Andrews Annual Report

Dear Andrews Investor,

The fiscal year 2022 was another banner year for Andrews. Benefiting

from our high customer awareness and accessibility, as well as low

labor costs from earlier investments in automation, we delivered

revenue of $261 million and earnings per share of $20.31. Resulting

cash from operations was $55.9 million of which we returned $31.8

million to our stockholders to the form of dividends. These results

were achieved through an acute focus on our product differentiation

strategy. Andrews enters 2023 with leadership positions in two

important product segments--high-end and performance products. As

detailed above, these segments generated significant financial results

in 2022, indicated by high level of profits, strong cash generation, and

a healthy balance sheet.

Our innovation focus is all about speeding up the R&D process to

come out with revised products in the performance, size, and high end

segments yearly. We intend to invest more money into TQM in order

to reduce costs, speed up R&D, while maintaining a high degree of

automation. As a shareholder, you can look to Andrews to continue to

roll out revised high end products every year. This pace sets us apart

from our competitors and keeps us on the leading edge of consumer

demand criteria.

We believe we have great opportunities ahead of us. Andrews has

leading products and technologies for growing markets, strong

automated processes, and a commitment to customer needs. We

have sharpened our product focus and are accelerating the pace of

our innovation to expand our company and offerings giving Andrews

great confidence about our future.

Paul Crane

Chief Executive Officer

ANDREWS CORPORATION

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2022

INDEX

PART I

Item 1 Business - Overview and Strategy 1

PART II

Item 2 Stock Performance 4

Item 3 Selected Financial Data 5

Item 4 Management Discussion and Analysis 6

Item 5 Financial Statements and Supplementary Data 14

Item 6 Outlook on Company Future 21

PART III

Item 7 Lessons Learned 22

Item 8 Executive Management Team 23

Table of Contents

1

PART I

ITEM 1. BUSINESS

Company Overview

Andrews operates in the electronic sensor manufacturing industry, making sensors for sale and distribution to

other manufacturers. We are in the business-to-business sensor market versus the direct-to-consumer market.

Our sensors are incorporated into products our customers sell to the final consumer. Electronic sensors are found

in everything around us. They are used in cell phones to interpret touch or sound, in radar guns to determine the

speed of cars, and around doors to determine when to open for someone walking through.

Company Strategy

Our goal is to be the leading edge company in the sensor industry via diversification through sharing activities.

What this means for the company going forward, is that we will aim to increase our competitive advantage by

raising differentiation and creating synergy across our business units. In an effort to accomplish this, our business

units will share activities such as marketing, sales force, and manufacturing automation innovation. Through the

use of a shared activities strategy, the firm is better positioned to offer multiple products in differing segments. By

doing so, Andrews creates a diverse offering of products that when packaged together, give the company a

competitive edge over our industry competitors offering products in only one or two market segments.

Business Strategy

Ever since our company began in 2015, our company has built and maintained a strong differentiation strategy.

We gear our products toward a broad target market, with an emphasis on uniqueness as a source for competitive

advantage. Our products are aimed to deliver high customer satisfaction in a constantly evolving market and we

intend to be at the forefront of innovation and thus we price our products to reflect that. It is not our goal to provide

the most affordable product, but rather to provide superior quality products in each market segment. In line with a

strong differentiation strategy, we have held an aggressive stance in sales and marketing, which has allowed

Andrews to become the market share leader in the sensor industry. Operationally we keep our costs minimal

through high levels of automation. By coupling the differentiation strategy and an aggressive sales and marketing

approach, we have made leaps and bounds over the past 8 years in product innovation, sales, market share, and

automation.

Mission

To create and develop electronic products that are on the leading edge of technology. This mission is achieved by

pushing the boundaries of innovation and promoting an undying focus on customer's current and future needs.

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2

Products

The table below lists our current products:

High End

Aubie and Awsum are marketed to the high-end segment of

the industry. These two product offerings allowed the

company to gain an overall segment market share of 37%,

more than any other company in the industry. Unlike the

traditional and low-end segments, the high-end customers

are primarily concerned with their product size, performance,

and age, while least concerned with price. Although one of

our primary goals was to gain market share, we were also

significantly concerned with our customers’ desires. We

listened to their requirements, made adjustments to our

products to align with these requirements, and made these

products easily accessible through our sales force. As a

result, the Aubie and Awsum products are situated at the top

of this market segment in terms of market share and rank as

the top two in the segment.

Traditional

Able and Adam are two products currently offered in the

Traditional market segment. Customers in the traditional

market segment are concerned with the age and price of our

product versus reliability. For the past year we maintained a

23% market share. Adam has been the market share leader

of the two positioned in this segment at 14% (ranked 3rd

industry wide) and Able has taken 9% of the market share.

Although positioned similarly, Adam had a slight competitive

advantage over Able in this past year due to its recent

revision in performance, size, and age. These attributes

allowed for Adam to maintain a higher market share over

Able, and remain in the top 3 industry-wide for the traditional

segment.

Segment Product Performance Size MTBF

Traditional Able 9.7 10.3 15000

Traditional Adam 10.7 9.3 15000

Low End Acre 4.8 15.2 12500

High End Aubie 16.1 3.9 24500

High End Awsum 15.9 4.1 24500

Performance Aft 17.4 10.4 27000

Performance Alpha 17.4 10.4 27000

Size Agape 9.5 2.7 19000

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Low End

Our low-end market product is represented by Acre. Acre dominated the low-end market segment this year with an

outstanding market-share of 18%, leading the segment. Our low-end market segment customers are primarily

concerned with price and age. In an effort to appeal to this market, Acre is offered at the lowest industry price in

the low-end segment ($17.00). With a 100% customer awareness and 90% customer accessibility rating attained

through our sales and marketing strategy, Acre maintained a strong presence in the low-end segment in 2022.

Performance

Aft and Alpha are positioned for the performance segment, and combined currently hold 32% of the total market

share for this segment and were the top two selling products within the segment. The performance customers are

interested in products that are reliable and have an ideal performance and size. To meet customer demands, we

created two nearly identical products with the customer’s size and performance requirements directly on spot at

17.4 and size of 10.4 with the highest desired reliability rating at 27000 MTBF.

Size

The size segment is represented with our Agape product. Size segment customers are interested in a product with

ideal size, as well as performance and age, while least concerned with price. Agape held an 18% market share

along with the #2 and #3 segment-leaders, and this was likely due to a stock-out of this product. Had we

increased production slightly, we may have seen this product jump to the number 1 spot in the size segment.

Percentage of Revenue by Major Operating Segment

Competition

We continue to position ourselves as a leader in the sensor industry, having achieved high market share

throughout the industry, most notably in the high end and performance segments. We introduced multiple products

in industry segments, but we must continue to expand with new products in other segments to continue to thrive.

As our competitors expand into new markets we lose market share, which has been demonstrated over the past

two years in the low and size industry segments. By maintaining two products in our high, performance, and

traditional segments, we have maintained over a 20% market share in each. We plan on investing and introducing

new products in the low and size segments to regain market share to drive future growth.

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PART II

ITEM 2. STOCK PERFORMANCE GRAPH

Comparison of Five-Year Cumulative Return for Andrews Corp and the S&P 500 Index

* Return assumes dividends are reinvested at value of stock price on Dec 31 each year

+ S&P 500 Index data shown is for hypothetical purposes of this report and is not historically accurate

As of December 31st, 2022 Andrews’ stock price closed at $181.03, an increase of $29.36, or 19.4%, over the

$151.67 closing price on December 31st, 2021.

$50

$100

$150

$200

$250

$300

$350

$400

2017 2018 2019 2020 2021 2022

S&P 500 Andrews

2017 2018 2019 2020 2021 2022

Andrews*

100$ 147$ 199$ 244$ 288$ 358$

S&P 500 Index+

100$ 113$ 102$ 104$ 124$ 145$

Historical Stock Price

$58.74

$85.17

$112.57

$133.16

$151.67

$181.03

Fiscal year ended December 31, 2017






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ITEM 3. FINANCIAL HIGHLIGHTS

Selected financial data is provided for each period is provided below:

Selected financial data from the consolidated balance sheet for each period is provided below:

(Dollars in Thousands Except Per Share Amounts) 2022 2021 2020 2019 2018

Revenue 260,919$ 250,747$ 260,489$ 268,178$ 252,027$

Gross margin 120,174 118,870 119,268 114,230 107,688

Margin 46.1% 47.4% 45.8% 42.6% 42.7%

Research and development 5,831 5,636 6,309 4,756 7,339

Sales and marketing 25,800 26,800 29,800 29,800 26,000

General and administrative 1,682 2,382 2,693 2,530 3,082

Depreciation 16,333 18,693 18,507 17,293 16,240

Operating income 70,527 65,359 61,959 59,851 55,027

Net income available to shareholders 43,106$ 35,200$ 30,488$ 27,956$ 21,758$

Earnings per common share 20.31$ 16.59$ 13.65$ 12.51$ 9.74$

Shares Outstanding 2,122 2,122 2,234 2,234 2,234

Dividends per common share 15.00$ 10.00$ 8.00$ 5.00$ 2.00$

Net cash provided by operating activities 55,920$ 52,840$ 48,435$ 41,216$ 36,834$

Additions to property, plant and equipment 21,820$ 2,800$ 18,200$ 4,800$ 42,600$

Retirement of long term debt 27,000$ 17,316$ 20,850$ -$ -$

Repurchase of common stock -$ 14,874$ -$ -$ 6,906$

Payments of dividends to stockholders 31,835$ 21,223$ 17,872$ 11,170$ 4,468$

(Do llars in T hous ands ) Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018

Cash 35,620$ 16,714$ 39,699$ 33,575$ 37,229$

P roperty , plant and equipment, net 109,113 140,493 156,387 156,693 169,187

Total A ssets 168,659 185,062 223,295 218,211 229,205

Long-Term Debt 26,067 54,000 71,000 91,850 91,850

S tockholders' E quity 131,440$ 120,169$ 119,909$ 108,452$ 91,666$

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Selected financial ratios are provided for each period below:

We continue to be very attractive despite the slow in world economies three years ago. Return on equity extends

beyond 30%, exceeding the industry average of 18.2% in 2022. Gross margin has remained steady, achieving

46.1% in 2022, which is above the industry average of 40.5%. We have also maintained high liquidity levels and

higher levels of asset and debt ratios due to the large amount of cash from operations and paying down debt over

the past three years. We believe Andrews will continue to offer great value to the shareholders as we invest in the

future, as evident with the growth in our net profit margin and return on equity over the past several years.

Profitability Ratios 2022 2021 2020

Gross Margin 46.1% 47.4% 45.8%

Net Profit Margin 16.5% 14.0% 11.7%

Return on Assets 25.6% 19.0% 13.7%

ROE 32.8% 29.3% 25.4%

Asset and Debt Ratios 2022 2021 2020

Debt - Equity 0.28 0.54 0.86

Equity Ratio 0.78 0.65 0.54

Liquidity Ratios 2022 2021 2020

Current Ratio 5.34 4.09 2.10

Quick Ratio 5.12 3.43 1.93

Market Value Ratios 2022 2021 2020

Price - Earnings 8.91 9.14 9.76

Market to Book 14.88 12.47 10.11

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ITEM 4. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

Overview

Revenue for 2022 grew 4.1% from 2021, largely due to unit sales increasing by 5.9% to 9.8 million units. Revenue

from our Acre product in the low end segment fell 10% due to competitive pricing strategies, but was offset by

growth in our products in the high end and performance segments by 18.0% and 14.2% respectively.

In response to the current business environment and to better utilize resources, management approved several

restructuring actions including reducing capacity in several products.

The cash generation from our business remained strong with cash from operations of $55.9 million. Due to excess

cash, we repaid $27.0 million in debt and our board of directors declared a $15.00 dividend to shareholders.

Looking ahead to 2023 we expect revenues to grow 10% and gross margin to remain flat. We will continue to

invest in TQM strategies that will reduce labor & material costs to improve margins in the long-term.

Dollars in Thousands Ex cept P er Share A mounts 2022 2021 Change

Revenue 260,919$ 250,747$ 10,172$

Gross margin 120,174 118,870 1,304

Gross margin percentage 46.1% 47.4% (1.3%)

O perating income 70,527 65,359 5,168

Net income available to shareholders 43,106$ 35,200$ 7,906$

Earnings per common share 20.31$ 16.59$ 3.73$

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Results of Operations

Certain consolidated statements of income data as a percentage of revenue for each period were as follows:

Our overall revenue for 2022 increased by $10.2 million, or 4.1%, compared to 2021. Unit sales increased by 5.9%

to 9.8 million units sold. Revenue from our Acre product in the low end segment fell 10% due to competitive pricing

strategies, but was offset by growth in our products in the high end and performance segments by 18.5% and

16.9% respectively.

Our overall gross margin dollars for 2022 increased by $1.3 million, or 1.1%, compared to 2021. The increase was

due to the increase in revenue from more units being sold. To a lesser extent, investments in TQM have

contributed to reduced labor and material costs.

Our overall gross margin percentage decreased to 46.1% in 2022 from 47.4% in 2021. The decrease was primarily

due to the gross margin percentage decrease in our Acre product, where we lowered our price 11% to remain

competitive in the low-end segment.

Dollars in Thousands Except Per Share Amounts Dollars

% of

Revenue Dollars

% of

Revenue Dollars

% of

Revenue

Revenue 260,919$ 100.0% 250,747$ 100.0% 260,489$ 100.0%

Cost of sales 140,745 53.9% 131,877 52.6% 141,221 54.2%

Gross margin 120,174 46.1% 118,870 47.4% 119,268 45.8%

Research and development 5,831 2.2% 5,636 2.2% 6,309 2.4%

Sales and Marketing 25,800 9.9% 26,800 10.7% 29,800 11.4%

General and administrative 1,682 0.6% 2,382 0.9% 2,693 1.0%

Depreciation 16,333 6.3% 18,693 7.5% 18,507 7.1%

Operating expenses 49,647 19.0% 53,511 21.3% 57,309 22.0%

Operating income 70,527 27.0% 65,359 26.1% 61,959 23.8%

Interest and other, net 2,719 1.0% 9,988 4.0% 14,049 5.4%

Income before taxes 67,809 26.0% 55,372 22.1% 47,910 18.4%

Provision for taxes 23,733 9.1% 19,380 7.7% 16,768 6.4%

Net income before profit sharing 44,076 16.9% 35,992 14.4% 31,142 12.0%

Profit sharing 970 0.4% 792 0.3% 654 0.3%

Net income available to shareholders 43,106$ 16.5% 35,200$ 14.0% 30,488$ 11.7%


2022 2021 2020

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Performance Segment

The revenue and operating income for each product of the Performance segment for each period were as follows:

Aft

Alpha

The performance segment, which included both the Aft and Alpha products, consistently produced the lowest

margin of all segments due to higher material costs. Revenue and operating income were both below average

compared to all other segments. For the segment, revenue in 2022 grew $6.0 million or 14.2% compared to 2021.

Both Aft and Alpha had similar growth rates, with Alpha growing to $23.7 million in 2022 compared to $20.5 million

in 2021 and Alpha growing to $24.4 million in 2022 compared to $21.5 million in 2021. Operating income continues

to be a low performer compared to our other business segments and this can be attributed to higher material costs,

as well as similar sales and marketing spend as other segments, despite fewer unit sales. Both of our products

lead the segment in market share, but this is a small market.

Low Segment

The revenue and operating income for the Low segment for each period were as follows:

Acre

The low segment, which included the Acre product, was the second highest revenue producer in 2022 for the firm.

Acre continues to have the highest margins of all of the products we offer due to the high degree of automation.

Revenue was $47.5 million in 2022, which decreased by $5.4 million compared to 2021 due to lowering our price

to $17 in 2022, compared to $19 in 2021. We lowered our price in 2022 due to the product being not as well

positioned as our competitors’. The product is set for revision in Q2 2023.

(In Thousands) 2022 2021 2020

Revenue 23,660$ 20,496$ 21,913$

Gross margin 8,308$ 7,392$ 6,949$

Gross margin percentage 35.1% 36.1% 31.7%

Operating income 3,304$ 2,094$ 1,300$

(In Thousands) 2022 2021 2020

Revenue 24,631$ 21,542$ 21,278$

Gross margin 8,759$ 7,723$ 6,591$


Operating income 3,656$ 2,332$ 421$

(In Thousands) 2022 2021 2020

Revenue 47,523$ 52,929$ 66,573$

Gross margin 30,601$ 34,850$ 42,853$



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Traditional Segment

The revenue and operating income for each product of the Traditional segment for each period were as follows:

Able

Adam

The traditional segment, which included both the Able and Adam products, continue to be our second leading

segment for revenue. Even though Adam produced higher revenue at $40.9 million in 2022, Able has higher

margins at 53.7% due to the higher degree of automation. We plan on investing in higher automation levels for

Adam in 2023 to increase our operating income. Able had a decrease in revenue by $7.7 million compared to

2021, which is attributed to the longer R&D periods to revise the product. Able will be revised in Q1 2023 and we

expect it to produce sales similar to that of Adam in 2022 and be the industry-segment leader for the year and is

where we expect much of our expected revenue growth for 2023 to occur.

Size Segment

The revenue and operating income for the Size segment for each period were as follows:

Agape

The size segment, which included our Agape product, contributed the least to overall revenue, earning $26.7

million in 2022, a decrease of 1.9% compared to 2021. Despite the decrease in revenue, operating income

increased by $1.1 million compared to 2021 due to less sales and depreciation expense.

(In Thousands) 2022 2021 2020

Revenue 24,833$ 32,555$ 35,014$

Gross margin 13,324 16,435 17,502



(In Thousands) 2022 2021 2020

Revenue 40,962$ 34,459$ 25,441$

Gross margin 16,497$ 14,421$ 9,493$



(In Thousands) 2022 2021 2020

Revenue 26,723$ 27,238$ 31,989$

Gross margin 11,759 11,851 13,812



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High Segment

The revenue and operating income for each product of the High segment for each period were as follows:

Awsum

Aubie

The high segment, which included both the Awsum and Aubie products, continue to be industry-segment leaders,

having generated $35.4 million and $37.4 million of revenue respectively. Margin was below average for the firm

due to the higher material costs, but is competitive for the segment. The high end segment had revenues increase

by $11 .1 million, or 18% compared to 2021. This increase was due equally to both products in the segment.

Awsum and Aubie consistently performed well and generated similar results.

Operating Expenses

Research and Development. R&D spending increased by $0.2 million, or 3.5%, in 2022 compared to 2021. The

increase can be attributed to the investment in our Acre product as it has been 4 years since its last revision. We

continue to invest in all of our other products to be revised on an annual basis to meet customer demands.

Sales and Marketing. Sales and marketing spending decreased by $1.0 million, or 3.7%, in 2022 compared to

2021. The decrease can be attributed to a reduction in sales within our Acre and Agape products as the two

products had reached significant customer accessibility and it was not beneficial to continue spending at levels in

previous years.

General and Administrative. G&A spending decreased by $0.7 million, or 29.4%, in 2022 compared to 2021. The

decrease can be attributed to cost savings from investments in TQM.

(In Thousands) 2022 2021 2020

Revenue 35,412$ 30,741$ 27,173$

Gross margin 15,439$ 13,457$ 11,089$



(In Thousands) 2022 2021 2020

Revenue 37,174$ 30,787$ 31,108$

Gross margin 15,486$ 12,741$ 10,980$



Dollars in Thousands Dollars

% of

Revenue Dollars

% of

Revenue Dollars

% of

Revenue

Research and development 5,831 1.2% 5,636 2.2% 6,309 2.4%

Sales and marketing 25,800 9.8% 26,800 10.7% 29,800 11.4%

General and administrative 1,682 0.6% 2,382 0.9% 2,693 1.0%

2022 2021 2020

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Gains (Losses) on Equity Investments and Interest and Other

In response to business conditions where competitors have introduced new products in various business

segments, management approved the reduction in capacity across multiple products. Capacity was reduced for all

products except Adam and Aubie. Gain on the sale of capacity was $6.8 million.

In 2022 we invested $6.5 million in TQM, an increase of $4.3 million compared to 2021. The 188% increase in

TQM was due in large part to the effort of reducing R&D cycle time as we continue to aim for a fully automated

production process. Our goal of being fully automated across all existing products is planned for 2025.

Due to excess cash reserves, management approved to repurchase $27.9 million of long-term debt at a price of

$27 million. The buyback did earn a gain of $0.933 million as most of the bonds purchased were priced at a

discount.

Interest paid in 2022 was $3.5 million, a decrease of $6.5 million compared to 2021. The decrease was due to the

repurchase of $27.9 million of long-term bonds.

Provision for Taxes

Our provision for taxes in 2022 was $23.7 million, an increase of $4.3 million compared to 2021. The increase can

be attributed to increased net income. Our tax rate remained at 35.0%.

Liquidity and Capital Resources

As a result of repurchasing long-term debt, our debt as a percentage of stockholders’ equity has fallen to 19.8% as

of December 31, 2022, compared to 44.9% as of December 31, 2021.

Three Years Ended December 31, 2022 (In Thousands) 2022 2021 2020

Gain / (Loss) and other (800)$ 3,049$ 5,189$

Interest 3,519$ 6,939$ 8,860$

(in T housands) 2022 2021 2020

Income before taxes 67,809$ 55,372$ 47,910$

Provision for taxes 23,733$ 19,380$ 16,768$

E ffective tax rate 35.0% 35.0% 35.0%

(in T housands) Dec 31, 2022 Dec 31, 2021 Dec 31, 2020

C ash and cash equivalents 35,620$ 16,714$ 40,938$

Short-term and long-term debt 26,067$ 54,000$ 91,850$

Debt as a percentage of stockholders' equity 19.8% 44.9% 75.9%

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Cash Flows

Operating Activities

Cash provided by operating activities is net income adjusted for certain non-cash items and changes in assets and

liabilities.

For 2022 compared to 2021, the $3.1 million increase in cash provided by operating activities was largely due to

changes in working capital by $5.6 million offset by a reduction in depreciation of $2.4 million.

Changes in assets and liabilities as of December 31st 2022, compared to December 31

st 2021, can be attributed in

large part to a reduction in inventories by $4.8 million. The reductions in inventories are a result of better-than-

expected sales.

Investing Activities

Investing cash flows consist primarily of capital expenditures and the sale of investments.

The increase in cash used for investing activities in 2022 compared to 2021 was primarily due to selling capacity

across multiple products. Capacities for these products were sold for $25.2 million. The sale of these capacities

was offset by investing $3.4 million in new capacity for the Aubie product in our high end segment.

Financing Activities

Financing cash flows consist primarily of issuance and repurchases of common stock, payment of dividends to

stockholders, and issuance and repayment of long-term debt.

The increase in cash used for financing activities in 2022 compared to 2021 was primarily due to repurchasing

$14.9 million in common stock in 2021.

During the year ended December 31st 2022, we made repayments of long-term debt totaling $27.0 million. We

have paid a cash dividend in each of the past 5 years. The board of directors declared a cash dividend of $15.00

per common share for 2022, and increase from $10.00 in 2021. Total dividends paid for the year in 2022 were

$31.8 million and increase from $21.2 million in 2021.

Due to a large amount of cash provided by operating activities in each of the past three years, we have made it an

effort to repay long-term debt earlier than our contractual obligations totaling $44.9 million.

Contractual Obligations

The following table summarizes our significant contractual obligations as of December 31st, 2022:

(in T housands) 2022 2021 2020

Net cash provided by operating activities 55,920$ 52,840$ 48,435$

Net cash used for investing activities 21,820 (2,800) (18,200)

Net cash used for financing activities (58,835) (74,263) (22,872)

Net increase (decrease) in cash and cash equiv alents 18,905$ (24,223)$ 7,363$

Series Number Face Value Maturity Date Coupon Rate

13.5S2028 26,067$ 1/1/2028 13.5%

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ITEM 5. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Statements of Income 15

Consolidated Balance Sheets 16

Consolidated Statements of Cash Flows 17

Consolidated Statements of Stockholders' Equity 18

Notes to Consolidated Financial Statements 19

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15

ANDREWS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Three Years Ended December 31, 2022

(In Thousands, Except Per Share Amounts) 2022 2021 2020

Revenue 260,919$ 250,747$ 260,489$

Cost of sales 140,745 131,877 141,221

Gross margin 120,174 118,870 119,268

Margin 46.1% 47.4% 45.8%

Research and development 5,831 5,636 6,309

Sales and marketing 25,800 26,800 29,800

General and administrative 1,682 2,382 2,693

Depreciation 16,333 18,693 18,507

Operating expenses 49,647 53,511 57,309

Operating income 70,527 65,359 61,959

Gain / (loss) and other (800) 3,049 5,189

Interest 3,519 6,939 8,860

Income before taxes 67,809 55,372 47,910

Provision for taxes 23,733 19,380 16,768

Net income before profit sharing 44,076 35,992 31,142

Profit sharing 970 792 654

Net income available to shareholders 43,106$ 35,200$ 30,488$


Common shares outstanding 2,122 2,122 2,234

See accompanying notes

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ANDREWS CORPORATION

CONSOLIDATED BALANCE SHEET


(In Thousands) 2022 2021 2020

ASSETS

Current assets:

Cash and cash equivalents 35,620$ 16,714$ 40,938$

Accounts receivable, net 21,445 20,609 21,410

Inventories 2,481 7,245 5,718

Total Current Assets 59,546 44,568 68,066

Property, plant and equipment, net 109,113 140,493 156,387

Total Assets 168,659$ 185,062$ 224,452$

LIABILITIES AND EQUITY

Current Liabilities:

Accounts payable 11,152$ 10,893$ 11,536$

Current debt maturing in 12 months - - 5,000

Current portion of long-term debt - - 15,850

Total current liabilities 11,152 10,893 32,386

Long term debt less current portion 26,067 54,000 71,000

Total Liabilities 37,219 64,893 103,386

Stockholders' equity:

Common stock, 2,122 shares outstanding 25,821 25,821 29,438

Retained earnings 105,619 94,348 91,629

Total stockholders' equity 131,440 120,169 121,067

Total Liabilities and Equity 168,659$ 185,062$ 224,452$


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ANDREWS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS


(In Thousands) 2022 2021 2020

Cash flows provided by (used for) operating activities:

Net Income 43,106$ 35,200$ 30,488$

Adjustments to reconcile net income to net cash provided

by operating activities:

Depreciation 16,333 18,693 18,507

(Gains) losses on sales of assets / writeoffs (7,705) 316 -

Changes in assets and liabilities:

Accounts receivable (836) 801 632

Inventories 4,764 (1,527) 183

Accounts payable 259 (643) (1,374)

Total adjustments 12,815 17,640 17,947

Net cash provided by operating activities 55,920 52,840 48,435

Cash flows provided by (used for) investing activities:

Additions to property, plant and equipment (3,400) (2,800) (18,200)

Cash from proceeds for disposal of assets 25,220 - -

Net cash used for investing activities 21,820 (2,800) (18,200)

Cash flows provided by (used for) financing activities:

Increase (decrease) in short-term debt, net - - 15,850

Repayment of debt (27,000) (38,166) (20,850)

Repurchase of common stock - (14,874) -

Payment of dividends to stockholders (31,835) (21,223) (17,872)

Net cash used for financing activities (58,835) (74,263) (22,872)

Net increase (decrease) in cash and cash equivalents 18,905 (24,223) 7,363

Cash and cash equivalents at beginning of year 16,714 40,938 33,575

Cash and cash equivalents at end of year 35,620$ 16,714$ 40,938$


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18

ANDREWS CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


(In Thousands, Except Per Share Amounts)

Number of

shares Amount

Retained

Earnings

Balance as of December 31, 2019 2,234 29,438$ 79,014$

Components of comprehensive income, net of tax:

Net income - - 30,488

Cash dividends declared ($8.00 per common share) - - (17,872)

Balance as of December 31, 2020 2,234 29,438 91,629


Net income 35,200

Repurchase of common stock (112) (3,617) (11,257)


Balance as of December 31, 2021 2,122 25,821 94,348


Net income - - 43,106


Balance as of December 31, 2022 2,122 25,821$ 105,619$


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ANDREWS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

Our fiscal calendar is based on the calendar year of January 1 to December 31.

Note 2: Accounting Policies

The preparation of consolidated financial statements are in conformity with U.S. generally accepted accounting

principles.

Note 3: Property Plant and Equipment

We compute depreciation for financial reporting purposes using the straight-line method. Substantially all of our

depreciable property, plant and equipment assets are depreciated over the estimated useful life of 15 years.

Note 4: Borrowings

Our long-term debt at the end of each period was as follows:

In 2015 we began issuing bonds with 10 years to maturity. Over the past three years we have begun repurchasing

those bonds. In 2021 we repurchased $17 million and in 2022 we repurchased an additional $27.9 million, leaving

$26.1 million of long-term debt remaining.

(In Thousands) Dec 31, 2022 Dec 31, 2021 Dec 31, 2020

Property, plant and equipment, gross 245,000$ 280,400$ 277,600$

Property, plant and equipment, accumulated depreciation (135,887) (139,907) (121,213)

Property, plant and equipment, net 109,113$ 140,493$ 156,387$

(In Thousands) Dec 31, 2022 Dec 31, 2021 Dec 31, 2020

2015 Senior notes due 2025 at 11.3% -$ -$ 17,000$

2016 Senior notes due 2026 at 12.2% - 27,000 27,000

2018 Senior notes due 2028 at 13.5% 26,067 27,000 27,000

Total long-term debt 26,067$ 54,000$ 71,000$

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Note 5: Operating Segments

Our net revenue and operating income by operating segment is provided below:

Note 6: Gains (Losses) on Equity Investments, Net

In 2022 we repurchase $27.9 million of long-term debt at a price of $27 million. Below is the breakdown of the

bonds we repurchased:

As a result of selling capacity, we also incurred a gain from those sales. The gain on those sales was $6.8 million.

(In Thousands) 2022 2021 2020

Net revenue:

High End Segment 72,586$ 61,528$ 58,281$

Low End Segment 47,523 52,929 66,573

Traditional Segment 65,796 67,014 60,455

Performance Segment 48,291 42,038 43,191

Size Segment 26,723 27,238 31,989

Total net revenue 260,919$ 250,747$ 260,489$

Operating income (loss):

High End Segment 19,693$ 14,512$ 9,270$

Low End Segment 21,102 24,734 32,551

Traditional Segment 17,129 17,152 12,031

Performance Segment 6,960 4,426 1,721

Size Segment 5,643 4,535 6,386

Total operating income 70,527$ 65,359$ 61,959$

(in Thousands)

Series Number Face Value Purchase Price Gain / (Loss)

12.2S2026 27,000$ 26,055$ 945$

13.5S2028 933$ 945$ (12)$

27,933$ 27,000$ 933$

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ITEM 6. OUTLOOK

Over the past several years, Andrews is in a position where we can make any and all investments we would like

without financial restrictions and we are able to do this because we have substantial cash generated from

operations year over year. We generated this cash by investing early on in automation to reduce labor costs and

drive higher margins. For the future we will use the company’s cash from operations to expand and should not

need to generate cash from taking on additional debt or issuing new stock. This will in turn offset the future price

decreases that are expected in the market to keep margins as high as they are.

Andrews has a two-pronged approach to future innovation and growth. The first includes immediate investment in

a new product in both the low and size segments. This will expand Andrew’s market share in these two product

segments and increase revenues. The second includes a continuation of yearly revisions in the high end segments

(high-end, performance, and size). To stay on the cutting-edge of technology and anticipate consumer needs,

annual revisions are needed in the size, high-end, and performance segments. Because we are highly automated,

the R&D cycle was taking longer and longer for new revisions to come online. In order to shorten that cycle we will

invest in TQM strategies to shorten that R&D cycle time. By investing in TQM, we can also keep investing in

automation as we plan to become fully automated across all products by 2025. These investments will ensure

future high margins and offset the annual decrease in prices.

Due to our focus on innovation, as well as our product strategy above, we estimate revenue growth in 2023 of

10%, while gross margin is expected to remain flat. Overall earnings per share will continue to increase; however,

it will be less than previous years as we forecast a 3-4% increase to an estimated $21.00 per share. We look

forward to becoming the market leader in the size segment and maintaining that position in the high end and

performance segments next year. We are able to make such bold predictions due to strong cash investments, high

margins, and new products coming on board in 2023.

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22

PART III

ITEM 7. LESSONS LEARNED

Over the course of this simulation the Andrews team learned many valuable lessons which will be discussed in the

following paragraphs. One of the primary goals for our team in this simulation was to learn how business strategy

affects actual results, and how adjusting our strategy affected actual results, which we believe, was fully

accomplished in the Capstone Simulation.

In one of our first group meetings, we brainstormed what type of strategy approach to the simulation we should

take. After a lengthy discussion, we were all in agreement that the differentiation strategy seemed like the most

appealing for our team. Ultimately, we wanted to create a business and product that would allow us to become the

market share leader in the industry and appeal to every market segment at the same time. We discussed and

attempted different combinations in the simulation to attempt just that.

Our first go at the “test” rounds proved we needed to alter our attempts made towards our goals because we

ended up with an emergency loan, most importantly focusing on our forecasting techniques and monitoring our

competitors’ actions. After a few alterations to spending and automation, we developed a valuable combination of

automation, sales and marketing, and product innovation. We had to apply the foundation of a differentiation

strategy and put it into “play” within the game. In order to do this, we had to create unique products for each

segment, and take into account our customer requirements at the same time. What was important to the customer

was important in our decisions when making adjustments in research and development. Furthermore, we created

an aggressive and extensive sales and marketing strategy. To accomplish the goal of maximizing shareholder

wealth, we set out to dominate market share, by increasing our sales and marketing campaigns. Because we were

creating products in each segment that met and sometimes exceeded customer demands, with the extensive sales

and marketing campaign, it was a perfect combination.

Keeping products innovative and maintaining an aggressive marketing and sales strategy is, however, expensive.

As a result, we decided early on that we must cut costs for this strategy to work in the long run. To do this, our

team had to determine where cost savings could occur, and we ultimately decided automation was a key

determinant to that success. By automating our products early, we learned our manufacturing costs remained

significantly low in the long-run allowing our differentiation and aggressive sales and marketing strategy to grow.

While this required taking on a large amount of debt in the early rounds, it paid off as our combination of attaining a

large market share with high margins lead us to become a “cash cow.”

It was interesting to see how to implement a differentiation strategy, but more importantly I think it was important

for all members of the team to stick to our strategy despite low returns in the early rounds. Some members of our

team were getting anxious because of the heavy investment early on and being a highly leverage firm with

extremely low returns. Once round three came and our stock price began to climb and the returns increased

significantly, the team was much more at ease and happy to have not abandoned our strategy.

Lastly, one of the most valuable lessons that from this specific project was learning to work in a group of diverse

individuals across geographic regions and bring sometimes differing ideas together to ultimately accomplish

outstanding results we can all be proud of. We believe we have accomplished this goal above and beyond our

initial expectations. It is not always easy, but it is worth it in the end. We sincerely appreciate this opportunity to

work together, especially with geographic distance as a barrier as is a realistic preparation for the real-world.

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23

ITEM 8. EXECUTIVE OFFICERS

Executive Officers of the Registrant

The following sets forth certain information with regard to our executive officers as of February 17, 2023:

Paul Crane

Chief Executive Officer

Sarah Breon

President

Missy Miller

Executive VP, GM, Technology and Manufacturing Group

Scott Barker

Executive VP, Sales & Marketing

Dylan Davison

Executive VP, Chief Financial Officer

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