Research and development 40,262 29,622 25,810 41,076 29,624 21,041
Additions to property, plant and equipment 83,542 51,418 58,529 49,144 52,475 48,076
Net assets located outside U.S. at year end 209,882 258,117 272,661 228,488 220,600 160,700
Orders entered 1,040,031 824,252 874,717 864,918 790,621 684,504
Order backlog at year end (under 12 months) 184,536 170,706 141,847 132,610 152,205 125,446
Order backlog at year end (over 12 months) $1,391 $3,276 $12,317 $5,950 $14,756 $18,529
------------- ---------- ---------- ---------- ---------- ----------
Number of full-time equivalent employees at year end:
Outside United States 1,822 1,261 1,219 1,185 1,162 763
Total employees 5,799 4,572 4,221 4,227 4,622 3,677
Average basic shares of stock outstanding (thousands) 80,944 82,675 87,941 90,947 90,263 89,177
Average diluted shares of stock outstanding 81,418 82,813 88,306 91,539 91,033 89,964
(thousands)
Registered stockholders at year end 3,688 4,365 4,727 4,599 3,242 2,340
------------- ---------- ---------- ---------- ---------- ----------
</TABLE>
(1) The results of operations for fiscal years 1990 through 1996 have been
updated for the disposal of the network products segment in 1997.
(2) The results of operations for fiscal years 1991 through 1995 have been
updated for the pooling of interests with The Antenna Company in 1996. All
other acquisitions have been included in operations since the date of
acquisition.
<PAGE>
ELEVEN YEAR FINANCIAL SUMMARY (Cont)
<TABLE>
<CAPTION>
Dollars in thousands, except per share amounts 1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations(1),(2)
Sales $536,025 $394,276 $397,721 $371,590 $325,455
Gross profit 217,796 156,130 144,281 135,550 118,199
Operating income 84,497 51,149 45,591 42,994 35,175
Other (income) expense 7,226 3,145 3,904 4,999 4,470
Income from continuing operations before taxes 77,271 48,004 41,687 37,995 30,705
Income from continuing operations 49,360 30,587 26,080 23,390 18,832
Discontinued Operations:
Loss (income) from operations of network business,
net of taxes 3,593 1,184 (71) 1,456 671
Loss on disposal of network business, net of taxes - - - - -
Net income 45,767 29,403 26,151 21,934 18,161
Basic income from continuing operations per share 0.56 0.35 0.27 0.24 0.19
Diluted income from continuing operations per share 0.55 0.35 0.26 0.23 0.19
Basic net income per share 0.52 0.34 0.27 0.22 0.18
Diluted net income per share 0.51 0.33 0.27 0.22 0.18
------------ ---------- ---------- ---------- ----------
Financial Position
Working capital 171,705 142,675 126,764 151,280 136,068
Total assets 425,326 343,876 318,062 345,261 319,542
Long-term debt 46,092 52,467 54,223 59,928 63,447
Stockholders' equity 276,553 221,872 192,956 217,036 198,524
------------ ---------- ---------- ---------- ----------
Cash Flow
From operations 52,343 54,911 51,725 32,285 34,602
Used in investing activities (38,692) (33,295) (12,113) (22,903) (47,900)
From (used for) financing activities 4,259 (5,938) (50,764) (5,508) 18,622
Cash and equivalents $ 40,714 $ 22,001 $ 7,763 $ 17,168 $ 13,823
------------ ---------- ---------- ---------- ----------
Ratios and Other Data
Current ratio 2.8 3.2 2.9 3.5 3.6
Return on Sales:
Income from continuing operations 9.2% 7.8% 6.6% 6.3% 5.8%
Net income 8.5% 7.5% 6.6% 5.9% 5.6%
Return on average assets 11.9% 8.9% 7.9% 6.6% 6.2%
Return on average stockholders' equity 18.4% 14.2% 12.8% 10.6% 9.5%
------------ ---------- ---------- ---------- ----------
Stockholders' equity per share outstanding $ 3.12 $ 2.54 $ 2.27 $ 2.19 $ 2.04
Foreign exchange gain (loss) (1,922) 1,380 41 583 (560)
Research and development 20,377 17,118 14,248 14,786 16,621
Additions to property, plant and equipment 28,471 18,479 18,188 25,124 25,151
Net assets located outside U.S. at year end 130,900 90,300 65,100 70,400 59,800
Orders entered 532,881 401,284 373,700 374,900 323,000
Order backlog at year end (under 12 months) 83,884 85,170 82,500 106,700 109,200
Order backlog at year end (over 12 months) $ 595 $ 1,573 $ 5,500 $ 8,300 $ 9,300
------------ ---------- ---------- ---------- ----------
Number of full-time equivalent employees at year end:
Outside United States 661 584 596 717 738
Total employees 3,405 3,110 3,144 3,450 3,200
Average basic shares of stock outstanding (thousands) 87,845 86,193 96,981 98,408 100,916
Average diluted shares of stock outstanding (thousands) 89,204 87,831 98,521 99,971 101,647
Registered stockholders at year end 1,482 1,133 1,057 1,137 1,300
------------ ---------- ---------- ---------- ----------
</TABLE>
(1) The results of operations for fiscal years 1990 through 1996 have been
updated for the disposal of the network products segment in 1997.
(2) The results of operations for fiscal years 1991 through 1995 have been
updated for the pooling of interests with The Antenna Company in 1996. All
other acquisitions have been included in operations since the date of
acquisition.
<PAGE>
APPENDIX A
PAGE WHERE
GRAPHIC IMAGE
APPEARS DESCRIPTION OF GRAPHIC AND IMAGE MATERIAL
Page 18 of annual report Bar Graph of Net Sales (Dollars in Millions)
Data Points: 1996-$766, 1997-$869, 1998-$853,
1999-$792, 2000-$1,019
Gross Profit (Dollars in Millions)
Data Points: 1996-$320, 1997-$356, 1998-$331,
1999-$252, 2000-$332
Operating Expenses (Dollars in Millions)
Data Points: 1996-$169, 1997-$192, 1998-$171,
1999-$204, 2000-$204
