-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Hfy7WHGzuJzYKUC0vbVpTbp46LYPvz43CU0jnu387MeNnmhxKfLT1WFhstaQcVmG QfJsoK46Vy9lhSAouJM8eg== 0000317093-98-000018.txt : 19981222 0000317093-98-000018.hdr.sgml : 19981222 ACCESSION NUMBER: 0000317093-98-000018 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANDREW CORP CENTRAL INDEX KEY: 0000317093 STANDARD INDUSTRIAL CLASSIFICATION: DRAWING AND INSULATING NONFERROUS WIRE [3357] IRS NUMBER: 362092797 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14617 FILM NUMBER: 98772865 BUSINESS ADDRESS: STREET 1: 10500 W 153RD ST CITY: ORLAND PARK STATE: IL ZIP: 60462 BUSINESS PHONE: 7083493300 MAIL ADDRESS: STREET 1: 10500 WEST 153RD ST CITY: ORLANDO PARK STATE: IL ZIP: 60462 10-K 1 FORM 10-K SEPTEMBER 30, 1998 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934 For the fiscal year ended September 30, 1998. OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-9514 ANDREW CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 36-2092797 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) 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) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Common Stock, $.01 par value Common Stock Purchase Rights Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K, or any amendment of this Form 10-K. (X) The aggregate market value of voting stock held by non-affiliates of the Registrant as of December 16, 1998 was $1,445,218,316. The number of outstanding shares of the Registrant's common stock as of that date was 82,877,527. Documents incorporated by Reference: Portions of the Registrant's Annual Report to Stockholders for the year ended September 30, 1998 are incorporated by reference into Parts I and II. Portions of the Proxy Statement for the annual stockholders' meeting to be held, February 9, 1999 are incorporated by reference into Part III. PART I Item 1-Business General Andrew Corporation ("Andrew" or the "Company") was reincorporated in Delaware in 1987. The Company previously was incorporated in Illinois in 1947 as the successor to a partnership founded in 1937. Its executive offices are located at 10500 West 153rd Street, Orland Park, Illinois, 60462, which is approximately 25 miles southwest of Chicago's loop. Unless otherwise indicated by the context, all references herein to Andrew include Andrew Corporation and its subsidiaries. Andrew is a multinational supplier of communications products and systems to worldwide commercial, industrial, governmental and military customers. Its principal products include coaxial cables, microwave antennas for point-to-point communication systems, special purpose antennas for commercial, government and military end use, antennas and complete earth stations for satellite communication systems, cellular antenna products, cellular telephone accessories, electronic radar systems, communication reconnaissance systems, and related ancillary items and services. These products are frequently sold as integrated systems rather than as separate components. Andrew conducts manufacturing operations, primarily from eight locations in the United States and from six locations in other countries. Sales by non-U.S. operations and export sales from U.S. operations accounted for approximately 49% of Andrew's net sales in 1998 and 48% in 1997 and 1996. During fiscal 1996, Andrew completed three acquisitions that provided new products and improved accessibility to expanding markets. In December 1995, the Company purchased a 51% interest in Mapra Industria e Comercio Ltda. and Gerbo Telecommunicacoes e Servicos Ltda., located in Brazil. Mapra and Gerbo manufacture, distribute, and sell antennas, waveguides and towers and provide installation services. Andrew formed a cable manufacturing company with Mapra and Gerbo in which Andrew holds a 70% interest. In March 1996, the Company completed its acquisition of The Antenna Company, a manufacturer and distributor of wireless telephone antennas and accessories for mobile applications. In June 1996, the Company purchased an 80% interest in Satcom Systems, Pty. Ltd., a distributor of commercial products, located in South Africa. In June 1997, the Company decided to exit certain businesses whose performance had not met growth expectations. The Company discontinued the network products business, significantly restructured its European wireless products business and phased out of the fiber optic sensors and global messaging development activities. These actions resulted in total after-tax charges to net income of $22.8 million or $.25 per share. While these steps negatively impacted 1997 results, they enable the company to focus on the growing wireless markets and to further enhance long-term growth opportunities. In October 1997, the Company purchased an additional 19% ownership interest in Mapra Industria e Comercio Ltda. and Gerbo Telecommunicacoes e Servicos Ltda for $3.0 million. This purchase increased the Company's ownership percentage in Mapra and Gerbo to 70%. During fiscal 1998 the Company operated in a dominant industry segment. Andrew supplies coaxial cable and antenna system equipment to telecommunications companies and agencies as well as cellular antenna products and cellular phone accessories through retail distribution channels of cellular service providers. The Company also supplies specialized antenna systems, electronic radar systems, communication reconnaissance systems, standard antennas, and fully integrated systems to various United States government agencies and friendly foreign governments. Products and Services The following table sets forth net sales and percentages of total net sales represented by Andrew's principal products during the last three years:
Dollars in thousands Year Ended September 30 1998 1997 1996 -------------- -------------- -------------- Coaxial Cable Systems and Bulk Cables $486,788 57% $467,774 54% $415,633 54% Other Products and Services 157,912 19 183,557 21 133,645 18 Microwave Antenna Systems 148,614 17 153,905 18 153,231 20 Wireless Accessories 59,601 7 64,239 7 63,498 8 -------- ---- -------- ---- -------- ---- $852,915 100% $869,475 100% $766,007 100% ======== ==== ======== ==== ======== ====
PRINCIPAL PRODUCTS Coaxial Cable Systems and Bulk Cables: Coaxial cable is a two-conductor, radio frequency transmission line with the smaller of the two conductors centrally located inside the larger, tubular conductor. It is principally used to carry radio frequency signals at frequencies up to 2 GHz. Waveguides are tubular conductors, the dimensions and manufacturing tolerances of which are related to operating frequency. Waveguides find greatest application at frequencies above 2 GHz, although they are also used in UHF-TV broadcasting at frequencies in hundreds of megahertz. Andrew manufactures waveguides with rectangular, circular and elliptical cross-sections. Most of Andrew's waveguides are sold as part of its antenna systems. In addition to bulk cable, coaxial cable systems include: cable connectors, accessories and assemblies. Coaxial cable connectors attach to cable and facilitate transmission line attachment to the antennas and radio equipment. Accessories protect and facilitate installation of coaxial cable on the tower and into the equipment building. Accessories include lightning surge protectors, hangers, adaptors and grounding kits. Together, connectors and cable assemblies combine to form coaxial cable assemblies. Andrew sells its semi-flexible cables and waveguides under the trademark HELIAX(R). Other Products and Services: This group includes special application antennas, support products and various electronics. Andrew manufactures and sells several types and configurations of special application antennas. Applications include cellular systems, navigation, FM and television broadcasting, multipoint distribution services and instructional television. As with microwave antennas, Andrew considers sales of special antennas and other various components used in the cellular market (equipment buildings and towers) and the installation of these components to be part of a "cellular system." Support products include equipment buildings, which provide a controlled environment for radio and other equipment, while towers provide support and elevation for antennas. Earth station antenna systems manufactured by Andrew are used at earth terminals to receive signals from, and transmit signals to, communication satellites in equatorial orbit. System elements include an antenna, from 6 to 40 feet in diameter, and may also include electronic controllers, waveguides, polarizers, combiners, special mounting features, motor drives, position indicators, transmitters and receivers. Andrew earth station antenna systems in all sizes are used in various countries to broadcast and transmit programs, both to CATV operators and to VHF or UHF broadcast stations, as well as for the long distance transmission of conventional telecommunications traffic. The Company also designs and installs its proprietary distributed communication systems. These systems permit in-building and enclosed area access for all types of wireless communications. Andrew manufactures electronic scanning and communication receiver systems, which are designed to search and monitor the electromagnetic spectrum from 20 MHz to 40 GHz. These systems are purchased primarily for intelligence gathering in strategic surveillance operations that emphasize highly sensitive reception of weak signals as well as accuracy of signal analysis data. The Company's highly automated receiver systems are subsystems that are incorporated into fully-integrated systems that, in addition to the Company's receiving and analyzing equipment, include antennas and other equipment necessary to carry out the overall electronic reconnaissance operation. The Company is also engaged in the supply of fully integrated electronic surveillance systems, both for military radar reconnaissance and for non-military communications monitoring. These surveillance systems are custom designed by the Company's engineering staff to meet customer requirements. Microwave Antenna Systems: A "microwave antenna system," as this term is used by Andrew, consists of one or more microwave antennas, waveguides or coaxial cables connecting antennas to transmitters or receivers, a tower to support the antennas, an equipment shelter to house transmitters and receivers, various ancillary items and field installation services. If sold without a supporting tower, equipment shelter or field installation, microwave antennas with their connecting cables or waveguides are still considered by Andrew to be "microwave antenna systems." Land-based microwave radio networks are commonly used by telecommunications companies for intercity telephone, telex, video and data transmission. They are also used for more specialized purposes by pipeline companies, electric utilities and railroads. Wireless Accessories Andrew manufactures and distributes accessories for personal communication systems, cellular handsets and paging devices. Portable antennas, batteries, battery chargers, paging accessories, hands free kits and various other wireless accessories are included in this group. The acquisition of The Antenna Company increased Andrew's product offering and opened domestic distribution channels. INTERNATIONAL ACTIVITIES Andrew's international operations represent a substantial portion of its overall operating results and asset base. Manufacturing facilities are located in Canada, Australia, Scotland, Brazil, China and India. Andrew's plants in the United States also ship significant amounts of manufactured goods to export markets. In Russia, the Ukraine and Mexico, Andrew participates in joint ventures that operate fiber optic telecommunication networks. During fiscal 1998 sales of products exported from the United States or manufactured abroad were $420,376,000 or 49% of total sales compared with $414,749,000 or 48% of total sales in fiscal 1997 and $366,324,000, or 48% of total sales in fiscal 1996. Exports from the United States amounted to $97,738,000 in fiscal 1998, $105,147,000 in fiscal 1997, and $108,675,000 in fiscal 1996. Sales and net income from continuing operations on a country-by-country basis can vary considerably year to year. Further information on Andrew's international operations is contained in the note "Geographic Area Information" to Consolidated Financial Statements included on page 32 of the 1998 Annual Report to Stockholders, incorporated herein by reference. Andrew's international operations are subject to a number of risks including currency fluctuations, changes in foreign governments and their policies, and expropriation or requirements of local or shared ownership. Andrew believes that the geographic dispersion of its sales and assets tends to mitigate these risks. MARKETING AND DISTRIBUTION Sales engineering functions, including product application assistance, are performed by a staff of highly trained applications engineers located at each manufacturing facility. In addition, field sales engineers are located at or near Atlanta, Dallas, Los Angeles, Miami, New York, San Francisco, Washington, D.C., Essen and Munich (Germany), Hong Kong, Johannesburg (South Africa), London (England), Madrid (Spain), Mexico City (Mexico), Milan (Italy), Moscow (Russia), Paris (France), Sorocaba (Brazil), Suzhou (China), Tokyo (Japan), Zurich (Switzerland) and Goa (India). Unlike most of its competitors, Andrew uses its own sales and sales engineering staffs to service its principal markets, but follows the traditional practice of using commissioned sales agents in countries with modest sales potential. Approximately one-half of Andrew's products are sold directly to end users. Most of the remainder is sold to radio equipment companies which install Andrew's products as part of a total system, with the balance being sold through dealers and jobbers. Small or medium-size orders are normally shipped from inventory. Delivery schedules on larger orders are negotiated, but seldom exceed five months. Andrew's sales are principally standard, proprietary items although unique specifications or features are incorporated for special order situations. Because most of Andrew's business is derived from large telecommunications system operators and the radio equipment manufacturers who supply this industry, Andrew has tailored its business strategy to serve the needs of technically sophisticated buyers. In particular, Andrew has emphasized the compatibility of antennas, transmission lines and related components in order to optimize their performance as an integrated subsystem. The Company also sells mobile cellular products such as antennas and cellular telephone accessories. These products are sold primarily through the retail distribution channels of cellular service providers ("Carriers"). Mobile cellular products are also sold to distributors who then resell these products to dealers and cellular carriers. MAJOR CUSTOMERS Andrew serves more than 6,000 customers in more than 170 countries. In fiscal 1998, aggregate sales to the ten largest customers accounted for 31% of total consolidated sales compared to 31% in 1997 and 27% in 1996. No single customer has accounted for over 10% of consolidated annual sales in any of the last three years. MANUFACTURING AND RAW MATERIALS Andrew generally develops, designs, fabricates, manufactures and assembles the products it sells. Cable and waveguide products are produced at plants in Illinois, Brazil, Scotland, China and India. Microwave and earth station antennas are manufactured in Scotland, Texas and Australia. Self-supporting and guyed towers are also manufactured in Texas. Equipment shelters are manufactured in Georgia and California. Wireless antennas and accessories for mobile applications are manufactured in Illinois. Andrew's defense electronic products are manufactured in plants located in Texas. The Company's products are manufactured from both standard components and parts that are built to the Company's specifications by other manufacturers. Certain of the Company's products contain multiple microprocessors for which proprietary machine readable software is designed by the Company's engineers and technicians. Andrew considers its sources of supply for all raw materials to be adequate and is not dependent upon any single supplier for a significant portion of materials used in its products. RESEARCH AND DEVELOPMENT Andrew believes that the successful marketing of its products depends upon its research, engineering and production skills. Research and development activities are undertaken for new product development and for product and manufacturing process improvement. In fiscal 1998, 1997 and 1996, Andrew spent $25,810,000, $41,076,000, and $29,624,000, respectively on research and development activities. Andrew holds approximately 252 active patents expiring at various times between 1998 and 2015, relating to its products and attempts to obtain patent protection for significant developments whenever possible. The Company believes that, while patents in the aggregate are important to its business, the loss of any individual patent would not have a material adverse effect on its operations. COMPETITION Many large manufacturers of electrical or radio equipment, some of which have substantially greater financial resources than Andrew, compete with a portion of Andrew's antenna systems equipment, wireless products and coaxial cable product lines. In addition, there are a number of small independent companies that compete with portions of these product lines. Andrew has traditionally focused on specific specialized fields within the marketplace that require sophisticated technology and support services. Andrew competes principally on the basis of product quality, service and continual technological enhancement of its products. There are numerous manufacturers of electronic radar systems, communication reconnaissance systems and specialized antenna systems that supply their equipment to United States government agencies and friendly foreign governments. There is substantial competition within the market and the Company is not a major competitor. Due to fixed-price contracts and pre-defined contract specifications prevalent within this market, the Company competes primarily on the basis of its ability to provide state-of-the-art solutions in this technologically demanding marketplace while maintaining its competitive pricing. BACKLOG AND SEASONALITY The following table sets forth the Company's backlog of orders believed to be firm and due to ship both within the next year and beyond (government orders included herein are funded orders):
Orders to be Shipped as of September 30 1998 1997 -------- -------- Dollars in thousands Within 12 months $141,847 $132,610 After 12 months 12,317 5,950 -------- -------- $154,164 $138,560 ======== ========
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. These variations can be expected to continue in the future. Consequently, it is more meaningful to focus on annual rather than interim results. ENVIRONMENT The Company engages in a variety of activities to comply with various federal, state and local laws and regulations involving the protection of the environment. Compliance with such laws and regulations does not currently have a significant effect on the Company's capital expenditures, earnings, or competitive position. In addition, the Company has no knowledge of any environmental condition that might individually or in the aggregate have a material adverse effect on the Company's financial condition. EMPLOYEES At September 30, l998, Andrew had 4,221 employees, 3,002 of whom were located in the United States. None of Andrew's employees are subject to collective bargaining agreements. As a matter of policy, Andrew seeks to maintain good relations with employees at all locations and believes that such relations are good. REGULATION Andrew is not directly regulated by any governmental agency in the United States. Most of its customers and the telecommunications industry generally, are subject to regulation by the Federal Communications Commission (the "FCC"). The FCC controls the allocation of transmission frequencies and the performance characteristics of earth station antennas. As a result of these controls, Andrew's antenna design specifications must be conformed on an ongoing basis to meet FCC requirements. This regulation has not adversely affected Andrew's operations. Outside of the United States, where many of Andrew's customers are government owned and operated entities, changes in government economic policy and communications regulation have affected in the past, and may be expected to affect in the future, the volume of Andrew's non-U.S. business. However, the effect of regulation in countries other than the U.S. in which Andrew does business has generally not been detrimental to Andrew's non-U.S. operations taken as a whole. GOVERNMENT CONTRACTS Andrew performs work for the United States Government primarily under fixed-price prime contracts and subcontracts. Under fixed-price contracts, Andrew realizes any benefit or detriment occasioned by lower or higher costs of performance. Total direct and indirect sales to agencies of the United States Government, which are generally fixed-price contracts, were $9,520,000 in 1998, $17,254,000 in 1997, and $18,250,000 in 1996. These contracts are typically less than 12 months in duration. Andrew, in common with other companies that derive a portion of their revenues from the United States Government, is subject to certain basic risks, including rapidly changing technologies, changes in levels of defense spending, and possible cost overruns. Recognition of profits is based upon estimates of final performance that may change as contracts progress. Contract prices and costs incurred are subject to Government Procurement Regulations. Costs may be questioned by the Government and are subject to disallowance. All United States Government contracts contain a provision that they may be terminated at any time for the convenience of the Government. In such event, the contractor is entitled to recover allowable costs plus any profits earned to the date of termination. Item 2-Properties Andrew has sixteen manufacturing facilities, thirty-seven engineering and sales administration locations and twelve distribution facilities. All are equipped with appropriate office space. Andrew's executive offices are located at the facility in Orland Park, Illinois. The following table sets forth certain information regarding significant facilities:
Approximate floor area in Location square feet Owned/Leased - -------- ------------- ------------ Orland Park, Illinois 571,000 Owned Addison, Illinois 201,000 Leased Denton, Texas 173,000 Owned Newnan, Georgia 110,000 Owned Garland, Texas 88,000 Owned Richardson, Texas 100,000 Owned Tinley Park, Illinois 55,000 Leased Sacramento, California 54,000 Leased --------- U.S. sub-total 1,352,000 Sorocaba, Sao Paulo, Brazil 229,000 Owned Lochgelly, Fife, United Kingdom 167,000 Owned/Leased Campbellfield, Victoria, Australia 110,000 Owned Whitby, Ontario, Canada 92,000 Owned --------- Non-U.S. sub-total 598,000 --------- TOTAL 1,950,000 =========
The Company's properties are in good condition and are suitable for the purposes for which they are used. Andrew owns a total of 701 acres of land. Of this total, 565 acres are unimproved, including 181 acres in Orland Park, Illinois, 137 acres in Floyd, Texas, l43 acres in Denton, Texas, and 98 acres in Ashburn, Ontario, Canada. Andrew also leases sales offices and facilities in the United States and in thirteen countries outside the United States. Item 3-Legal Proceedings Andrew is not involved in any pending legal proceedings that are expected to have a materially adverse effect on its financial position, nor is it aware of any proceedings of this nature or relating to the protection of the environment contemplated by governmental authorities. Item 4-Submission of Matters to a Vote of Security Holders There were no matters that required a vote of security holders during the three months ended September 30, l998. PART II Item 5-Market for the Registrant's Common Stock and Related Stockholder Matters The Company's common stock is traded over-the-counter on the "Nasdaq" Stock Market and Chicago Stock Exchange. The Company had 4,885 holders of common stock of record at December 16, 1998. Information concerning the Company's stock price during the years ended September 30, l998 and 1997 is incorporated herein by reference from Andrew's l998 Annual Report to Stockholders, page 33. All prices represent high and low sales prices as reported by Nasdaq. It is the present practice of Andrew's Board of Directors to retain earnings in the business to finance the Company's operations and investments and the Company does not anticipate payment of cash dividends in the foreseeable future. Long-term debt agreements include restrictive covenants that, among other things, restrict dividend payments. At September 30, l998, $357,948,000 was not restricted for purposes of such payments. Item 6-Selected Financial Data Selected financial data for the last five fiscal years is incorporated herein by reference to the l998 Annual Report to Stockholders, pages 36 and 37. Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations Information concerning this item is incorporated herein by reference to the l998 Annual Report to Stockholders, pages 14 through 18. Item 7a.-Quantitative and Qualitative Disclosures about Market Risks The Company is exposed to market risk from changes in interest rates and foreign exchange rates, and commodities: Interest Rate Risk - the company had $56.5 million in debt outstanding at September 30, 1998 in the form of export financing arrangements, lines of credit and debt agreements at both fixed and variable rates. The Company is exposed to interest rate risk primarily through its variable rate debt, which totaled $17.6 million or 31.2% of total debt. To assess its exposure to interest rates, the Company performed a sensitivity analysis on its variable rate debt. As a result, the Company determined that a 100 basis point increase in short-term interest rates would not have a material effect on the Company's financial position, results of operations or cash flows. The Company currently does not use derivative instruments to manage its interest rate risk. Foreign Currency Risk - Andrew's international operations represent a substantial portion of its overall operating results and asset base. In most cases, the Company's products are produced at manufacturing facilities located near the customer. As a result, significant volumes of finished goods are manufactured in countries for sale into those markets. During fiscal year 1998, sales of products exported from the United States or manufactured abroad were 49% of total sales. The Company's identifiable foreign exchange exposures result primarily from the anticipated purchase of product from affiliates and third-party suppliers along with the repayment of intercompany loans with foreign subsidiaries denominated in foreign currencies. The Company has $59.7 million of investments and advances to its ventures located in Russia, Ukraine and Mexico. The ultimate collectability of these advances and the Company's ability to recoup its investments in these ventures is tied in part to the economic stability of these countries, particularly Russia and the stability of the Russian Ruble. The Company manages its foreign currency risk by making use of naturally offsetting positions, such as borrowing in functional currencies, and structuring intercompany transactions to reduce known material exposures, where possible. The Company currently does not use derivative financial instruments to manage its foreign currency risk. Commodity Risk - the Company uses various metals in the production of its products, principally copper. As a result, the Company's earnings are exposed to fluctuations in the price of copper. In order to reduce its exposure, the Company has negotiated copper purchasing contracts with various suppliers through fiscal year 1999. In general, the contracts lock copper pricing for the full year. Item 8-Financial Statements and Supplementary Data The Consolidated Financial Statements of the Company, Notes to Consolidated Financial Statements, Selected Quarterly Financial Information, and the report thereon of the independent auditors are incorporated herein by reference to the 1998 Annual Report to Stockholders, pages 19 through 34. Item 9-Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None PART III Item l0-Directors and Executive Officers of the Registrant Information concerning directors and executive officers of the Registrant is incorporated herein by reference from the Company's l998 Proxy Statement under the captions "Election of Directors" and "Executive Officers." Item ll-Executive Compensation Information concerning management compensation is incorporated herein by reference from the Company's l998 Proxy Statement under the caption "Executive Compensation." Item l2-Security Ownership of Certain Beneficial Owners and Management Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the Company's l998 Proxy Statement under the caption "Security Ownership." Item 13-Certain Relationships and Related Transactions Information concerning certain relationships and related transactions is incorporated herein by reference from the Company's 1998 Proxy Statement under the caption "Security Ownership." PART IV Item l4-Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following consolidated financial statements of Andrew Corporation and subsidiaries, included in the l998 Annual Report to Stockholders, are incorporated by reference in Item 8 above: Consolidated Statements of Income years ended September 30, l998, 1997 and l996..................page 19 Consolidated Balance Sheets September 30, l998 and 1997....................................page 20 Consolidated Statements of Cash Flows years ended September 30, l998, l997 and l996..................page 21 Consolidated Statements of Stockholders' Equity years ended September 30, l998, 1997 and l996..................page 22 Notes to Consolidated Financial Statements.............pages 23 through 32 Selected Quarterly Financial Information...........................page 33 Report of Independent Auditors.....................................page 34 Item 14 cont.
Exhibit Index: Exhibit No. Description Reference ----------- ----------- --------- 3.1(i) Certificate of Incorporation Filed as Exhibit 3.1(i) to Form 10-K for fiscal year ended September 30, 1994 and incorporated herein by reference. 3.1(ii) By-Laws of Registrant Filed as Exhibit 3.1(ii) to Form 10-K for fiscal year ended September 30, 1994 and incorporated herein by reference. 4.(a) Note Agreement dated Filed as Exhibit 4(a) to Form 10-K for fiscal year September 1, 1990 ended September 30, 1992 and incorporated herein by reference. 4.(a)a First Amendment to Note Filed as Exhibit 4(a)a to Form 10-K for fiscal year Agreement dated ended September 30, 1992 and incorporated herein by September 1, 1990 reference. 4.(b) Stockholder Rights Agreement Filed under Item 5 of Form 8-K dated November 14, 1996 Dated November 14, 1996 and incorporated herein by reference. 10.(a) Executive Severance Benefit Plan Filed as Exhibit 10(a) to Form 10-Q for fiscal (i) Agreement with Floyd L. English quarter ended June 30, 1996 and incorporated herein (ii) Agreement with Charles R. Nicholas by reference. 10.(a)a Executive Severance Benefit Plan Filed as Exhibit 10(a)a to Form 10-K for fiscal year (i) Agreement with Thomas E. Charlton ended September 30, 1993 and incorporated herein (ii) Agreement with John B. Scott by reference. 10.(a)b Executive Severance Benefit Plan Filed as Exhibit 10(a)b to Form 10-Q for fiscal quarter (i) Agreement with William B. Currer ended June 30, 1993 and incorporated herein by reference. 10.(a)c Executive Severance Benefit Plan Filed as Exhibit 10(a)c to Form 10-Q for fiscal quarter (i) Agreement with Robert J. Hudzik ended December 31, 1997 and incorporated herein by (ii) Agreement with Debra B. Huttenburg reference. 10.(b) Management Incentive Plan Filed as Exhibit 10(c) to Form 10-K for fiscal year Dated February 4, 1988 ended September 30, 1993 and incorporated herein by reference. 10.(c) Non-employee Directors' Stock Option Plan dated February 10, 1998 10.(d) Credit Agreement dated as of Filed as Exhibit 10(e) to Form 10-K for fiscal year June 16, 1993 ended September 30, 1993 and incorporated herein by reference. 10.(d)a First Amendment to Credit Filed as Exhibit 10(d)a to Form 10-K for fiscal year Agreement dated June 16, 1993 ended September 30, 1995 and incorporated herein by reference.
Item 14 cont.
Exhibit No. Description Reference ----------- ----------- --------- 10.(d)b Second Amendment to Credit Filed as Exhibit 10(d)b to Form 10-K for fiscal year Agreement dated June 16, 1993 ended September 30, 1995 and incorporated herein by reference. 10.(d)c Third Amendment to Credit Filed as Exhibit 10(d)c to Form 10-Q for fiscal quarter Agreement dated June 16, 1993. ended June 30, 1996 and incorporated herein by reference. 10.(d)d Guaranty dated as of Filed as Exhibit 10(d)d to Form 10-Q for fiscal quarter April 11, 1996. ended June 30, 1996 and incorporated herein by reference. 10.(d)e Replacement Note dated as of Filed as Exhibit 10(d)e to Form 10-Q for fiscal quarter April 8, 1996. ended June 30, 1996 and incorporated herein by reference. 10.(e) Amended and Restated Employee Stock Purchase Plan adopted November 12, 1998 10.(f) Credit Agreement dated as of Filed as Exhibit 10(f) to Form 10-K for fiscal year November 1, 1997 ended September 30, 1997 and incorporated herein by reference. 10.(g) Amended and Restated Employee Retirement Benefit Restoration Plan effective October 1, 1998. 10.(h) May 4, 1998 Assignment Agreement Filed as Exhibit 10 to Form 10-Q for fiscal quarter between ABN-AMRO Bank N.V. and ended June 30, 1998 and incorporated herein by Bank Austria Aktiengesellschaft reference. l3 l998 Annual Report to Those portions of the 1998 Annual Report to Stockholders Shareholders expressly incorporated herein by reference. 21 List of Significant Subsidiaries 22 Proxy Statement in connection with Annual Meeting to be held On February 9, 1999 (To be filed within 120 days of the Registrant's fiscal year end). 23 Consent of Independent Auditors 27 Financial Data Schedules 99.(a) Description of Common stock Filed as Exhibit 99(a) to Form 10-K for fiscal year ended September 30, 1997 and incorporated herein by reference.
(b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 30, 1998. REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors Andrew Corporation We have audited the consolidated financial statements of Andrew Corporation and subsidiaries listed in Item 14 (a) of the annual report on Form 10-K of Andrew Corporation for the year ended September 30, 1998. 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 generally accepted auditing standards. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Andrew Corporation and subsidiaries at September 30, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. Ernst & Young LLP Chicago, Illinois October 23, 1998 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on December 21, 1998. Andrew Corporation By \s\ Floyd L. English Floyd L. English Chairman, President, and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on December 21, 1998, by the following persons on behalf of the Registrant in the capacities indicated. \s\ Floyd L. English \s\ Thomas A. Donohoe Floyd L. English Thomas A. Donohoe Chairman, President, Chief Executive Officer Director and Director (Principal Executive Officer) \s\ Charles R. Nicholas \s\ Kenneth J. Douglas Charles R. Nicholas Kenneth J. Douglas Executive Vice President and Chief Financial Director Officer (Principal Financial Officer) \s\ Gregory F. Maruszak \s\ Jere D. Fluno Gregory F. Maruszak Jere D. Fluno Vice President Finance Director (Principal Accounting Officer) \s\ John G. Bollinger \s\ Ormand J. Wade John G. Bollinger Ormand J. Wade Director Director \s\ Jon L. Boyes Jon L. Boyes Director EXHIBIT INDEX Item Number Description - ----------- ----------- 10.(c) Non-employee Directors' Stock Option Plan Dated February 10, 1998 10.(e) Amended and Restated Employee Stock Purchase Plan 10.(g) Employee Retirement Benefit Restoration Plan Dated October 1, 1998 13 1998 Annual Report to Stockholders 21 List of Significant Subsidiaries 23 Consent of Independent Auditors 27 Financial Data Schedule EX-10.(C) 2 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN THE ANDREW CORPORATION STOCK OPTION PLAN As approved by the Board of Directors of Andrew Corporation on November 13, 1997 and submitted to the Stockholders of Andrew Corporation on February 10, 1998. ANDREW CORPORATION STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. Name and Identity of the Plan. This instrument and the plan set forth herein shall be known as the Andrew Corporation Stock Option Plan for Non-Employee Directors (hereinafter called the "Plan"). 2. Definitions. As used herein, the following terms shall have the meanings indicated below, unless the context shall give a clear meaning to the contrary: (a) "Company" shall mean Andrew Corporation, a Delaware corporation. (b) "Board" shall mean the Board of Directors of the Company. (c) "Stockholders" shall mean the stockholders of the Company. (d) "Eligible Director" shall mean a member of the Board who is not, and has not at any time within the preceding three years, been an officer or employee of the Company or any of its subsidiaries or affiliates. (e) "Administrator" shall mean the Chief Financial Officer of the Company, or such other officer as may be designated by the Board. (f) "Common Stock" shall mean the common stock, $.01 par value, of the Company. (g) "Market Value" shall mean the average of the high and low sale prices of the Common Stock as reported on the National Association of Securities Dealers Automated Quotation ("NASDAQ") system on the date in question or, if such date is not a business day, on the next preceding business day. (h) "Option" shall mean an option granted under the Plan to an Eligible Director for the purchase of shares of Common Stock. (i) "Optionee" shall mean the recipient and holder of an Option. As used herein, the singular shall include the plural and vice versa, and words used in any gender shall include all genders, unless the context shall give a clear meaning to the contrary. 3. Purpose of the Plan. The purpose of the Plan is to encourage the highest level of director performance by providing to Eligible Directors the opportunity to acquire a proprietary interest in the Company's success and progress through the purchase of Common Stock. 4. Administration of the Plan. The Plan shall be administered by the Administrator. Subject only to the express restrictions, limitations and directions of other provisions of the Plan, the Administrator shall have sole, absolute and full authority and power: (a) to interpret the Plan; (b) to establish, amend and rescind rules and regulations relating to the Plan; and (c) to do such other things and make such other determinations, decisions and interpretations as he deems necessary or advisable to carry out the purposes of the Plan and its orderly administration. All actions, determinations, decisions and interpretations taken and made by the Administrator shall be final and conclusively binding on all persons whomsoever. 5. Stock Subject to the Plan. The aggregate number of shares of Common Stock which may be purchased by exercise of Options shall not exceed 400,000, subject to adjustment as provided in Section 7. Accordingly, at any one time the total of the number of shares of Common Stock subject to outstanding Options and the number of shares of Common Stock purchased by exercise of Options shall not exceed 400,000, subject to such adjustment. If any Option expires or terminates without having been exercised in full, the unpurchased shares which were subject thereto, unless the term of the Plan has expired or it has been terminated, shall become available for grant of other Options. Shares purchased by exercise of Options may be authorized but unissued shares or issued shares held in treasury. 6. Grant of Options. Each Eligible Director shall receive an automatic Option grant on the date of the first meeting of the Board following each annual meeting of Stockholders of the Company. The annual Option granted to each Eligible Director shall be for 12,000 shares of Common Stock. No Option shall be granted as provided for herein if the number of shares of Common Stock then remaining available for grant is insufficient for full grant of all Options to be granted on that date pursuant to the provisions of Section 5 and this Section 6. 7. Adjustment Provisions. In the event of any stock dividend, stock split, combination of shares or other change in respect of the Common Stock, (i) the aggregate number of shares of Common Stock then remaining available for grant of Options under the Plan and the number of shares of Common Stock then subject to each outstanding Option shall be adjusted in proportion to such change in issued shares, and (ii) the option price under each then outstanding Option shall be adjusted so that the total consideration payable to the Company upon exercise of such Option shall not be changed by reason of such change in the Common Stock. Notwithstanding the preceding sentence, the number of Option shares to be granted in any year to each Eligible Director shall be 12,000, and shall not be adjusted in accordance with this Section 7. 8. Term of Plan. The Plan shall remain in effect until terminated in accordance with the provisions of Section 15. 9. Option Price Under an Option. The option price for each share of Common Stock subject to an Option shall be 100% of its Market Value determined as of the date of its grant. 10. Exercise of Options. No Option shall be exercisable during the first 12 months from and including its date of grant or later than 10 years from its date of grant. On the date of each annual meeting of Stockholders following the grant of an Option, such Option shall become exercisable for 20% of the shares of Common Stock covered thereby, until the fifth annual meeting of Stockholders following the grant of the Option, at which time such Option shall become fully exercisable. The privilege shall be cumulative and, to the extent exercisable at any time, shall be exercisable in whole or in part. In the event of a tender offer or of an exchange offer (other than one made by the Company) for shares of Common Stock, all unexercised Options granted under the Plan shall, whether or not then exercisable, become exercisable during the 30-day period following the first purchase of shares of Common Stock pursuant to such tender offer or exchange offer, but not beyond the Option expiration date. An Option shall be exercised by written notice thereof given by the person entitled to exercise such Option to the Administrator. Said notice shall state the date of grant of the Option, the number of shares of Common Stock subject thereto and the number of shares of Common Stock with respect to which the Option is exercised. No such notice which is inconsistent with any provision of the option agreement or the Plan shall be effective. No such notice shall be effective unless and until the Company, in the person of the Administrator, is in receipt of full payment of the option price for the shares of Common Stock in respect of which the Option is exercised. No right (including, without limitation, the right to any dividend or to vote) with respect to such shares of Common Stock shall accrue until after the date of the stock certificate representing such shares. Payment of the option price may be made in cash, by delivery of whole shares of Common Stock equivalent in Market Value to the option price on the date that the written notice of exercise is delivered by the Optionee or partly in cash and partly in whole shares of Common Stock. 11. Non-transferability; Exceptions. Except as provided in this Section 11, no Option may be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or under the laws of descent and distribution, and an Option may be exercised, during the lifetime of the Optionee, only by such Optionee. Under such rules and procedures as the Administrator may establish, an Optionee may transfer his Option to members of his immediate family (i.e., children, grandchildren and spouse) or to one or more trusts for the benefit of such family members or to partnerships in which such family members are the only partners, provided that (i) the agreement, if any, with respect to such Option, expressly so permits or is amended to so permit, (ii) the Optionee does not receive any consideration for such transfer, and (iii) the Optionee provides such documentation or information concerning any such transfer or transferee as the Administrator may reasonably request. Any Option held by any transferees shall be subject to the same terms and conditions that applied immediately prior to its transfer. The Administrator may also amend the agreements applicable to any outstanding Options to permit such transfers. Any Option not granted pursuant to any agreement expressly permitting its transfer or amended expressly to permit its transfer shall not be transferable. 12. Termination of Directorship. If an Optionee ceases to be a director of the Company for any reason other than his death, each Option then held by him shall be exercisable by him within a period of five years following the date he ceased to be a director. The Option will continue to vest within such five-year period as if the Optionee had continued to be a director. In the event the Optionee dies during such five-year period, each Option then held by him shall be exercisable by the legal representative of his estate, or by the person taking under him by will or under the laws of descent and distribution, within the time remaining in the five-year period or within a period of 12 months following the date of death, whichever is longer, but only to the extent that such Option was exercisable by the Optionee immediately prior to his death. In the event an Optionee ceases to be a director by reason of his death, each Option then held by him shall be exercisable by the legal representative of his estate, or by the person taking under him by will or under the laws of descent and distribution, within a period of 12 months following the date of death but only to the extent that such Option was exercisable by the Optionee immediately prior to his death. The foregoing provisions of this Section 12 shall in all events be subject to the 10-year Option term described in Section 10. 13. Option Agreements. Each Option shall be evidenced by a written option agreement signed by the Optionee and, on behalf of the Company, by the Administrator. The form of the option agreement shall be as provided by the Administrator. Each option agreement by its own express terms shall set forth: (i) the name of the Optionee, (ii) the date of the grant of the Option, (iii) the number of shares of Common Stock subject thereto, and (iv) the option price per share of Common Stock. Each option agreement shall otherwise set forth the provisions of the Plan or incorporate the same therein by reference. 14. Conditions Upon Issuance of Shares. The Company shall have no obligation to sell, issue or deliver any shares of Common Stock pursuant to any Option or the exercise thereof if, in the opinion of counsel for the Company, the sale, issuance or delivery of such shares of Common Stock would be in violation of any provision of the Securities Act of 1933, as amended, or the Securities and Exchange Act of 1934, as amended; any regulation or rule promulgated under either of said acts; any regulation, rule or requirement of any stock exchange upon which shares of Common Stock may then be listed; or any other law, regulation, rule or requirement whatever which, in the opinion of said counsel, may be applicable. In such circumstances, the Company shall be without liability for the non-sale, non-issuance and non-delivery of such shares, except for the return of any payment of the option price for such shares made by the Optionee, or any person standing in his stead, to the Company. Without assumption of or exposure to liability for failure of accomplishment of the purpose, the Company nonetheless commits itself to a standard of reasonable care and effort for the avoidance or cure of any obstacle to the sale, issuance and delivery of shares hereunder. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant in writing at the time of such exercise that the shares of Common Stock are being purchased only for investment and without any present intention to sell or distribute such shares, and may require that shares delivered upon exercise of an Option bear an appropriate restrictive legend. 15. Suspension, Termination, Modification, and Amendment. The Board shall have the power to suspend, terminate, revise or amend the Plan; provided that suspension, termination, revision or amendment shall be without effect on any Option previously granted and then outstanding; and further provided that, except with the approval of Stockholders, the Board may not increase the maximum number of shares of Common Stock subject to the Plan (except with respect to adjustments under Section 7). EX-10.(E) 3 EMPLOYEE STOCK PURCHASE PLAN AMENDED AND RESTATED ANDREW EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE The Amended and Restated Andrew Employee Stock Purchase Plan (the "Plan") is intended to provide eligible employees of Andrew Corporation and its subsidiaries (the "Company") with an opportunity to acquire a proprietary interest in the Company through the purchase of the Company's Common Stock (the "Common Stock"). Among other considerations, it is the intention of the Company to have the Plan qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of Code Section 423. 2. DEFINITIONS The following definitions are applicable to this Plan: "Compensation" means the salary, wages, overtime, bonuses and commissions paid by the Company. "Company" means Andrew Corporation and any of its divisions and subsidiaries, excluding those organized and/or incorporated under the laws of the Federal Republic of Brazil or any state thereof. A "division" is any business activity for which there are maintained separate books and records of account and for which the Board of Directors of Andrew Corporation deems such activity as a separate intra-corporate entity. As used herein, the term "subsidiary" has the meaning assigned to it in Code Section 424(f). "Committee" means the Committee appointed by the Board of Directors of Andrew Corporation referred to in Section 13. "Participant" means any employee of the Company who is eligible and elects to participate pursuant to the provisions of Section 5. 3. ELIGIBILITY All employees of the Company shall be eligible to participate in the Plan, except that at each Offering Date and during the period between the Offering Date and the Price Date: (a) An employee shall not be eligible to participate in the Plan who owns, or would own upon the exercise of any option extended hereunder, whether qualified or non-qualified, shares possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any parent or subsidiary corporation; (b) A Director of the Company who is not an employee shall not be eligible to participate in the Plan; and (c) An employee shall not be eligible to participate in the Plan: (i) Who has been employed less than 1,000 hours; or (ii) Whose customary employment is 20 hours or less per week; or (iii) Whose customary employment is for not more than five months in any calendar year. 4. STOCK SUBJECT TO PLAN The maximum number of shares of Common Stock which may be sold under the Plan is 1,096,970. Such shares of Common Stock may be either authorized and unissued shares or issued shares heretofore or hereafter acquired and held as Treasury shares, as the Committee may from time to time determine. In the event that there is an increase or decrease in the number of issued shares of Common Stock by reason of any cause such as a stock split, reorganization, recapitalization, combination or exchange of stock, merger, consolidation, or any other change in the corporate structure without receipt or payment of consideration by the Company, the number of shares of Common Stock then remaining for issue under the Plan shall, in each such event, be adjusted by the Committee in proportion to the change in issued Common Stock resulting from such cause. 5. OFFERING DATE From time to time, but not more frequently than once during any fiscal year, the Committee may fix a date (hereinafter called an "Offering Date") on which the Company will make an offer (hereinafter called an "Offering") to all employees then eligible to participate, of options to purchase Common Stock. In order to participate in any Offering, an eligible employee must complete and file with the Committee a Subscription Agreement and any other papers pre- scribed by the Committee within the time frame specified by the Committee following such Offering Date (the "Subscription Date" as defined below). An eligible employee shall become a "Participant" under this Plan upon the filing of the Subscription Agreement. All Subscription Agreements shall be dated and shall be effective as of the Subscription Date. For the purposes of this Plan, "Subscription Date" shall mean not less than 14 days nor more than 30 days following each "Offering Date" (or if that date is a Saturday, Sunday or legal holiday, then the next succeeding business day). 6. METHOD OF PURCHASE AND PRICE DATE (a) A Participant shall pay for the shares of Common Stock subscribed for in his or her Subscription Agreement by either of the following methods: (i) By electing to authorize payroll deductions for the purchase price of the shares, to be made beginning with the first pay period following the Subscription Date and ending with the last pay period that ends on a day preceding or coinciding with the Price Date; or (ii) By electing to make, on or before 10 days prior to the Price Date, a lump-sum payment for the purchase price of the shares. (b) Each offering shall be for a specified period of time to be fixed by the Committee on the Offering Date and shall be for no less than six months' duration. The last day ("Price Date") of such period shall be the date the Participant shall become entitled to purchase such number of whole shares of Common Stock as the Participant's accumulated payroll deductions or lump-sum deposits during the offering period will purchase, at a price equal to (i) 85% of the fair market value of shares of Common Stock on the Price Date or (ii) 85% of the fair market value of shares of Common Stock on the Subscription Date, whichever is less. The "fair market" value shall be the closing bid price of such shares on such date as reported on NASDAQ or the last sales price of such shares on such date on any stock exchange on which such shares are traded; and if there is no such sale on that date, the last bid price prior thereto at which such sales were quoted on NASDAQ or the last sales price prior thereto at which such shares were traded on any stock exchange. (c) The number of shares which may be purchased by any Participant on the Price Date shall not exceed the lesser of the following: (i) The number of shares of Common Stock determined by dividing $25,000 by the fair market value of the Common Stock on the Subscription Date; or (ii) The number of shares of Common Stock that could be purchased on the Price Date if this Section 6(c) did not otherwise apply and if the Participant's accumulated payroll deductions or lump-sum payments during the offering period were in an aggregate amount equal to 5% of the Participant's Compensation received during the immediately preceding calendar year. The salary and/or wages component of the Participant's Compensation shall be annualized if the Participant was not employed by the Company for the entire preceding calendar year. 7. PARTICIPANTS' ACCOUNTS There shall be maintained by the Company individual accounts for each Participant. All payroll deductions or lump-sum payments of a Participant shall be credited to his or her account under the Plan. A Participant may discontinue participation in the Plan as provided in Section 11, but no other change may be made between the Subscription Date and the Price Date, and, specifically, a Participant may not alter the rate of his or her payroll deductions for that Offering. 8. GRANTING OF OPTION On the date when a Participant executes and delivers a Subscription Agreement to the Company, he shall be granted an option for as many estimated full shares of Common Stock as are purchasable with the authorized payroll deductions to be credited to his or her account beginning on the Subscription Date and ending on the Price Date, or with the lump-sum payment to be made by the Participant. Notwithstanding anything herein to the contrary, the Committee will have the right, on a uniform and nondiscriminatory basis, to establish a maximum limit for the number of shares which a Participant may purchase under any given offering under this Plan, which limit shall be expressed in a dollar amount. In no event shall such limit on the purchase of shares exceed the limits otherwise provided in Section 6(c). 9. EXERCISE OF OPTION (a) Unless a Participant gives express written notice to the Committee as hereinafter provided, the Participant's option for the purchase of shares of Common Stock will be exercised automatically on the Price Date for the purchase of the number of full shares of Common Stock which the payroll deductions or deposits in his or her account will purchase. (b) By written notice to the Committee at any time prior to a Price Date, a Participant who has paid for the option by payroll deductions pursuant to subsection 6(a)(i) or by payment of a lump-sum payment pursuant to subsection 6(a)(ii), may elect, effective at the Price Date, to exercise a portion of his or her option for a specified number of full shares of Common Stock less than the number of full shares of Common Stock which the accumulated payroll deductions or lump-sum deposits in the Participant's account will purchase, the difference to be refunded without interest. 10. DELIVERY As promptly as practicable after the termination of each Offering, the Company will deliver to each Participant, as appropriate, either the shares of Common Stock purchased upon the exercise of his or her option together with a cash payment equal to the balance, without interest, of any payments credited to the Participant's account during such Offering which was not used for the purchase of shares of Common Stock or a cash payment equal to the entire balance credited to his or her account during such Offering, without interest, where the Participant has withdrawn his or her subscription in accordance with Section 11. 11. WITHDRAWAL (a) A Participant may withdraw any sums credited to his or her account at any time prior to a Price Date by giving written notice to the Committee. All of the Participant's lump-sum deposits and payroll deductions credited to his or her account will be paid promptly after receipt of notice of withdrawal, without interest, and no further payroll deductions will be made from the Participant's pay except in accordance with a new Subscription Agreement filed in accordance with Section 5. (b) A Participant's withdrawal will not have any effect upon his or her eligibility to participate in a succeeding Offering or in any similar plan which may hereafter be adopted by the Company. 12. COMMON STOCK (a) If the total number of shares of Common Stock for which options are to be granted on any date in accordance with Section 8 exceeds the number of shares of Common Stock then available under the Plan (after deduction of all shares of Common Stock for which options have been exercised) the Committee shall make a pro rata allocation of the shares of Common Stock remaining available in a uniform and non-discriminatory manner. In such event, the payroll deductions to be made pursuant to the authorizations therefor shall be reduced accordingly and the Committee shall give written notice of such reduction to each affected Participant. (b) Each Participant will have no interest in shares of Common Stock covered by his or her Subscription Agreement until the shares are delivered to the Participant. (c) Shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant or, if the Participant so directs, by written notice to the Committee prior to the Price Date, in the names of the Participant and one such other person as may be designated by the Participant, as joint tenants with rights of survivorship, to the extent permitted by applicable law. (d) The shares of Common Stock delivered to a Participant under the Plan may not be sold for a period of one year following the Price Date except in the event of the Participant's financial hardship as determined by the Committee and may not be transferred for one year following the Price Date except in the event of the Participant's death. The certificates representing the shares of Common Stock delivered to the Participant shall carry an appropriate legend to the foregoing effect. The shares of Common Stock delivered to the Participant shall be forfeited to the Company in the event of any failure to comply with the restrictions contained in this paragraph. 13. ADMINISTRATION The Plan shall be administered under the direction of a Committee appointed by the Board of Directors of Andrew Corporation consisting of three or more persons. The Committee shall have the sole and complete authority to (a) determine Offering Dates, (b) determine the number of shares of Common Stock to be subject to an Offering under the Plan, (c) determine the terms and conditions on which an Offering shall be made under the Plan, (d) prescribe the forms and terms of instruments for Participants' Common Stock subscriptions and beneficiary designations and (e) establish from time to time regulations for the administration of the Plan, interpret the Plan and make all determinations necessary or advisable for the administration of the Plan, all subject to its express limitations and other provisions. 14. DESIGNATION OF BENEFICIARY A Participant may file a written designation of a beneficiary or beneficiaries who are to receive any of the benefits under this Plan in the form of shares of Common Stock and/or cash in the event of such Participant's death, whether before or after exercise of his or her options and prior to delivery of such benefits. Such designation of beneficiary or beneficiaries may be changed by the Participant at any time by written notice. Upon the death of a Participant and upon receipt by the Committee of proof of the identity and existence at the Participant's death of a beneficiary validly designated by the Participant, the Committee shall deliver such benefits to such beneficiary. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Committee shall deliver such benefits to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Committee), the Committee, in its discretion, may deliver such benefits to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Committee, then to such other person as the Committee may designate. No designated beneficiary shall, prior to the death of the Participant by whom he has been designated, acquire any interest in such benefits credited to the Participant under the Plan. 15. TRANSFERABILITY Neither sums credited to the Participant's account nor any rights with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise hypothecated or disposed of in any way by the Participant other than by will and the laws of descent and distribution. Any such attempted assignment, transfer, pledge or any other hypothecation or disposition shall be without effect except that the Committee may treat such act as an election to withdraw funds in accordance with Section 11. 16. ACCOUNTS Any payroll deductions or lump-sum deposits received by the Committee shall be reflected in book entries maintained by the Company, which accounts shall be kept in accordance with generally accepted accounting principles; separate accounts shall be maintained for each Participant reflecting his or her currently accrued payroll deductions or lump-sum deposits under any then existing Offering. 17. TERMINATION OR AMENDMENT The Board of Directors of Andrew Corporation may at any time terminate or amend the Plan. No such termination shall affect options previously granted and exercised, nor shall an amendment make any change in any option theretofore granted which would adversely affect the rights of any Participant. Moreover, no amendment shall be made without prior approval of the shareholders of Andrew Corporation if such amendment would: (a) Require the sale of more shares of Common Stock than are authorized under Section 4 of the Plan; (b) Change the class of employees eligible to participate in the Plan; (c) Withdraw the direction of the administration of the Plan from the Committee; (d) Permit payroll deductions or lump-sum deposits at a rate in excess of 10% of a Participant's Compensation received during the period between the Subscription Date and the Price Date; or (e) Permit purchase of Common Stock by the Participant at a price lower than 85% of the fair market value at the Subscription Date or the Price Date. 18. NOTICE All notices or other communications by a Participant to the Committee under or in connection with the Plan shall be deemed to have been duly given when received by the Committee or when received in the form specified by the Committee at the location, or by the person, subsequently designated by the Committee for the receipt thereof as given in the applicable Subscription Agreement. 19. EFFECT OF TERMINATION OF EMPLOYMENT If a Participant ceases to be employed by the Company for any reason other than death, the Participant shall be permitted within a period of three months next succeeding such cessation of employment, and in no event after the Price Date, to exercise his or her option. In the event an option expires without having been first exercised, or is barred from exercise, all funds credited to a Participant's account shall be refunded without interest. 20. EFFECTIVE DATE AND TERM OF THE PLAN The 1994 Andrew Employee Stock Purchase Plan was approved by the stockholders of the Company at the annual meeting on February 2, 1994. This Amended and Restated Andrew Employee Stock Purchase Plan, which is a continuation of the 1994 Andrew Employee Stock Purchase Plan, was adopted by the Board of Directors on November 12, 1998 and will continue in effect through February 1, 2009, unless sooner terminated. 21. RIGHT OF PERSONAL REPRESENTATIVE TO PURCHASE SHARES In the event of the death of a Participant while in the employ of the Company prior to the Price Date, and while an option remains outstanding and unexercised, the Participant's beneficiary (or the personal representative of such Participant if such beneficiary has predeceased the Participant and no alternate beneficiary has been designated by the Participant) shall be entitled to purchase so much of the Common Stock as the Participant shall have subscribed to purchase under his or her Subscription Agreement, and shall be entitled to make a lump-sum payment (giving credit for prior payroll deductions withheld or other deposits made for such purposes) for such Common Stock within three months after the death of such Participant, by providing written notice to the Committee requesting exercise of such option and making such payment in cash. The Committee reserves the right to require evidence satisfactory to it as evidence of the beneficiary's or personal representative's status as such with regard to the former Participant. 22. LOAN The Company shall not, either directly or indirectly, lend money to any person for the purpose of assisting such person to acquire shares of Common Stock issued upon the exercise of any option granted under the Plan. 23. USE OF PROCEEDS Proceeds from the sale of Common Stock pursuant to the options granted under this Plan shall constitute general funds of Andrew Corporation. 24. NON-EXCLUSIVITY OF THE PLAN Neither the adoption of this Plan by the Board of Directors of Andrew Corporation nor the submission of the Plan to the shareholders of Andrew Corporation for approval shall be construed as creating any limitations on the power of the Board of Directors of Andrew Corporation to adopt such other incentive arrangements as it may deem desirable, including without limitation, the granting of stock options otherwise than under this Plan, and such other incentive arrangements may be either generally applicable or applicable only in specific cases. 25. NON-INTERFERENCE WITH EMPLOYMENT RELATIONSHIP This Plan, and the options granted pursuant to it, shall not confer upon any employee who is a Participant any right with respect to continuation of employment by the Company, and neither the Plan nor any such option shall interfere in any way with the Participant's or the Company's right to terminate the Participant's employment at any time. EX-10.(G) 4 EMPLOYEE RETIREMENT BENEFIT RESTORATION PLAN ANDREW CORPORATION EMPLOYEE RETIREMENT BENEFIT RESTORATION PLAN (Established Effective October 1, 1997; Amended and Restated Effective October 1, 1998) ANDREW CORPORATION EMPLOYEE RETIREMENT BENEFIT RESTORATION PLAN ARTICLE1. ESTABLISHMENT AND PURPOSE Section1.1. Establishment. Andrew Corporation (the "Employer") establishes, effective as of October 1, 1997, a non-qualified retirement plan for the benefit of a select group of management or highly compensated employees of the Employer. The plan shall be known as the Andrew Corporation Employee Retirement Benefit Restoration Plan (the "Plan"). Section1.2. Purpose. The purpose of the Plan is to enhance the ability of the Employer to attract and retain qualified personnel by providing Participants with additional retirement income by means of nonelective employer contributions. The Plan is designed to provide additional retirement benefits to eligible employees whose benefits from the Andrew Profit Sharing Trust ("APST") may be reduced due to various U.S. government-imposed limitations. ARTICLE2. DEFINITIONS Section2.1. Definitions. Whenever used in this Plan, the following words and phrases shall have the meanings set forth below unless the context plainly requires a different meaning. When the defined meaning is intended, the term is capitalized. (a) "Account" means, as of a particular date, the amount of each Participant's Deferred Compensation that is credited to the Participant as of that date, adjusted for earnings or losses to the Account under Section 6.1. (b) "APST" means the Andrew Corporation Profit Sharing Trust, as amended from time to time. (c) "Board of Directors" means the Board of Directors of the Employer. (d) "Change in Control" means any of the following: (i) any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), in a transaction or series of transactions, becomes beneficial owner, directly or indirectly, of securities of the Employer representing 5% or more of the combined voting power of the Employer's then outstanding securities, and there is outstanding an exchange or tender offer for securities of the Employer, and the Committee, in its sole discretion, determines that a Change in Control has occurred; (ii) any "person" (as above-referenced) or entity, other than a trustee or other fiduciary of securities held under an employee benefit plan of the Employer, becomes the beneficial owner, directly or indirectly, of securities of the Employer representing 25% or more of the combined voting power of the Employer's then outstanding securities; or (iii) individuals who were members of the Board of Directors immediately prior to a meeting of the shareholders of the Employer involving a contest for the election of directors shall not constitute a majority of the Board of Directors following such election. (e) "Code" means the Internal Revenue Code of 1986, as amended from time to time. (f) "Committee" means the Compensation Committee of the Board of Directors, such other committee designated by the Board of Directors to administer this Plan, or such other person or committee as may be appointed from time to time by the Board of Directors to administer this Plan. (g) "Compensation" means "allocable compensation", as defined in the APST, without regard to the limitation on annual amounts that may be taken into account under Code Section 401(a)(17). (h) "Deferred Compensation" means the amount of compensation not yet earned, which shall be deferred in accordance with the Plan, and which shall be provided by the Employer in accordance with the Plan. (i) "Disability" means disability, as defined in the Employer's long-term disability plan. (j) "Effective Date" means October 1, 1997, the date on which the Plan has become effective. (k) "Employer" means Andrew Corporation and any participating subsidiary thereof, or their successors. (l) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. (m) "Participant" means each management-level or highly-compensated employee of the Employer who is designated by the Employer as a Participant in the Plan under Section 3.1 and whose Account has not been distributed in full. (n) "Plan" means this Andrew Corporation Employee Retirement Benefit Restoration Plan, as amended from time to time. (o) "Plan Year" means each 12-month period ending September 30. (p) "Retirement" means termination of employment on or after attainment of age 65 or, with the approval of the Employer's Chief Executive Officer, termination of employment prior to age 65. Section2.2. Gender and Number. Except as otherwise indicated by the context, masculine terminology also includes the feminine, and terms used in the singular may also include the plural. ARTICLE3. ELIGIBILITY AND PARTICIPATION Section3.1. Participation. Any management-level or highly-compensated employee of the Employer who is designated by the Committee shall be considered a Participant under this Plan as of the date specified by the Committee. No employee has a right to be selected as a Participant under this Plan. It is intended by the Employer that all persons designated as Participants shall collectively comprise a "select group of management or highly compensated employees", within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1). Section3.2. Termination of Participation. Once an employee becomes a Participant, he or she shall remain a Participant until the earlier to occur of the following: (a) The Participant's employment with the Employer has terminated for any reason; or (b) The Employer decides to terminate his or her participation in the Plan for any reason including that the Participant no longer satisfies the definition of "select group of management or highly- compensated employees", within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1), or otherwise causes the Plan to be subject to Part 2, 3 or 4 of Subtitle B of Title I of ERISA. Such an individual shall continue to be considered a Participant for all Plan purposes except that he or she shall not be eligible for contributions under Article 4. ARTICLE4. CONTRIBUTIONS Section4.1. Matching Contributions. As soon as practicable after the end of each Plan Year, the Employer shall credit to the Account of each Participant an amount equal to 3% of his or her Compensation for such Plan Year in excess of the dollar limitation under Code Section 401(a)(17). Section4.2. Profit-Sharing Contributions. As soon as practicable after the end of each Plan Year, the Employer shall credit each Participant an amount equal to (a) minus (b), where: (a) equals the amount determined by applying the annual rate of the profit-based contribution made to the APST on the Participant's behalf for such Plan Year (expressed as a percentage of his or her "allocable compensation", with the percentage rounded to the nearest tenth of a percent) to the Participant's Compensation for the Plan Year; and (b) equals the annual profit-based contribution actually made by the Employer to the APST on the Participant's behalf for such Plan Year. ARTICLE5. VESTING A Participant will become vested in amounts credited to his or her Account upon the earlier of (i) his or her attainment of age 65, (ii) his or her termination of employment with the Employer by reason of Death, Disability or Retirement, or (iii) the occurrence of a Change in Control. If a Participant terminates employment with the Employer other than upon Death, Disability, Retirement prior to attaining age 65, or on or after the occurrence of a Change in Control, he or she shall forfeit his or her entire Account. ARTICLE6. STATUS OF DEFERRED AMOUNTS Section6.1. Earnings. Subject to the discretion of the Committee to choose a different investment crediting approach for any Plan Year, on or about the end of each Plan Year, the balance of a Participant's Account as of the beginning of such Plan Year shall be credited with earnings or losses at an annual rate of return equal to the weighted average rate of return achieved by such Participant with respect to his or her APST accounts for such Plan Year. Such rate of return shall be rounded to the nearest tenth of a percent. Section6.2. Unfunded Plan. The Employer may choose to place Deferred Compensation in trust and any such amounts held in trust shall be invested in accordance with the trust agreement but shall remain subject to the terms and conditions of the Plan. The Employer shall be the applicant for, owner of, and beneficiary under any such investment made under this Plan. The Employer (within guidelines that it establishes) shall direct the investment of amounts held on behalf of each Participant under the Plan. In so directing, the Committee may (but is not required to) take into consideration the earnings/loss crediting method described in Section 6.1. Title to and beneficial ownership of all such investments (whether or not held in trust) shall at all times remain in the Employer and shall constitute a general asset of the Employer, subject only to claims of the Employer's general creditors. A Participant or his or her beneficiary shall not under any circumstances acquire any proprietary or beneficial interest in any such policy or other asset of the Employer by virtue of a Participant's participation in this Plan. ARTICLE7. DISTRIBUTIONS Section7.1. Right to Receive Distribution. Subject to Section 7.5, a Participant shall be entitled to receive distributions of the vested amount in his or her Account upon the earliest to occur of his or her Retirement, Disability and Death. Section7.2. Timing of Distribution. The Employer shall make distributions in the form specified in Section 7.3 or 7.4 as soon as administratively practicable after the close of the Plan Year in which occurs the event under Section 7.1 that establishes the right to receive such distribution. Section7.3. Form of Distribution. If a Participant becomes entitled to a distribution, the distribution will be made, as elected by the Participant (on a form approved by the Committee, which is attached to the Plan as Appendix A), in the form of a single-sum payment or in the form of substantially equal installments paid over a period not to exceed the longer of 15 years or the Participant's remaining life expectancy. For this purpose, life expectancy shall be calculated as of the end of the Plan Year during which the distribution event described in Section 7.1 occurs, and shall not be recalculated thereafter. The Participant's initial election as to the form of payment of his or her vested Account must be made within 30 days of his or her commencement of participation in the Plan. A Participant may subsequently change his or her election as to the form of payment of his or her vested Account by submitting a revised election indicating the revised manner of distribution. Notwithstanding the foregoing, if the Participant's benefits under the Plan commence upon his or her Retirement, then any revised election as to the form of payment of such Participant's vested Account shall not be given effect unless it is submitted to the Committee prior to the last full Plan Year of the Participant's employment with the Employer. Earnings/losses shall be credited pursuant to Section 6.1 with respect to any distribution under this Section 7.3 as shall be determined by the Committee. Section7.4. Distribution Upon Death. If a Participant becomes entitled to a distribution upon his or her death, the distribution to his or her beneficiary will be made in the form elected by the Participant in accordance with Section 7.3. If a Participant dies while receiving installment payments under Section 7.3, or if a Participant dies before receiving a single-sum distribution under Section 7.3, the payment of the balance in the Participant's Account shall be made to the beneficiary determined under this Section in accordance with the election made by the Participant pursuant to Section 7.3. Each Participant must designate at least one individual or other entity as a beneficiary in the event of the Participant's death. The Participant may also designate one or more contingent beneficiaries. These designations must be made on the appropriate beneficiary designation form attached to the Plan as Appendix B and must be filed with the Committee. If a designated beneficiary does not survive the Participant, then the beneficiary shall be the Participant's estate. Earnings/losses shall be credited pursuant to Section 6.1 with respect to any distribution under this Section 7.4 as shall be determined by the Committee. Section7.5. Change in Control. Notwithstanding any other provision of this Plan, each Participant's entire Account shall be distributed in a single-sum payment to the Participant or his or her beneficiary immediately upon the occurrence of a Change in Control. Immediately prior to making such distributions, the balance of each Participant's Account as of the beginning of the Plan Year shall be credited with earnings or losses at a rate of return equal to the weighted average rate of return achieved by such Participant with respect to his or her APST accounts for such Plan Year through the date on which the Change in Control occurs. Such rate of return shall be rounded to the nearest tenth of a percent. Section7.6. Claims Procedure. If a Participant or his or her beneficiary (hereinafter referred to as a "Claimant") is denied all or a portion of an expected benefit under the Plan for any reason, he or she may file a claim with the Committee. The Committee shall notify the Claimant within 90 days after receipt of the claim (or within 180 days if special circumstances apply) of allowance or denial of the claim. If the claim for benefits is denied, in whole or in part, the Claimant will receive a written explanation of: (a) The specific reasons for the denial; (b) The specific references to provisions of the Plan document that support those reasons; (c) Any additional information that must be provided to improve the claim and the reasons why that information is necessary; and (d) The procedures that are available for a further review of the claim. A Claimant is entitled to request a review of any denial of his or her claim by the Committee. The request for review must be submitted within 60 days of receipt of the denial. Absent a request for review within the 60-day period, the claim shall be deemed to be conclusively denied. The Claimant or his or her representatives shall be entitled to review all pertinent documents and to submit issues and comments in writing as part of any request for review. The Committee will conduct a full and fair review of the claim and will notify the Claimant of the decision within 60 days (or 120 days if special circumstances apply). The decision must be in writing and will include the specific reasons and references to Plan provisions on which the decision is based. The Committee has the exclusive right and discretion to interpret the provisions of the Plan and the entitlement to benefits, and its decision is conclusive and final and not subject to further review. ARTICLE8. PROVISIONS RELATING TO PARTICIPATION Section8.1. Extent to Which Other Parties Bound by Plan. The Plan shall be binding upon, and shall inure to the benefit of the Employer and its successors and assigns, and of the Participants and their heirs, administrators and personal representatives. Section8.2. Payment of Taxes. To the extent required by law, the Employer shall withhold Federal, state and local taxes (including but not limited to income taxes and taxes under the Federal Insurance Contributions Act) with respect to any vested contributions and any distributions from the Plan to a Participant or beneficiary. ARTICLE9. ADMINISTRATION Section9.1. Administration. The Plan shall be administered by the Committee. Section9.2. Powers of Committee. The Committee shall have all powers necessary to administer the Plan, including, without limitation, the power to interpret the provisions of the Plan, to decide all questions of eligibility, to establish rules and forms for the administration of the Plan, and to appoint individuals to assist in the administration of the Plan and any other agents it deems advisable. Section9.3. Actions of the Committee. All determinations, interpretations, rules, and decisions of the Committee shall be conclusive and binding upon all persons having or claiming to have any interest or right under the Plan. Section9.4. Delegation. The Committee shall have the power to delegate specific duties and responsibilities to officers or other employees of the Employer or to other individuals or entities. Any delegation may be rescinded by the Committee at any time. Except as otherwise required by law, each person or entity to whom a duty or responsibility has been delegated shall be responsible for the exercise of such duty or responsibility and shall not be responsible for any act or failure to act of any other person or entity. Section9.5. Indemnification. The members of the Committee and the Board of Directors shall be indemnified by the Employer against any and all liabilities arising by reason of any act or failure to act made in good faith in accordance with the provisions of the Plan. For this purpose, liabilities include expenses reasonably incurred in the defense of any claim relating to the Plan. Section9.6. Reports and Records. The Committee and those to whom the Committee has delegated duties under the Plan shall keep records of all their proceedings and actions and shall maintain books of account, records, and other data as shall be necessary for the proper administration of the Plan and for compliance with applicable law. Section9.7. Review of Plan Terms, Conditions and Funding. The Committee shall review the terms and conditions of the Plan and the Plan's funding status as it deems necessary. ARTICLE10. AMENDMENT AND TERMINATION Section10.1. Amendments. The Board of Directors may amend the Plan, in full or in part, at any time. However, no amendment shall decrease the then vested Account of any Participant. Section10.2. Termination. The Employer expects the Plan to be permanent, but necessarily must, and does, reserve the right to modify, revise or terminate the Plan at any time. ARTICLE11. MISCELLANEOUS Section11.1. No Guaranty of Employment. The adoption and maintenance of the Plan shall not be deemed to be a contract of employment between the Employer and any employee. Nothing contained in the Plan shall give any employee the right to be retained in the employ of the Employer or to interfere with the right of the Employer to discharge any employee at any time, nor shall it give the Employer the right to require any employee to remain in its employ or to interfere with the employee's right to terminate his or her employment at any time. Section11.2. Non-Alienation. No benefit payable at any time under this Plan shall be subject in any manner to alienation, sale, transfer, assignment, pledge, attachment or encumbrance of any kind. Section11.3. Applicable Law. The Plan and all rights under the Plan shall be governed by and construed according to the laws of the State of Illinois, except to the extent preempted by federal law. Section11.4. Severability. If any provision of the Plan shall be found to be invalid or unenforceable by a court of competent jurisdiction, the validity or enforceability of the remaining provisions of the Plan shall remain in full force and effect. IN WITNESS WHEREOF, the Employer has caused this Plan to be executed on this day of , 1998. ---------- ---------------------- ANDREW CORPORATION By: Its: EX-13 5 1998 ANNUAL REPORT TO SHAREHOLDERS OPERATIONS REVIEW During 1998, several of our markets achieved good growth, but the growth was not large enough to offset slowed cellular and PCS wireless markets in the United States and the delays in business in Southeast Asia. Sales declined $16.6 million or 1.9% in 1998 to $852.9 million from $869.5 million in 1997. International sales grew 2.4% to $420.4 million in 1998 compared with $414.7 million in 1997 and $336.3 million in 1996. International sales represented 49% of total revenue in 1998 and 48% in both 1997 and 1996. In 1998, wireless infrastructure sales increased slightly. Strong growth in international cellular sales was partially offset by the impact of the Hong Kong Metro distributed communications project, which was completed in 1997. Sales last year included $20 million in revenues from this project. Sales to the land mobile radio market showed moderate growth over 1997, domestic cellular declined slightly and domestic personal communications sales remained relatively unchanged. Sales to the common carrier and private microwave market accounted for the majority of the decline in 1998 sales, with lower sales across all geographic areas, except Latin America, which showed significant improvement over 1997. Sales of wireless accessories were higher in the U.S., but declined overall, due mainly to weakness in Europe, which resulted from the 1997 restructuring. Broadcast and government sales were also lower compared with 1997 levels. From a product standpoint, coaxial cable sales, in 1998, increased 4.1% while terrestrial microwave antennas, other products and services, and wireless accessories declined 3.4%, 14.0% and 7.2%, respectively. In 1997, coaxial cable sales and other products and services drove the increase in sales over 1996. Cost of Products Sold, as a percentage of sales, was 61.2% in 1998 compared with 59.1% and 58.2% in 1997 and 1996, respectively. In 1998, increased price pressures and lower volumes in the towers business contributed to the growth in cost of products sold, as a percentage of sales. This trend was partially offset by positive contributions from product mix and efficiency improvements over 1997. In 1997, competitive price pressure and changes in product mix were partially offset by productivity gains, volume efficiencies and manufacturing improvements, resulting in an increase in cost of products sold, as a percentage of sales. Research and Development Expenditures declined $15.3 million or 37.2% to $25.8 million in 1998. As a percentage of sales revenue, research and development expenses were 3.0%, 4.7% and 3.9% in 1998, 1997 and 1996, respectively. The decline in 1998 was primarily due to the phase-out of the company's fiber optic sensors and global messaging development activities and to the transition of new product lines into production. The company expects research and development expenses to grow 10 to 15% in 1999 as the company continues to expand and enhance its core products and markets and develop new products. Sales and Administrative Expenses in 1998 were $145.3 million, basically unchanged from 1997. In addition to lower spending levels driven by the above-mentioned product phase-outs, the company also benefited from the 1997 restructuring of its European wireless products business. Offsetting these reductions, administrative expenses increased due to the company's continued investments in upgrading its business and information systems. As a percentage of sales revenue, selling and administrative expenses increased slightly to 17.0% compared with 16.8% in 1997 and 18.2% in 1996. During 1999, the company will continue to focus on providing the resources to support revenue growth in the most cost-effective method possible. Other Income and Expense in 1998 resulted in an expense of $2.5 million compared with income of $2.0 million in 1997 and an expense of $4.7 million in 1996. In 1998, net interest income was $1.6 million compared with net interest expense of $0.9 million in 1997 and $3.4 million in 1996. The increase of $2.5 million in 1998 was due to interest earned on advances to the company's joint ventures, as well as higher average investment balances. Net other expense was $4.0 million in 1998 compared with net other income of $2.9 million in 1997 and net other expense of $1.4 million in 1996. In 1998, net other expense consisted primarily of foreign exchange losses during the fourth quarter compared with foreign exchange gains in 1997. Income from Continuing Operations declined 3.6% to $103.8 million in 1998 compared with $107.8 million in 1997 and $93.8 million in 1996. During 1998, the company's effective income tax rate for continuing operations decreased to 34.0% from 35.0% in 1997 and 36.0% in 1996. Liquidity Cash and cash equivalents were $78.4 million in 1998, $93.8 million in 1997 and $31.3 million in 1996. Working capital was $320.1 million in 1998, $332.7 million in 1997 and $284.6 million in 1996. Management believes the current level of working capital will be adequate to meet the company's liquidity needs related to normal operations. The decrease in working capital in 1998 was due mainly to purchases of the company's common stock through its stock buyback program. The increase in working capital in 1997 was due mainly to cash generated from operations, which was partially offset by repurchase of the company's common stock. During 1998, the company generated $149.9 million in cash from operations, principally from net income of $103.8 million, which included non-cash charges of $36.6 million. Changes in accounts receivable and receivables from affiliates accounted for the remainder of the growth in cash from operations. Days sales in billed receivables increased from 67 days in 1997 to 70 days in 1998. During 1997 the company generated $151.7 million in cash from operations, mainly from net income of $88.3 million, which included non-cash charges of $66.5 million. Included in those non-cash charges was a charge of $22.8 million related to the discontinuation of the company's network products business. Days sales in billed receivables decreased from 72 days in 1996 to 67 days in 1997. During 1996, the company generated $66.8 million in cash from operations. Net cash used in investing activities was $64.1 million in 1998, $61.4 million in 1997 and $78.7 million in 1996. During 1998, the company spent $58.5 million on property, plant and equipment, which included expenditures of $8.3 million related to the construction of a cable manufacturing facility in Suzhou, China and $10.7 million related to the construction of facilities in Texas. Capital spending totaled $49.1 million in 1997 and $52.5 million in 1996. During the first quarter of fiscal year 1998, the company purchased an additional 19% interest in its Brazilian operations for $3.0 million bringing the company's ownership percentage to 70%. In 1996, the company purchased a 51% interest in its Brazilian operations for $14.6 million, net of cash received. During 1996, the company also purchased an 80% interest in Satcom Group of Companies, located in South Africa, for $3.2 million, net of cash received. No cash was used for acquisitions in 1997. Net cash used in financing activities was $100.4 million in 1998, $25.5 million in 1997 and $2.0 million in 1996. In May 1997, the company's Board or Directors authorized the company to repurchase 5.0 million shares of its common stock. In June 1998, the company's Board of Directors increased this total to 10.0 million. During 1997, the company repurchased 1.5 million shares of its common stock for $41.6 million. During 1998, the company repurchased an additional 5.5 million shares for $105.4 million, bringing the total repurchased under the stock buyback program to 7.0 million shares, at a total cost of $147.0 million. Shares repurchased under this program will be held to meet potential employee compensation needs or used in future acquisitions. Although the company has never paid cash dividends, the Board of Directors periodically reviews this practice and, to date, had elected to retain earnings in the business to finance future investments and operations. The company currently maintains three revolving line of credit agreements. The first is a $50 million revolving line of credit agreement with Bank of America, Illinois. During 1997 and 1998, the company's French operations borrowed a total of $3.8 million under this agreement. There were no amounts outstanding under this line of credit agreement at September 30, 1996. In 1997, the company arranged a $15.0 million line of credit agreement with ABN-AMRO for its Brazilian operations. In 1997, the company's Brazilian operation borrowed $10.7 million under this agreement to finance its facility expansion. During 1998, the company paid down the majority of this loan and only $3.5 million remained at September 30, 1998. During 1998, the company initiated a $12.0 million line of credit agreement with Bank Austria Creditanstalt. As of September 30, 1998, there was $5.5 million outstanding under the agreement. The company currently has $31.8 million in senior notes payable outstanding, of which $4.5 million is due within one year. In addition, the company also has a $3.8 million industrial development revenue bond outstanding, which was used to facilitate the construction of a manufacturing facility in Newnan, Georgia in 1995. This debt is due to be repaid in 2005. During 1998, the company's Brazilian subsidiary 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 oustanding line of credit with ABN-AMRO. This debt is due to be repaid starting in 2003. Year 2000 The Year 2000 issue arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with 20 instead of 19. If not corrected, many computer applications could fail or create erroneous results. In 1994, the company instituted a program to routinely review its computer hardware and software to increase operational efficiencies. As an output from this effort, the company purchased a new business system in 1994 that would not only meet the company's needs but was also Year 2000 compliant. To date, the company has completed it testing and is currently in the process of implementing the system at all operating locations. The company expects to have the system fully implemented at all major locations by March 1999. Amounts expended or to be expended on information technology systems exclusively to ensure Year 2000 compliance are not expected to be material to the company's consolidated results of operations or financial position. Management has also initiated a comprehensive program to prepare the company's manufacturing and facility systems for the year 2000. The company is actively engaged in testing and fixing applications such as security, environmental, desktop computers and production equipment to ensure they are Year 2000 ready. The company currently does not expect remediation costs to be material nor does it expect any significant interruption to its operations because of Year 2000 problems. Most of the company's products do not have Year 2000 readiness issues because they do not contain date-sensitive functions. The company is in the process of contacting all third parties with which it has significant relationships, to determine the extent to which the company could be vulnerable to failure by any of them to obtain Year 2000 compliance. Some of the company's major suppliers, customers and financial institutions have confirmed that they anticipate being Year 2000 compliant on or before December 31, 1999, although many have only indicated that they have Year 2000 readiness programs. To date, the company is not aware of any significant third parties with a Year 2000 issue that could materially impact the company's operations, liquidity or capital resources. However, the company has no means of ensuring that third parties will be Year 2000 ready and the potential effect of third- party non-compliance is currently not determinable. The company has devoted and will continue to devote the resources necessary to ensure that all Year 2000 issues are properly addressed. However, there can be no assurance that all Year 2000 problems are detected. Further, there can be no assurance that the company's assessment of its third party vendors and suppliers will be accurate. Some of the potential worst-case scenarios that could occur include: (1)corruption of data in the company's internal systems; (2)failure of infrastructure services provided by government agencies; and (3) health, environmental and safety issues relating to the company's facilities. If any of these situations were to occur, the company's operations in certain areas could be temporarily interupted. These interruptions could be more severe in countries outside the U.S. where the company does a considerable amount of its business. The company intends to develop Year 2000 contingency plans for continuing operations in the event such problems arise. The company has operations around the world and is considering shifting operations to different facilities if there are interruptions to operations in particular countries or regions. Risk Factors Safe Harbor for Forward-Looking Statements. We have made forward-looking statements in this Annual Report under "Letter to Stockholders", in "Operations Review" and elsewhere. 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 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 reisk factors, nor can we assess the impact, if any, or 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, you should not put undue reliance on any forward looking statements. Share Price Volatility. In the past years, the market price of our common stock has been very volatile. We believe that the price has fluctuated in response to such things as changes in growth rates of 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. Fluctutations in Operating Results. Historically our quarterly and annual revenues 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 revenues: timing of significant customer orders, inability to forecast future revenue 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 revenues and operating results vary, we believe that period-to-period comparisons are not necessarily meaningful and you should not rely on such comparisons as indicators of our future performance. 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 three years, in response to aggressive pricing practices by our competitors, we have lowered prices for most of our products by 5 to 6% per year. 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. 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. Nearly half of our sales are outside the United States 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 revenues 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. In particular, the recent deterioration of certain economies, such as Southeast Asia and Russia, did have a negative impact on the financial results of our business in these regions during 1998. 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. Year 2000 Compliance. We are working toward bringing our business, manufacturing and facilities systems into Year 2000 compliance. We also are contacting third parties with whom we have significant relationships to determine our vulnerability to their failure to achieve Year 2000 compliance. Our failure to detect and address our own third-party Year 2000 problems could have a significant negative impact on our business, financial condition and results of operations. 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. CONSOLIDATED STATEMENTS OF INCOME
Year Ended September 30 ----------------------------- Amounts in thousands, except per share amounts 1998 1997 1996 - ------------------------------------------------------------------------------------------- Sales $ 852,915 $ 869,475 $ 766,007 Cost of products sold 521,996 513,809 445,521 - ------------------------------------------------------------------------------------------- Gross Profit 330,919 355,666 320,486 Operating Expenses Research and development 25,810 41,076 29,624 Sales and administrative 145,313 145,647 139,558 Restructuring - 5,150 - - ------------------------------------------------------------------------------------------- 171,123 191,873 169,182 - ------------------------------------------------------------------------------------------- Operating Income 159,796 163,793 151,304 Other Interest expense 6,060 5,003 5,183 Interest income (7,615) (4,124) (1,831) Other (income) expense 4,007 (2,868) 1,386 - ------------------------------------------------------------------------------------------- 2,452 (1,989) 4,738 - ------------------------------------------------------------------------------------------- Income from Continuing Operations Before Income Taxes 157,344 165,782 146,566 Income taxes 53,497 58,024 52,764 - ------------------------------------------------------------------------------------------- Income from Continuing Operations 103,847 107,758 93,802 Discontinued Operations Loss from operations of Network Products Business, net of applicable tax benefit - 3,330 3,405 Loss on disposal of Network Products Business including provision of $1,040 for operating losses during phase-out period, net of applicable tax benefits - 16,086 - - ------------------------------------------------------------------------------------------- - 19,416 3,405 - ------------------------------------------------------------------------------------------- Net Income $ 103,847 $ 88,342 $ 90,397 =========================================================================================== Basic Income from Continuing Operations per Average Share of Common Stock Outstanding $ 1.18 $ 1.18 $ 1.04 Diluted Income from Continuing Operations per Average Share of Common Stock Outstanding $ 1.18 $ 1.18 $ 1.03 Basic Net Income per Average Share of Common Stock Outstanding $ 1.18 $ 0.97 $ 1.00 Diluted Net Income per Average Share of Common Stock Outstanding $ 1.18 $ 0.97 $ 0.99 =========================================================================================== Average Basic Shares Outstanding 87,941 90,947 90,263 Average Diluted Shares Outstanding 88,306 91,539 91,033 ===========================================================================================
See Notes to Consolidated Financial Statements CONSOLIDATED BALANCE SHEETS
September 30 -------------------------- Dollars in thousands 1998 1997 - --------------------------------------------------------------------------------------------- ASSETS Current Assets Cash and cash equivalents $ 78,395 $ 93,823 Accounts receivable, less allowances (1998 - $3,026; 1997 - $2,754) 181,389 185,752 Inventories Finished products 56,736 57,458 Materials and work in process 111,057 109,432 - --------------------------------------------------------------------------------------------- 167,793 166,890 Assets related to discontinued operations, less allowances - 4,811 Miscellaneous current assets 9,229 8,538 - --------------------------------------------------------------------------------------------- Total Current Assets 436,806 459,814 Other Assets Costs in excess of net assets of businesses acquired, less accumulated amortization (1998 - $10,291; 1997 - $8,742) 23,177 24,726 Investments in and advances to affiliates 59,691 55,628 Investments and other assets 9,267 13,396 Property, Plant and Equipment Land and land improvements 15,507 11,646 Buildings 83,789 72,884 Equipment 301,757 275,015 Allowances for depreciation and amortization (247,091) (221,955) - -------------------------------------------------------------------------------------------- 153,962 137,590 - -------------------------------------------------------------------------------------------- Total Assets $ 682,903 $ 691,154 ============================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable $ 13,897 $ 14,319 Accounts payable 32,867 37,237 Accrued expenses and other liabilities 17,098 21,014 Compensation and related expenses 32,424 29,312 Income taxes 15,835 16,430 Liabilities related to discontinued operations - 3,637 Current portion of long term debt 4,568 5,144 - -------------------------------------------------------------------------------------------- Total Current Liabilities 116,689 127,093 Deferred Liabilities 14,044 10,239 Long Term Debt, less current portion 38,031 35,693 Minority Interest 5,361 9,006 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 53,309 51,810 Foreign currency translation (7,617) (4,532) Retained earnings 651,103 547,256 Treasury stock, at cost ( 18,210,250 shares in 1998; 13,060,876 shares in 1997) (189,044) (86,438) - -------------------------------------------------------------------------------------------- 508,778 509,123 - -------------------------------------------------------------------------------------------- Total Liabilities and Equity $ 682,903 $ 691,154 ============================================================================================
See Notes to Consolidated Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended September 30 -------------------------------- Dollars in thousands 1998 1997 1996 - --------------------------------------------------------------------------------------------------- Cash Flows from Operations Net Income $ 103,847 $ 88,342 $ 90,397 Adjustments to Net Income Restructuring costs (864) 4,439 - Discontinued operations - 22,771 - Depreciation and amortization 37,494 39,274 34,334 Decrease (increase) in accounts receivable 3,637 4,074 (45,681) Increase in inventories (107) (577) (34,705) Decrease (increase) in miscellaneous current and other assets 1,117 (3,331) (1,663) Decrease (increase) in receivables from affiliates 3,150 (161) 130 Increase (decrease) in accounts payable and other liabilities 1,754 (2,471) 23,321 Other (176) (680) 663 - --------------------------------------------------------------------------------------------------- Net Cash from Operations 149,852 151,680 66,796 Investing Activities Capital expenditures (58,529) (49,144) (52,475) Acquisition of businesses, net of cash acquired (3,000) - (17,802) Investments in and advances to affiliates (3,195) (13,097) (9,030) Proceeds from sale of property, plant and equipment 607 814 624 - --------------------------------------------------------------------------------------------------- Net Cash Used for Investing Activities (64,117) (61,427) (78,683) Financing Activities Long term borrowings (payments) - net 2,223 (4,524) (5,229) Short-term borrowings (payments) - net (38) 14,356 (2,455) Stock purchase and option plans 2,859 6,297 5,712 Purchases of treasury stock (105,405) (41,628) - - --------------------------------------------------------------------------------------------------- Net Cash Used for Financing Activities (100,361) (25,499) (1,972) Effect of exchange rate changes on cash (802) (2,226) (910) - --------------------------------------------------------------------------------------------------- (Decrease) Increase for the year (15,428) 62,528 (14,769) Cash and equivalents at beginning of year 93,823 31,295 46,064 - --------------------------------------------------------------------------------------------------- Cash and Equivalents at End of Year $ 78,395 $ 93,823 $ 31,295 ===================================================================================================
See Notes to Consolidated Financial Statements Consolidated Statements of Stockholders' Equity
Year Ended September 30 ----------------------------- Dollars in thousands 1998 1997 1996 - ------------------------------------------------------------------------- Common Stock Issued Balance at beginning of year $ 1,027 $ 685 $ 457 Three-for-two stock split - 342 228 - ------------------------------------------------------------------------- Balance at End of Year $ 1,027 $ 1,027 $ 685 ========================================================================= Additional Paid-In Capital Balance at beginning of year $ 51,810 $ 43,257 $ 35,588 Three-for-two stock split - (342) (228) Stock purchase and option plans 1,499 8,895 7,897 - ------------------------------------------------------------------------- Balance at End of Year $ 53,309 $ 51,810 $ 43,257 ========================================================================= Retained Earnings Balance at beginning of year $ 547,256 $ 458,914 $ 368,517 Net Income 103,847 88,342 90,397 - ------------------------------------------------------------------------- Balance at End of Year $ 651,103 $ 547,256 $ 458,914 ========================================================================= Treasury Stock Balance at beginning of year $ (86,438) $ (46,991) $ (48,448) Repurchase of shares (105,405) (41,628) - Stock purchase and option plans 2,799 2,181 1,457 - ------------------------------------------------------------------------- Balance at End of Year $(189,044) $ (86,438) $ (46,991) =========================================================================
See Notes to Consolidated Financial Statements. 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 50% of total inventories in 1998 and 44% of total inventories in 1997. 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, 1998, but would have increased by $1,395,000 at September 30, 1997. Depreciation and amortization The company provides for depreciation and amortization of property, plant and equipment, all of which are recorded at cost, principally using accelerated methods based on estimated useful lives of the assets for both financial reporting and tax purposes. Costs in excess of net assets of businesses acquired are amortized on the straight-line basis over periods ranging from 10 to 40 years. 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, other than long term contracts, when a product is shipped or a service is performed. Sales under long term contracts generally are recognized under the percentage of completion method and include a portion of the earnings expected to be realized on the contract in the ratio that costs incurred bear to estimated total costs. Contracts in progress are reviewed monthly, and sales and earnings are adjusted in current accounting periods 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 as a separate component of stockholders' equity. Gains and losses resulting from foreign currency transactions are included in determining net income. 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. Income from continuing operations per share and net income per share During the first quarter of fiscal year 1998, the company adopted Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share". Income from continuing operations per share and net income per share are based on the weighted average number of common shares outstanding during each year after giving effect to stock options considered to be dilutive common stock equivalents. 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 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income". This statement establishes standards for the reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Company will adopt this statement in the first quarter of fiscal year 1999. The Company does not believe the additional reporting and disclosures will have a significant impact on the Company's financial statements. In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." This statement, which is effective for the Company's fiscal year-end 1999 financial statements, establishes standards for the way enterprises report information about operating segments in annual financial statements and requires that enterprises report selected information about operating segments in interim financial reports. The Company does not believe the additional disclosures will have a significant impact on the Company's financial statements. In March 1998, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 98-1, " Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 provides guidance on the accounting treatment of costs related to software obtained or developed for internal use. The Company will adopt this statement in the first quarter of fiscal year 2000. Adoption of this statement is not expected to have a material effect on the Company's financial statements. Business Acquisitions - -------------------------------------------------------------------------------- In December 1995, the company purchased a 51% interest in Mapra Industria e Comerico, Ltda. and Gerbo Telecommunicacoes e Servicos, Ltda. located in Brazil, for $14.6 million, net of cash received. The acquisition was accounted for as a purchase and, accordingly, the operating results of Mapra and Gerbo have been included in the consolidated operating results since the date of acquisition. Mapra and Gerbo manufacture, distribute and sell antennas, waveguides and towers and also provide installation services. In June 1996, the company purchased an 80% interest in Satcom Group of Companies, located in South Africa, for $3.2 million, net of cash received. The acquisition of Satcom was accounted for as a purchase and, accordingly, the operating results of Satcom have been included in the consolidated operating results since the date of acquisition. If the acquisitions of Mapra Industria e Comercio, Ltda., Gerbo Telecommuicacoes e Servicos, Ltda. and Satcom Group of Companies had taken place at the beginning of fiscal year 1996, Andrew Corporation's consolidated sales and net income would not have been materially affected. In March 1996, Andrew Corporation completed its acquisition of The Antenna Company, a manufacturer and distributor of wireless telephone antennas and accessories for mobile applications. The transaction has been accounted for as a pooling of interests and, accordingly, the accompanying financial statements have been restated to include the accounts and operations of The Antenna Company for all periods prior to the merger. Andrew Corporation exchanged 2,312,346 shares of its common stock for all the outstanding stock of the privately held The Antenna Company. In addition, $1.5 million in acquisition costs were incurred to complete the merger. In October 1997, the company purchased an additional 19% interest in Mapra Industria e Comerico, Ltda. and Gerbo Telecommunicacoes e Servicos, Ltda. for $3.0 million. This acquisition was accounted for as a purchase and, accordingly, the company has included the additional operating results of Mapra and Gerbo since the date of acquisition. Discontinued Operations - -------------------------------------------------------------------------------- On July 14, 1997, the company adopted a plan to discontinue the operations of its network products business. The business was acquired by Nlynx Systems Inc. during 1998. As such, there are no remaining assets or liabilities related to the business. The losses associated with the disposition did not materially differ from the estimated loss on disposal of the discontinued operations of $16.1 million (net of applicable taxes of $6.7 million) recorded during the third quarter 1997. Earnings per Share - -------------------------------------------------------------------------------- In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". Statement 128 replaces the computation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. The company adopted Statement 128 in the first quarter of fiscal year 1998. All share and per share amounts have been presented and, where necessary, restated to conform with the requirements of Statement 128. The following table sets forth the computation of basic and diluted earnings per share:
Year Ended September 30 --------------------------------- In thousands, except per share amounts 1998 1997 1996 - ---------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE Numerator: Numerator for income from continuing operations per $ 103,847 $ 107,758 $ 93,802 share Numerator for net income per share $ 103,847 $ 88,342 $ 90,397 Denominator: Weighted average shares outstanding 87,941 90,947 90,263 - ---------------------------------------------------------------------------------------------- Income from continuing operations per share - basic $ 1.18 $ 1.18 $1.04 =============================================================================================== Net income per share - basic $ 1.18 $ 0.97 $1.00 =============================================================================================== DILUTED EARNINGS PER SHARE Numerator: Numerator for income from continuing operations per $ 103,847 $ 107,758 $ 93,802 share Numerator for net income per share $ 103,847 $ 88,342 $ 90,397 Denominator: Weighted average shares outstanding 87,941 90,947 90,263 Effect of dilutive securities: Stock options 365 592 770 - ----------------------------------------------------------------------------------------------- 88,306 91,539 91,033 =============================================================================================== Income from continuing operations per share - diluted $ 1.18 $ 1.18 $ 1.03 =============================================================================================== Net income per share - diluted $ 1.18 $ 0.97 $ 0.99 ===============================================================================================
Options to purchase 2,143,000 shares of common stock, at prices ranging from $17.11 to $38.17 per share, were not included in the September 1998 computation of diluted earnings per share, because the option's exercise price was greater than the average market price of the common shares. Options to purchase 609,000 shares of common stock at, prices ranging from $37.25 to $38.17 per share were not included in the September 1997 diluted earnings per share calculation since the option's exercise price was higher than the average market price of the common shares. Options to purchase 97,000 shares of common stock, at prices ranging from $28.39 to $29.04 per share, were not included in the September 1996 computation of diluted earnings per share since the option's exercise price was higher 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. Eight of the ventures are engaged in communication and data transmission in Russia, Ukraine and Mexico. The company has minority interest holdings in six of the ventures and a majority interest holding in two 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 1998, 1997 and 1996 operating results. The company guarantees a $25.0 million line of credit with ABN-AMRO, which is used by its ventures. As of September 30, 1998, $19.0 million was outstanding under the agreement. Unbilled Receivables - -------------------------------------------------------------------------------- At September 30, 1998, unbilled receivables of $4,205,000 are included in accounts receivable compared with $8,546,000 at September 30, 1997. 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 1998, 1997 and 1996 were $14,967,000, $12,933,000 and $13,678,000, respectively. Borrowings - -------------------------------------------------------------------------------- Lines of Credit The company maintains a $50 million revolving line of credit agreement with Bank of America, NT and SA. The maximum outstanding during 1998 under the line of credit was $3.8 million with a weighted average interest rate of 3.92%. The outstanding balance at September 30, 1998 was $3.8 million. The company also maintains a $15.0 million line of credit agreement with ABN-AMRO for its Brazilian operations. The maximum oustanding during 1998 under the line of credit was $10.7 million with a weighted average interest rate of 22.43%. The outstanding line of credit balance at September 30, 1998 was $3.5 million. In addition, the company also has a $12.0 million line of credit agreement with Bank Austria Creditanstalt. The maximum oustanding during 1998 under the agreement was $5.5 million with a weighted average interest rate of 6.40%. The outstanding balance at September 30, 1998 was $5.5 million. The company also maintains various export financing arrangements with ABN-AMRO related to its Brazilian operations. The outstanding balance at September 30, 1998 was $1.1 million. Long Term Debt Long term debt at September 30 consisted of the following:
Dollars In Thousands, Except per Share Amounts 1998 1997 - --------------------------------------------------------------------- 9.52% senior notes payable to insurance companies in annual installments from 1995 through 2005 $31,818 $36,364 Variable rate Industrial Development Revenue Bond with Coweta County, Georgia 3,800 3,800 12.00% loan agreement with Banco Nacional De Desenvolvimento Economico E Social 6,960 - Other 21 673 Less: Current Portion 4,568 5,144 - --------------------------------------------------------------------- Total Long Term Debt $38,031 $35,693 =====================================================================
Under the terms of the loan agreements, the company has agreed to maintain certain levels of working capital and net worth. At September 30, 1998, all these requirements have been met. The principal amounts of long term debt maturing after September 30, 1998 are: Dollars In Thousands 1999 2000 2001 2002 2003 Thereafter - ------------------------------------------------------------------------- $4,568 $4,545 $4,545 $9,553 $6,497 $12,891 Cash payments for interest on all borrowings were $7,146,000, $4,246,000 and $4,752,000 in 1998,1997 and 1996, respectively. The carrying amount of long term debt as of September 30, 1998 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 - -------------------------------------------------------------------------------- During June 1997, the company initiated a plan to restructure its European wireless products business and phase out its fiber optic sensors and global messaging development activities. The restructuring was substantially complete as of June 30, 1998. Actual costs were not materially different than the total after-tax charges of $3.3 million or $.04 per diluted share recorded in June 1997. INCOME TAXES - -------------------------------------------------------------------------------- The composition of the provision for income taxes follows:
Year Ended September 30 -------------------------- Dollars in thousands 1998 1997 1996 - ----------------------------------------------------------------------------- Currently Payable: Federal $ 24,539 $ 29,636 $ 35,013 Non-United States 17,043 19,852 15,702 State 4,708 5,281 4,779 - ----------------------------------------------------------------------------- 46,290 54,769 55,494 Deferred (Credit): Federal and State 7,091 3,280 (2,608) Non-United States 116 (25) (122) - ----------------------------------------------------------------------------- 7,207 3,255 (2,730) - ----------------------------------------------------------------------------- $ 53,497 $ 58,024 $ 52,764 ============================================================================= Income Taxes Paid $ 56,162 $ 44,641 $ 37,041 ============================================================================= Components of Income from Continuing Operations before Income Taxes: United States $ 97,909 $ 99,782 $ 82,078 Non-United States 59,435 66,000 64,488 - ----------------------------------------------------------------------------- $ 157,344 $ 165,782 $ 146,566 =============================================================================
The company's effective income tax rate varied from the statutory United States federal income tax rate because of the following:
Year Ended September 30 -------------------------- 1998 1997 1996 - ------------------------------------------------------------------------- Statutory United States federal tax rate 35.0 % 35.0 % 35.0 % Foreign Sales Corporation (FSC) (2.0) (2.8) (2.7) State income taxes, net of federal tax effect 2.2 2.2 2.1 Other items (1.2) 0.6 1.6 - ------------------------------------------------------------------------- Effective Tax Rate 34.0 % 35.0 % 36.0 % =========================================================================
The tax effects of temporary differences have given rise to gross deferred tax assets of $11,300,000, primarily accrued expenses and inventory, and gross deferred tax liabilities of $17,386,000, primarily depreciation, as of September 30, 1998. The company has not recorded a valuation allowance for deferred tax assets because the existing net deductible temporary differences will reverse during periods in which the company expects to generate taxable income. No provision has been made for income taxes of approximately $19,408,000 as of September 30, 1998, which would be payable should 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 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, 1998, 84,507,960 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 only become exercisable 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, which authorized the company to repurchase up to five million shares of its common stock. As of September 30, 1997, the company had repurchased 1,545,000 shares of common stock at a total cost of $41,628,000. In June 1998, the company's Board of Directors authorized an additional five million common shares to be repurchased under the company's stock buyback plan, bringing the total authorized for repurchase to 10 million shares. During fiscal year 1998, the company repurchased 5,472,732 shares, at a total cost of $105,405,000, bringing the total shares repurchased under the stock buyback program to 7,017,732 shares at a total cost of $147,033,000. The common shares repurchased under this program may be used to meet employee compensation needs or used in future acquisitions. A three-for-two stock split was effected in March 1997 and March 1996. Common Stock issued and outstanding and held in treasury is summarized in the tables below:
Year Ended September 30 ----------------------------------------- 1998 1997 1996 - --------------------------------------------------------------------------------------------- Shares of Common Stock - Issued Balance at beginning of year 102,718,210 68,479,398 45,653,823 Three-for-two stock split - 34,238,812 22,825,575 - --------------------------------------------------------------------------------------------- Balance at End of Year 102,718,210 102,718,210 68,479,398 - --------------------------------------------------------------------------------------------- Shares of Common Stock - Held in Treasury Balance at beginning of year 13,060,876 8,047,229 5,620,970 Three-for-two stock split - 4,023,615 2,809,352 Stock repurchase 5,472,732 1,545,000 - Stock purchase and option plans (323,358) (554,968) (383,093) - --------------------------------------------------------------------------------------------- Balance at End of Year 18,210,250 13,060,876 8,047,229 - ---------------------------------------------------------------------------------------------
As of September 30, 1998, 5,177,454 shares of Common Stock were reserved for the various stock plans described in the following stock-based compaensation section. 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 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 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. Options under this plan vest over a four-year period. Options granted prior to fiscal year 1996 expire five years after grant, while options granted during fiscal years 1996, 1997 and 1998 expire ten years after grant. In fiscal year 1998, there were 599,150 options granted under the plan . The company maintains a Stock Option Plan for Non-Employee Directors that provides 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 (DSP) 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 1998, there were 60,000 options granted under this plan. The company has an Employee Stock Purchase Plan (ESPP) that expires on February 1, 1999. All employees with six months of service as of the annual offering date are eligible to participate in this plan. The Plan authorizes up to 1,771,875 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 1998, there were 68,319 shares purchased by employees under the plan. Pro forma information regarding net income and earnings per share is required by Statement 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 the 1998, 1997 and 1996 MIP, DSP, and ESPP respectively: risk-free interest rate of 4.39%, 6.11% and 6.70%; dividend yield of 0%; a volatility factor of .477 for 1998, .415 for 1997 and 1996, 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:
Year Ended September 30 ------------------------------ Dollars In thousands except per share amounts 1998 1997 1996 - ----------------------------------------------------------------------------------------------- Pro forma income from continuing operations $99,891 $104,485 $92,172 Pro forma net income 99,891 85,069 88,767 Pro forma net income from continuing operations per share Basic 1.14 1.15 1.02 Diluted 1.13 1.14 1.01 Pro forma net income per share Basic 1.14 0.94 0.98 Diluted $ 1.13 $ 0.93 $ 0.98 - -----------------------------------------------------------------------------------------------
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 1996, 1997 and 1998. A summary of the company's stock option activity and related information follows:
------------------------------------------ 1998 1997 1996 - --------------------------------------------------------------------------------------- Outstanding at beginning of year 2,648,033 2,618,631 2,367,636 Granted 659,150 662,250 1,011,825 Expired or cancelled (136,098) (143,925) (274,270) Exercised (259,254) (488,923) (486,560) - --------------------------------------------------------------------------------------- Outstanding at End of Year 2,911,831 2,648,033 2,618,631 - --------------------------------------------------------------------------------------- Exercisable at End of Year 1,232,536 673,147 472,275 - --------------------------------------------------------------------------------------- Weighted Average Exercise Price - --------------------------------------------------------------------------------------- Outstanding at beginning of year $11.64 $13.92 $ 9.44 Granted 23.69 37.60 20.60 Expired or cancelled 27.01 20.91 12.73 Exercised 8.12 9.55 6.71 Outstanding at End of Year 21.81 20.26 13.92 Exercisable at End of Year $17.26 $11.64 $ 8.16 - ---------------------------------------------------------------------------------------
The weighted average fair value of options granted during fiscal years 1998, 1997 and 1996 was $12.93, $13.84 and $10.05 per share, respectively. The weighted average contractual life of options outstanding as of September 30, 1998 is 9.27 years. The range of exercise prices for options outstanding at September 30, 1998 was $2.02 to $38.17. The range of exercise prices for options is wide due to the increasing price of Andrew Corporation stock over the period of the grants, as well as the various stock splits that have occurred. Other Foreign currency translation adjustments decreased equity by $3.1 million during the year ended September 30, 1998. Foreign currency translation adjustments decreased equity by $4.9 million and $0.7 million during the years ended September 30, 1997 and 1996, respectively. Geographic Segment Information - -------------------------------------------------------------------------------- As a result of the disposal of the network products segment, the company's operations now consist of a dominant industry segment, Commercial Operations. This segment serves commercial markets, including wireless service operators, radio equipment companies, television stations, utilities and distributors. Products include antennas, antenna systems and coaxial cable. Principal financial data by major geographic area is as follows:
Year Ended September 30 -------------------------- Dollars in thousands 1998 1997 1996 - -------------------------------------------------------------- Sales: United States: Customers $530,277 $559,873 $508,358 Intercompany 106,536 115,647 87,714 - -------------------------------------------------------------- 636,813 675,520 596,072 Europe, Africa, Middle East: Customers 175,021 178,773 147,917 Intercompany 11,657 8,896 12,024 - -------------------------------------------------------------- 186,678 187,669 159,941 Asia-Pacific: Customers 59,782 51,419 50,344 Intercompany 2,253 3,672 2,298 - -------------------------------------------------------------- 62,035 55,091 52,642 Other Americas: Customers 87,835 79,410 59,388 Intercompany 8,221 6,382 5,557 - -------------------------------------------------------------- 96,056 85,792 64,945 Eliminations 128,667 134,597 107,593 - -------------------------------------------------------------- Consolidated Sales $852,915 $869,475 $766,007 ============================================================== United States - Export Sales $ 97,738 $105,147 $108,675 ============================================================== Operating Income: United States $ 95,586 $104,154 $ 87,522 Europe 39,861 33,603 36,055 Asia-Pacific 16,461 20,460 23,951 Other Americas 7,888 5,576 3,776 - -------------------------------------------------------------- Consolidated Operating Income $159,796 $163,793 $151,304 ============================================================== Assets Identifiable to: United States $411,545 $456,566 $442,721 Europe 144,137 112,726 107,051 Asia-Pacific 52,000 48,362 18,559 Other Americas 75,221 73,500 62,898 - -------------------------------------------------------------- Consolidated Assets $682,903 $691,154 $631,229 ==============================================================
Sales and transfers between geographic areas are made on terms and conditions comparable with sales to external customers. 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.
Dollars in thousands, except per share amounts December March June September Total - -------------------------------------------------------------------------------------------------------------------- 1998: Sales $231,136 $196,872 $204,220 $220,687 $852,915 Gross profit 89,597 77,110 81,315 82,897 330,919 Income from continuing operations before income taxes 42,932 36,585 37,257 40,570 157,344 Net income 28,334 24,147 24,590 26,776 103,847 Basic and diluted income from continuing operations per share 0.32 0.27 0.28 0.31 1.18 Basic and diluted net income per share 0.32 0.27 0.28 0.31 1.18 Common Stock Price Range: High 29 5/16 29 5/8 23 29/32 18 3/4 Low 22 3/8 19 5/16 18 12 1/4 ==================================================================================================================== 1997: Sales $225,715 $202,227 $208,911 $232,622 $869,475 Gross profit 87,486 82,729 91,946 93,505 355,666 Income from continuing operations before income taxes 39,333 40,739 38,398 47,312 165,782 Discontinued operations 1,227 968 17,221 - 19,416 Net income 24,340 25,512 7,738 30,752 88,342 Basic and diluted income from continuing operations per share 0.28 0.29 0.27 0.34 1.18 Basic and diluted net income per share 0.27 0.28 0.08 0.34 0.97 Common Stock Price Range: High 41 1/8 42 1/4 36 5/8 33 3/16 Low 31 1/6 33 2/3 22 5/8 24 7/8 =====================================================================================================================
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, 1998 and 1997, and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1998. 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 generally accepted auditing standards. 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 susbsidiaries at September 30, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1998, in conformity with generally accepted accounting principles. /s/Ernst & Young LLP Chicago, Illinois October 23, 1998 ELEVEN YEAR FINANCIAL SUMMARY
----------------------------------------------------------- Dollars in thousands, except per share amounts 1998 1997 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------- Operations , Sales $ 852,915 $ 869,475 $ 766,007 $ 624,743 $ 536,025 Gross profit 330,919 355,666 320,486 264,013 217,796 Operating income 159,796 163,793 151,304 116,803 84,497 Other (income) expense 2,452 (1,989) 4,738 4,362 7,226 Income from continuing operations before taxes 157,344 165,782 146,566 112,441 77,271 Income from continuing operations 103,847 107,758 93,802 71,854 49,360 Discontinued Operations Loss (income) from operations of network business, net of taxes - 3,330 3,405 1,899 3,593 Loss on disposal of network business, net of taxes - 16,086 0 0 0 Net income 103,847 88,342 90,397 69,955 45,767 Basic income from continuing operations per share 1.18 1.18 1.04 0.81 0.56 Diluted income from continuing operations per share 1.18 1.18 1.03 0.80 0.55 Basic net income per share 1.18 0.97 1.00 0.78 0.52 Diluted net income per share 1.18 0.97 0.99 0.78 0.51 ======================================================================================================================== Financial Position Working capital 320,117 332,721 284,602 227,164 171,705 Total assets 682,903 691,154 631,229 505,114 425,326 Long-term debt 38,031 35,693 40,423 45,255 46,092 Stockholders' equity 508,778 509,123 456,214 357,191 276,553 ======================================================================================================================== Cash Flow From operations 149,852 151,680 66,796 55,816 52,343 Used in investing activities (64,117) (61,427) (78,683) (55,367) (38,692) From (used for) financing activities (100,361) (25,499) (1,972) 4,570 4,259 Cash and equivalents $ 78,395 $ 93,823 $ 31,295 $ 46,064 $ 40,714 ======================================================================================================================== Ratios and Other Data Current ratio 3.7 3.6 3.4 3.4 2.8 Return on Sales: Income from continuing operations 12.2% 12.4% 12.2% 11.5% 9.2% Net Income 12.2% 10.2% 11.8% 11.2% 8.5% Return on average assets 15.1% 13.4% 15.9% 15.0% 11.9% Return on average stockholders' equity 20.4% 18.3% 22.2% 22.1% 18.4% ======================================================================================================================== Stockholder's equity per share outstanding $ 6.02 $ 5.68 $ 5.03 $ 3.97 $ 3.12 Foreign exchange gain (loss) (2,988) 3,433 972 (1,612) (1,922) Research and development 25,810 41,076 29,624 21,041 20,377 Additions to property, plant and equipment 58,529 49,144 52,475 48,076 28,471 Net assets located outside U.S. at year end 272,661 228,488 220,600 160,700 130,900 Orders entered 874,717 864,918 790,621 684,504 532,881 Order backlog at year end (under 12 months) 141,847 132,610 152,205 125,446 83,884 Order backlog at year end (over 12 months) $ 12,317 $ 5,950 $ 14,756 $ 18,529 $ 595 ======================================================================================================================== Number of full time equivalent employees at year end: Outside United States 1,219 1,185 1,162 763 661 Total employee 4,221 4,227 4,622 3,677 3,405 Average basic shares of stock outstanding (thousands) 87,941 90,947 90,263 89,177 87,845 Average diluted shares of stock outstanding (thousands) 88,306 91,539 91,033 89,964 89,204 Stockholders of record at year end 4,727 4,599 3,242 2,340 1,482 ======================================================================================================================== The results of operations for fiscal years 1988 through 1996 have been updated for the disposal of the network products segment in 1997. 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.
Appendix A
PAGE WHERE GRAPHIC IMAGE APPEARS DESCRIPTION OF GRAPHIC AND IMAGE MATERIAL - ------------------ ----------------------------------------- Page 15 Bar Graph of Sales (Dollars in Millions) Data Points: 1994-$536, 1995-$625, 1996-$766, 1997-$869, 1998-$853 Gross Profit (Dollars in Millions) Data Points: 1994-$218, 1995-$264, 1996-$320, 1997-$356, 1998-$331 Operating Expenses (Dollars in Millions) Data Points: 1994-$133, 1995-$147, 1996-$169, 1997-$192, 1998-$171 Page 17 Combination Graph Net Income (Dollars in Millions) Data Points: 1994-$46, 1995-$70, 1996-$90, 1997-$88, 1998-$104 Net Income Including Discontinued Operations and Restructuring Charges (Dollars in Millions) Data Points: 1994-$49, 1995-$72, 1996-$94, 1997-$111, 1998-$104 Net Cash from Operations (Dollars in Millions) Data Points: 1994-$52, 1995-$56, 1996-$67, 1997-$152, 1998-$150 Capital Expenditures (Dollars in Millions) Data Points: 1994-$28, 1995-$48, 1996-$52, 1997-$49, 1998-$59
EX-21 6 LIST OF SIGNIFICANT SUBSIDIARIES EXHIBIT 21 ANDREW CORPORATION AND SUBSIDIARIES List of Significant Subsidiaries Significant subsidiaries of the registrant, all of which are wholly-owned unless otherwise indicated, are as follows: Jurisdiction Name of Subsidiary of Incorporation Andrew A.B................................................................Sweden Andrew AG............................................................Switzerland Andrew AO.................................................................Russia Andrew Canada, Inc........................................................Canada Andrew Communications Oy.................................................Finland Andrew Corporation (Mexico), S.A. de C.V..................................Mexico Andrew Espana, S.A.........................................................Spain Andrew Financial Services Corporation..........................State of Delaware Andrew GmbH..............................................................Germany Andrew Industria e Comercio, Ltda. (owned 70%)............................Brazil Andrew International Corporation...............................State of Illinois Andrew Kommunikationssysteme AG......................................Switzerland Andrew Satcom Africa (Pty.) Ltd. (owned 80%)........................South Africa Andrew SciComm Inc................................................State of Texas Andrew S.A.R.L............................................................France Andrew S.R.L...............................................................Italy Andrew Systems Inc.............................................State of Delaware Andrew Telecom, Inc............................................State of Delaware Andrew Telecommunications India Pvt. Ltd...................................India Andrew Telecommunications (Suzhou) Co. Ltd.................................China EX-23 7 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in Registration Statement No. 2-86070 on Form S-8 dated August 23,1983; Registration Statement No. 33-30364 on Form S-8 dated August 7, 1989; Registration Statement No. 33-58750 on Form S-8 dated February 24, 1993; Registration Statement No. 33-58752 on Form S-8 dated February 24, 1993; Registration Statement No. 33-52487 on Form S-8 dated March 2, 1994 and Post-Effective Amendment No. 1 to Registration Statement No. 33-52487 on Form S-8 dated March 3, 1994; Registration Statement No. 333-12743 on Form S-4 dated September 26, 1996; Registration Statement No. 333-52575 on Form S-8 dated May 13, 1998; and Registration Statement No. 333-57273 on Form S-8 dated June 19, 1998, all pertaining to Andrew Corporation, of our report dated October 23, 1998, with respect to the consolidated financial statements of Andrew Corporation incorporated by reference in the Annual Report (Form 10-K)for the year ended September 30, 1998. /s/ Ernst & Young LLP Chicago, Illinois December 21, 1998 EX-27 8 FINANCIAL DATA SCHEDULE 09/30/1998
5 1,000 12-MOS SEP-30-1998 SEP-30-1998 78,395 0 184,415 3,026 167,793 436,806 401,053 247,091 682,903 116,689 38,031 0 0 1,027 507,751 682,903 852,915 852,915 521,996 521,996 171,123 608 6,060 157,344 53,497 103,847 0 0 0 103,847 1.18 1.18
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