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Form 10-K

Commission file number 1-6016

Allen Telecom Inc.

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

      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, and (2) has been subject to such filing requirements for the past 90 days:     Yes þ          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 to this Form 10-K.     [X]

      Indicate by check mark whether registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).      Yes þ          No

      As of March 6, 2003, there were 30,684,976 shares of the Registrant’s Common Stock outstanding. The aggregate market value of the Registrant’s Common Stock outstanding on June 30, 2002, based upon the last sale price of the Registrant’s Common Stock on the Dow Jones Composite on June 30, 2002 of $4.20, of the Registrant’s Common Stock held by nonaffiliates of the Registrant was $128,059,738.80.

Exhibit Index is on pages i to viii of this Report.

DOCUMENTS INCORPORATED BY REFERENCE

None.

ALLEN TELECOM INC.

Table of Contents

FORM 10-K

      Allen Telecom, Antenna Specialists, Comsearch, Decibel, Extend-a-Cell, FOREM, GEOMETRIX, Grayson Wireless, MIKOM, On-Glass, Tekmar Sistemi and Telia are our trademarks, registered trademarks, service marks or registered service marks in the U.S. or other jurisdictions that are mentioned in this document. All other trademarks, servicemarks or trade names referred to in this document are the property of their respective owners.

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ALLEN TELECOM INC.

FORM 10-K

Overview

      We are a leading global provider of wireless infrastructure equipment and services to many of the world’s largest wireless communications carriers, or carriers, and original equipment manufacturers, or OEMs. Our business is aligned around the five product lines highlighted below:

	•	Base Station Subsystems and Components, including filters, duplexers, combiners, amplifiers and microwave radios;
	•	Repeaters and In-Building Coverage Products, including off-air repeaters, optical repeaters, low power distributed indoor antenna solutions, tower mounted amplifiers and bi-directional boosters;
	•	Base Station and Mobile Antennas, including panel, omni-directional, glass-mounted and point-to-point antennas;
	•	Geolocation Products, including our GEOMETRIX wireless 911 caller location system; and
	•	Wireless Engineering and Consulting Services, including frequency planning for microwave and other wireless networks, system design and analysis and cell site field engineering.

      Our products and services are integral to mobile wireless communications networks and offer our customers the ability to build networks that enhance network capacity, coverage and performance. Our products and services are designed for use in current wireless networks as well as next-generation wireless networks. As a leading global provider of wireless infrastructure equipment and services, we expect that demand for our products and services will continue to be driven by the continuing investment by carriers in their wireless networks in order to expand coverage and capacity and improve performance. We believe that the catalysts for future carrier investment include continued growth in wireless subscribers, increased minutes of use, or MOUs, and expanded usage of wireless devices for data services. We believe that our broad suite of products, as well as our experience, reputation and customer relationships, position us to benefit from the build out of next-generation networks such as 2.5G and 3G.

      Carriers are currently in the process of determining their migration paths to the next-generation networks. 2.5G is an intermediary, higher data capacity solution while 3G is the next major technological evolution of wireless networks that is expected to provide even greater capacity to carriers’ networks and allow carriers to provide new features and services. By offering an enhanced set of products and services to their end-user customers, carriers believe that they will be able to generate additional average revenue per user. 3G infrastructure equipment has begun to be deployed on a limited basis for networks primarily in parts of Europe and Asia. This deployment will require new infrastructure equipment and therefore is expected to create new product opportunities for us. We have developed and, in certain cases, have already shipped 3G compatible products, including filters, duplexers, combiners, base station antennas, power amplifiers, tower mounted amplifiers, repeaters and test equipment. We also have developed a network-based geolocation solution that enables carriers to determine the location of callers. Our network-based geolocation solution is being deployed or evaluated by a number of carriers in the U.S. that must comply with Federal Communications Commission, or FCC, regulations requiring them to provide caller location information for wireless 911 calls. We currently have orders from nine customers and have installed geolocation systems in 58 markets in 25 states. We expect our geolocation business to continue to meaningfully contribute to our overall financial performance in the future as carriers are required to build out their location-based capabilities.

      We market our products and services to many of the world’s largest OEMs, including Alcatel SA, Lucent Technologies Inc., Motorola, Inc., Nokia Corporation, Nortel Networks Corporation and

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Recent Developments

      On February 18, 2003, we announced the signing of a definitive agreement under which Andrew Corporation will acquire Allen Telecom in a stock for stock transaction. Allen Telecom shareholders will receive 1.775 shares of newly-issued Andrew stock for each Allen share they own. Completion of the transaction, which is expected to occur in the first half of 2003, is subject to approval of shareholders of both companies, expiration of the applicable waiting period under the Hart-Scott-Rodino Act and other customary closing conditions.

Industry Dynamics

      2002 continued to be a difficult market for end users of our equipment with global carriers facing slowing subscriber growth rates, greater price competition, less access to capital and the need to carefully manage their cash flow and profitability. In response to these challenges, carriers are reducing their capital spending and appear to be refocusing on projects that can most directly contribute to their revenues. The near term prospects point to continued difficulties as 3G network deployments are not expected to have a significant impact on the level of capital spending of carriers until 2004. Carriers are expected to decrease capital spending again in 2003, as evidenced by an independent study by Morgan Stanley in January 2003 which indicates that wireless spending will decrease 2% in 2003 from 2002 levels. Over the longer term, we anticipate capital investment growth to resume at an increased level due to a number of factors, including a growing number of telecommunication subscribers, increasing MOUs, and a growing demand for new services and features, such as mobile messaging, Internet access and other data services that require additional network capacity and capabilities.

      To further enhance capacity and performance of wireless networks, wireless technology has evolved from first generation analog technology, or 1G, in the early 1980s to second-generation digital voice and data technologies, or 2G, which was introduced in most networks in the early and mid-1990s. These digital systems provide improved network capacity and signal quality and remain the current standard for most wireless networks. While the build out of 2G networks continues, an increasing demand for additional data capacity and transmission speeds that permit wireless transmission of integrated voice, data, Internet and video traffic has caused OEMs and carriers to begin to develop new equipment and networks based on advanced technologies, such as 2.5G and 3G.

      2.5G technology enabled carriers to upgrade their existing 2G networks with certain software and hardware enhancements. These upgrades often require significant investments in software and equipment, but generally do not require the comprehensive new infrastructure equipment investment required for 3G networks. In addition, while these upgraded networks provide improvements in capacity, coverage and performance, they have significantly less bandwidth capacity and transmission speeds than 3G networks are expected to provide.

     Deployment of 3G Technology

      In order to address these future network requirements, many carriers are expected to ultimately spend a considerable amount of capital upgrading their mobile networks to 3G, or third generation, technologies. These technologies provide a number of advantages over current mobile network technologies, including the ability to deliver voice, data and multimedia services, provide incremental network capacity and improve operating efficiencies. 3G is expected to provide high capacity broadband wireless data services at

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      Some major carriers in Europe and Asia began a limited initial build out of the first 3G networks in 2001 and 2002. Regulatory agencies in most European countries, Japan and Korea have already licensed 3G frequencies, with carriers spending over $100 billion for these licenses to date. In the U.S., the FCC is expected to award licenses for 3G frequencies in the next several years, which we anticipate will be followed by an extensive 3G infrastructure build out. As a result, predominantly all of the current demand for 3G infrastructure equipment is driven by the rollout of 3G networks in Europe and Asia. Some carriers in Europe have delayed rollout of 3G networks and OEMs are offering little guidance into the visibility of 3G spending in 2003.

      The deployment of new networks incorporating 3G technology will require the timely development, manufacture and installation of new or advanced infrastructure equipment, including power amplifiers, base stations, subsystems, antennas and repeaters that are specifically designed for the newly licensed frequencies. In most cases, that equipment will need to be specifically tailored to the newly licensed frequencies and comply with the more stringent design specifications. As a result, many wireless OEMs are currently working with qualified vendors to design and manufacture new systems and components for 3G networks. For example, wider bandwidth channels and greater data transmissions will require next generation, multi-channel power amplifiers that are highly linear and compatible with the new 3G frequencies. In addition, we believe that many OEMs are outsourcing more of their needs for certain wireless communications equipment, such as next generation power amplifiers, which, prior to 3G, were primarily manufactured in-house by OEMs. For these reasons, we believe that the build out of new 3G networks will create substantial new product opportunities for some qualified vendors which, in the case of next generation power amplifiers, we estimate to be in the $1.0 to $2.0 billion range annually.

      The deployment of 3G networks will also require a greater number of base stations per coverage area because of increased propagation losses at the higher frequencies and the need for greater accuracy of data transmissions. As a result, despite the increased efficiency of base station technology, we believe the number of base stations required to support 3G will likely increase by two to four times the 1G equivalent for the same coverage area. We believe we are well positioned to capitalize on the 3G spending cycle when it does materialize.

     Wireless Geolocation Markets

      In 1996, we identified the wireless geolocation market as one with significant potential and have invested more than $20 million in developing products and services to fulfill the needs of wireless carriers in the U.S. as they comply with the FCC regulations. As new wireless technologies advance in capability and the number of subscribers grows, increased governmental focus in the U.S. is being placed on identifying the locations of wireless 911 callers to the local police or fire departments. Emergency calls from wireless phones exceeded 56.8 million nationwide in 2001, an 11% increase over 2000. The FCC has established deployment schedules for almost all carriers.

      Equipment suppliers and carriers have been developing a variety of network-based and handset-based solutions to provide enhanced 911, or E 911, geolocation capabilities. Our network-based GEOMETRIX product is capable of meeting the requirements established by the FCC and meeting the needs of mobile carriers, putting us in a favorable position to capitalize on the growth of E 911 network spending. This capability is expected to lead to multiple product application opportunities for telecommunications equipment manufacturers. Opportunities include ancillary services such as fleet management, concierge services, mobile commerce and wireless information directories.

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Key Acquisitions

      We focus our acquisition efforts on companies with strong engineering and technical capabilities, proven management teams, superior products and strong customer relationships. Our acquisitions have been an important element in strengthening our management team, growing our business, extending our international presence and expanding our product and service offerings and technological expertise. Since 1990, we have acquired a number of companies, including the following key companies:

Products and Services

      Our products and services consist of five product lines: (i) Base Station Subsystems and Components; (ii) Repeaters and In-Building Coverage Products; (iii) Base Station and Mobile Antennas; (iv) Geolocation Products; and (v) Wireless Engineering and Consulting Services. We provide our products and services on a global basis to many of the world’s largest OEMs and carriers. We expect our business to benefit from the need for expanded coverage, greater capacity and improved performance of existing and emerging wireless networks.

     Base Station Subsystems and Components

      We are one of the largest suppliers of base station subsystems and components, supplying many different customized subsystems and components that are incorporated in OEM equipment for cell site installation. Our products serve all major wireless standards and frequencies, including emerging 3G networks. Our base station subsystems and components include:

	•	Filters that ensure that incoming signals are received and outgoing signals are transmitted clearly and without interference;
	•	Duplexers that are stationed at most cell site transceivers to allow a single antenna to be used for the simultaneous transmission and reception of radio signals;
	•	Power Amplifiers that enhance the reception of weak signals or boost outgoing signals, including low noise and tower mounted amplifiers;
	•	Combiners that combine multiple radio frequencies for delivery to one antenna system;
	•	Auto-Tune Combiners that adjust automatically to changes in frequencies;
	•	Microwave Radios that are used primarily to provide, at selected frequencies, communication links between a base station and the network; and
	•	Related Products, such as equipment racks, connectors and cables.

      These products are marketed and sold primarily under the FOREM, Decibel Products and Telia names and accounted for $143.3 million, or 34.4%, and $183.0 million, or 46.3%, of our total sales in 2002 and 2001, respectively.

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      In 2001, we introduced next generation single and multi-carrier, highly-linear power amplifiers. Such products are usually located within base stations and amplify the power of the wireless transmission with minimal distortion and interference. These products are capable of processing multiple frequencies and are available for a number of mobile wireless standards, including 3G. We are currently working with two major OEMs to design their next generation power amplifier products.

     Repeaters and In-Building Coverage Products

      Our repeaters and in-building coverage products support both coverage and capacity enhancement for carriers. We provide turnkey, customized product applications for major projects throughout the world involving highway tunnels, subway and railway systems, airports, convention centers and the Australian Olympic venues. Our products include:

	•	Repeaters that expand coverage and fill coverage gaps caused by obstructions, such as mountains, tunnels and buildings, including high power and low power off-air repeaters and optical repeaters;
	•	Distributed Antenna Systems for mobile wireless communications, broadcasting, high speed data links and broadband coverage systems, including low power fiber optic and cable distributed antennas;
	•	Bi-Directional Boosters that amplify transmitted and received signals at the cell site; and
	•	Test Equipment and Analysis Software that measure and analyze radio transmission characteristics for optimization of wireless communications networks.

      These products are marketed and sold under the MIKOM, Grayson Wireless and Tekmar Sistemi names, and accounted for $94.2 million, or 22.6%, and $94.5 million, or 24.0%, of our total sales in 2002 and 2001, respectively.

     Base Station and Mobile Antennas

      We are a leading manufacturer of base station and mobile antennas serving all major wireless standards and frequencies. We manufacture a comprehensive line of base station antennas, including:

	•	Omni Antennas that broadcast signals in a full 360-degree circular pattern;
	•	Directional and Panel Antennas that concentrate signals in a particular direction, thereby increasing capacity and coverage;
	•	Sectorized Array Antennas that generate multiple beams; and
	•	Broadband Antennas that process multiple frequency bands on a single antenna.

      We continually enhance our base station antennas to optimize current 2G networks. We also have recently developed base station antennas for 3G networks, including dual band antennas that transmit and receive RF signals simultaneously for multiple frequencies in an integrated antenna. We complement our base station antennas with customer service centers that deliver base station antennas, cable and other equipment such as mounting hardware, monitors, sensors and jumpers directly to cell sites to aid in the deployment of our base station antennas. The cable is delivered using our patented dispenser with connectors and other hardware already attached, allowing easier, faster installation.

      We also provide mobile vehicular antennas that allow two-way communications, including dual band, glass-mounted and global positioning antennas. We design and develop new vehicular antennas to address changing wireless technologies and introduced a series of wireless data service antennas. In addition, we provide mobile antennas for satellite-based digital audio radio systems.

      Our base station and mobile antenna products and services are marketed under the Decibel Products and Antenna Specialists names, and accounted for $75.2 million, or 18.0%, and $88.2 million, or 22.4%, of our total sales in 2002 and 2001, respectively.

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     Geolocation Products

      We are one of two recognized suppliers of network-based geolocation systems capable of providing carriers with the equipment and software necessary to locate wireless 911 callers. Our GEOMETRIX wireless location system is based on position calculations utilizing time difference of arrival, or TDOA, and angle of arrival, or AOA, triangulation techniques. We believe our network-based GEOMETRIX product is capable of exceeding the accuracy and reliability requirements set by the FCC for E 911 networks. Our system can locate calls which transition between analog and digital sites, and calls in which the caller is a subscriber, roamer or non-subscriber. Our GEOMETRIX product can be used with all air interfaces including AMPS, TDMA, CDMA, GSM and iDEN, and requires no changes in wireless service and no modifications or replacement of existing handsets. In addition, our system was designed to accommodate a variety of location-based services, such as fleet management, concierge services, mobile commerce, wireless information directories and other location dependent services. Our geolocation products accounted for $88.7 million, or 21.3% and $7.8 million, or 2.0%, of our total sales in 2002 and 2001, respectively.

     Wireless Engineering and Consulting Services

      We are a leading provider of frequency planning and microwave coordination services as well as wireless network design and field engineering services. These services are provided to carriers to assist in determining and analyzing network coverage requirements based on area topography and demographics. Our engineering expertise in spectrum sharing, microwave interconnectivity and cell system design has enabled us to obtain orders from most major domestic carriers. Our spectrum sharing software is currently licensed and utilized by major operators and consultants to perform analysis in most domestic PCS markets, and our software for microwave interconnectivity is operational in Asia, Europe, North America and South America.

      Our wireless engineering and consulting services are marketed and provided under the Comsearch name and accounted for $15.7 million in sales, or 3.8%, and $21.1 million, or 5.3%, of our total sales in 2002 and 2001, respectively.

     Other Information

      See Note 9 of the Notes to Consolidated Financial Statements on page F-26 of this Annual Report on Form 10-K for additional financial information regarding our products or services. See also Item 7 — “Management Discussion and Analysis of Financial Conditions and Results of Operations” beginning on page 15 for additional information regarding seasonality and backlog.

Customers

      We sell our products and services to OEMs, carriers and product distributors located throughout the world. The OEM market for our products consists of a relatively small number of potential customers. The carrier market for our products, while experiencing some consolidation, is a larger and more broadly dispersed market.

      During 2002, our OEM customers accounted for 32.7% of our total sales and carriers accounted for 67.3% of our total sales. During 2002, AT&T Wireless and Siemens AG accounted for 19.5% and 10.2% of our sales, respectively. Our top ten customers for 2002 were, in alphabetical order:

      During 2002, our customers located outside the U.S. accounted for 45.4% of our total sales. We believe that, since many of our domestic customers incorporate our products into their products, many of

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Sales and Marketing

      We dedicate a specific team of experienced and knowledgeable engineering, sales and marketing professionals to market our products directly to each OEM customer and many of our carrier customers. Each dedicated team provides engineering and customer service support throughout and after the sales and development cycle of a specific product, thereby developing collaborative working relationships between our team and our customers’ management, engineering, technical, design, purchasing and production personnel. This collaboration with multiple levels of a customer’s organization, particularly during the design, qualification and early production phases, allows us to become an integral part of new product development process and a logical supplier of products for our customers.

      We market and sell our products and services worldwide to carriers primarily through our direct sales forces. We maintain sales offices in the following 20 countries: Argentina, Australia, Austria, Brazil, Canada, China, the Czech Republic, France, Germany, India, Italy, Mexico, New Zealand, Norway, Peru, Singapore, Slovakia, Switzerland, the United Kingdom and the U.S. We supplement our direct sales force with a network of manufacturers’ representatives. Our sales personnel are responsible for managing specified carrier accounts and specified products or groups of products in their sales territories. These sales personnel have the engineering and technical expertise to identify carriers’ needs and provide them with tailored solutions or off-the-shelf products.

Research and Development

      We believe that our research and development competencies are key reasons for our industry leadership position and are critical to our continued success. Because the wireless communications industry is characterized by rapidly changing technologies and evolving customer specifications and industry standards, providers of products and services to the industry must continually focus on their research and development efforts. Each of our product lines consists of highly engineered, innovative products for our customers.

      Generally, our research and development efforts are managed and focused on a product by product basis. We have 11 research and development facilities located in the Czech Republic, France, Germany, Italy and the U.S. and as of December 31, 2002 we employed approximately 340 engineers and other technical personnel who are dedicated to our research and development and other engineering efforts. Our research and development and other engineering efforts generally can be characterized as follows:

	•	we collaborate closely with many of our customers to design and build new products or modify existing products to exacting specifications required by our customers for their network systems and solutions;
	•	we design and manufacture enhancements and improvements to our existing products in response to our OEM or carrier customers’ requests or feedback; and
	•	we independently design and build new products in anticipation of changing wireless communications technologies, evolving customer specifications and industry standards, developing market opportunities or changing market dynamics.

      As a result of our collaborative relationships with our customers, we believe we are able to compete more effectively. Collaboration with our customers allows us to:

	•	reduce the costs and minimize the risks of research and development for us and our customers;
	•	reduce the costs and time associated with establishing new markets for our products;
	•	establish ready markets for our products that meet our customers’ specifications;
	•	solidify and enhance our working relationships with our customers; and
	•	share our technical expertise and experience with our customers.

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      For additional information concerning research and development expenditures, see “Research and Development Costs” in Note 1 of Notes to Consolidated Financial Statements on page F-10 in this Annual Report on Form 10-K.

Intellectual Property

      We hold over 100 patents, and have a number of patents pending, in the U.S., Canada and certain European countries. While we consider our patents to be of significant value, we believe that our technological position depends primarily on the experience, the technical competence and the creative ability of our engineering and production staff in the areas of product design and manufacturing. We also hold a number of registered trademarks to protect certain of our brand names.

      We zealously protect our patents, copyrights, trademarks, trade secrets and other proprietary information and intellectual property. Our company policies require our key employees and any third party to whom we release proprietary information to execute confidentiality agreements.

Manufacturing

      We believe that our core competencies of product design technology, engineering expertise, proprietary manufacturing processes and comprehensive testing permit us to consistently meet or exceed our customers’ quality specifications. All of our OEM and many of our carrier customers have recognized our ability to consistently meet or exceed exacting product specifications by granting us qualified vendor status, which gives us a competitive advantage over our competitors who have not achieved that status. We maintain 15 manufacturing facilities located in Australia, Brazil, China, the Czech Republic, France, Germany, Italy, Mexico and the U.S., most of which are ISO-9001 or ISO-9002 certified.

      A substantial amount of our component production is outsourced to contract manufacturers, many of whom also hold such ISO-9001 or ISO-9002 certification. Our practice of outsourcing a portion of our manufacturing needs permits us to maintain a flexible workforce and meet fluctuating customer demands and requirements.

      We generally attempt to utilize several alternative supplier sources for the raw materials, subsystems and components required for our products. For certain raw materials or components, however, we utilize a small number of suppliers and, in very few instances, a single source supplier. In these instances, we believe the risks associated with purchasing raw materials or components from a limited number of suppliers are justified by the suppliers’ commitment to us, which is consistent with our commitment to our customers, to provide lower pricing, more timely delivery and higher quality. We believe that, together with our contract manufacturers and planned manufacturing plant expansion, we have the capacity to meet the anticipated orders for our products.

Business Segments, Foreign Operations and Export Sales

      Information relating to the Company’s business segments, foreign and domestic operations and export sales is included herein on pages F-26 to F-28, “Industry Segment and Geographic Data”, in Note 9 of the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K.

      A significant portion of our business has been and will continue to be conducted in international markets. Conducting business internationally subjects us to a number of additional risks and uncertainties, including unexpected delays or changes in regulatory requirements, difficulties and costs related to complying with foreign laws, political and economic instability, adverse tax consequences and restrictions on and impediments to repatriation of our funds and our customers’ ability to make payments to us.

Competition

      The base station subsystems and components market for our products is highly competitive. In the base station subsystems and components market, we compete primarily with Allgon AB, Filtronic PLC, Radio Frequency Systems, Inc., a division of Alcatel SA, and REMEC, Inc.

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      There is an increasing number of competitors supplying products and services to carriers. Our primary competitors for our base station and mobile antenna products are Allgon AB, Andrew Corporation, EMS Technologies, Inc., Kathrein, Inc. and Radio Frequency Systems, Inc., a division of Alcatel SA. For our repeater, test and measurement equipment and in-building coverage products, our primary competitors are Agilent Technologies, Inc., Allgon AB, Kathrein, Inc. and LGC Wireless Inc. Our primary competitors for our wireless engineering and consulting services are LCC International and Wireless Facilities, Inc. In the geolocation products market, our primary competitor for our geolocation products is TruePosition, Inc. In addition, competitors for our geolocation products include a number of manufacturers who have developed or proposed handsets for the handset-based geolocation solution.

      We believe that we are currently one of the top three competitors in the markets for our base station subsystems and components, repeaters and in-building products and base station antennas, and are a leading competitor in the markets for our wireless engineering and consulting services and mobile antennas. Some of our competitors have substantially greater financial, marketing and other resources and better name recognition than we do. We believe the principal factors that allow us to compete effectively in our marketplace include:

	•	our ability to manufacture high volume, quality products in a timely manner;
	•	the strength of existing customer relationships;
	•	proximity to existing and potential customers of our sales force, product development and manufacturing facilities;
	•	low cost production and competitive pricing;
	•	our strong reputation and well-recognized brands;
	•	accountability and customer service;
	•	financial resources;
	•	management expertise; and
	•	expertise in existing and emerging technologies.

      In addition to these factors, we believe that our ability to develop and manufacture our E 911 geolocation products in-house provides us with a competitive advantage over many of our competitors.

Government Regulation

      Certain of our wireless communications products must conform to a variety of domestic, foreign and international regulatory specifications established to, among other things, maintain public safety, avoid interference among users of radio frequencies and permit interconnection of equipment. Regulatory bodies worldwide have adopted and are adopting or revising standards for wireless communications products, which standards may change from time to time. The emergence or evolution of regulations and industry standards for wireless products, through official standards committees or widespread use by operators, could require us to modify our products.

      Our business depends on the availability of radio frequencies to carriers for use in the operation of two-way wireless communications systems. Radio frequencies are subject to extensive regulation under the laws of the United States, foreign laws and international treaties. Each country has different regulations and regulatory processes for wireless communications equipment and uses of radio frequencies. The regulatory environment in which our customers operate is subject to significant change, the results and timing of which are uncertain. The process of establishing new regulations for wireless frequencies and allocating such frequencies to carriers is complex and lengthy. For example, in many countries, including the U.S., it may take years before 3G wireless communications will be available to the public because of the need to: (i) determine what frequencies to use for the service; (ii) clear the necessary spectrum of its current users, if necessary; (iii) establish regulations for this new wireless service; (iv) auction the spectrum or otherwise determine the frequency licensees; and (v) build out the necessary infrastructure. Our customers and potential customers may not be able to obtain spectrum licenses for their planned uses

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      Unlike calls placed from landline telephones in the U.S., calls for emergency assistance from wireless phones are not currently traceable to specific locations. In response to this public safety issue, the FCC issued a series of orders requiring that carriers implement a system to locate callers as early as October 2001. The rules specify that network-based solutions must cover either one-half of such carrier’s coverage area or one-half of such carrier’s subscribers commencing the later of October 1, 2001 or six months after the local public safety answering point has requested the service, and the entire coverage area or all subscribers by October 1, 2002 or within 18 months of a request by a local public safety answering point, whichever is later. Carriers choosing handset-based systems must begin marketing handsets commencing October 1, 2001 and may activate only handsets that are geolocation-capable after December 31, 2002. Handset-electing carriers will further be required to have reached 95% penetration of all handsets with geolocation capability by December 31, 2005. Carriers must choose between satisfying the FCC’s requirements under a handset-based approach or a network-based approach or petition the FCC for a waiver allowing an extension of the implementation deadline for a hybrid or different approach. We offer a network-based system for locating cellular phone users making 911 calls. Most carriers, however, have indicated to the FCC that they will adopt handset-based or other alternative solutions. Most carriers are seeking waivers and/or delays in the FCC’s implementation of these requirements and the FCC has granted a waiver to one carrier allowing a hybrid approach and delaying such carrier’s implementation requirements. Our sales of this product will be affected by any changes in the FCC’s E 911 rollout or other requirements, by the decisions of carriers to use network-based, handset-based or other E 911 systems and the timing of requests made by local public safety answering points.

Employees

      As of December 31, 2002, we had approximately 2,300 employees. We believe our future success will depend on our continued ability to attract, retain, integrate and motivate qualified personnel. None of our employees is represented by a labor union and we have not experienced any work stoppage in any of our existing businesses. We place a high value on maintaining a rewarding work environment for our employees, who we believe are a key factor in our success. We consider our relationship with our employees to be good.

About Us

      Allen Telecom was founded in 1928 as Allen Electric & Equipment Company. We have repositioned our business through a series of strategic acquisitions and divestitures during the 1990s and have been known as Allen Telecom Inc. since February 1997. Our common stock was first listed on the New York Stock Exchange in September 1971.

      Our executive offices are located at 25101 Chagrin Boulevard, Beachwood, Ohio 44122-5687, and our telephone number is (216) 765-5800.

      Allen Telecom, Antenna Specialists, Comsearch, Decibel, Extend-A-Cell, FOREM, GEOMETRIX, Grayson Wireless, MIKOM, On-Glass, Tekmar Sistemi and Telia are our trademarks, registered trademarks, service marks or registered service marks in the U.S. or other jurisdictions that are mentioned in this prospectus. All other trademarks, servicemarks or trade names referred to in this prospectus are the property of their respective owners.

Available Information

      We make available free of charge on or through our internet website, www.allentele.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed and furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934

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ITEM 2 — PROPERTIES

      As of December 31, 2002, our continuing operations were conducted in 57 facilities in ten states in the United States and 20 foreign countries. Our product development, manufacturing and distribution facilities for our Wireless Communications Equipment segment occupy approximately 1.2 million square feet of which approximately 1.0 million square feet are rented under operating leases and 0.1 million square feet is operated under a sale and leaseback arrangement. Our principal manufacturing and service facilities for the Wireless Communications Equipment segment are located in Australia, Brazil, China, the Czech Republic, France, Germany, Italy, Mexico, Massachusetts, Ohio, Texas and Virginia. Our Wireless Engineering and Consulting Services segment leases approximately 67,000 square feet in Virginia.

      All machinery, plants, warehouses and office spaces are in good condition and are reasonably suited and adequate for the purposes for which they are presently used.

ITEM 3 — LEGAL PROCEEDINGS

      On December 11, 2001, a lawsuit was filed against the Company in the United States District Court for the District of Delaware by a competitor, True Position, Inc., and its subsidiary, KSI, Inc. In their original complaint, the plaintiffs alleged that the Company, through its Grayson Wireless Division, infringed three patents in connection with the Company’s GEOMETRIX wireless geolocation business. On July 16, 2002, the plaintiffs amended their complaint to include four additional patents in the lawsuit. In the Company’s answer to the original complaint, filed on January 18, 2002, and to the amended complaint, filed July 30, 2002, it has denied all of the plaintiffs’ allegations and has asserted counterclaims against the plaintiffs for infringement of one of the Company’s patents and for tortious interference with the Company’s business relationships. The Company believes that it has meritorious defenses against the claims asserted by the plaintiffs and intends to vigorously defend the lawsuit. However, the Company cannot give assurance that it will ultimately prevail in this action. Whether the Company ultimately wins or loses, litigation could be time-consuming and costly and injure its reputation. If the plaintiffs prevail in this action, the Company may be required to negotiate royalty or license agreements with respect to the patents at issue and may not be able to enter into such agreements on acceptable terms. Any limitation on the Company’s ability to provide a service or product could cause it to lose revenue-generating opportunities and require it to incur additional expenses. The Company may also be required to indemnify customers for any expenses or liabilities resulting from the claimed infringements. These potential costs and expenses, as well as the need to pay any damages awarded in favor of the plaintiffs, could adversely affect the Company’s business, financial position, results of operations or cash flow.

      We are also a party to various other legal proceedings, lawsuits and other claims arising in the ordinary course of our business involving such matters as contract disputes, product liability, casualty claims, employment practices and intellectual property infringement. We do not believe that such other litigation, if adversely determined, would have a material adverse effect on our business, financial position, results of operations or cash flow.

      For additional information see Note 6, “Commitments and Contingencies” on pages F-18 to F-20 of this Annual Report on Form 10-K.

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ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Executive Officers

      Our executive officers and their respective ages and positions are set forth below.

      Set forth below is biographical information for our executive officers listed above.

      Robert G. Paul has been our President since December 1989 and our Chief Executive Officer since February 1991 and has served as a director since March 1990. He was our Chief Operating Officer from December 1989 to February 1991, Senior Vice President — Finance from April 1987 to December 1989, Vice President — Finance from January 1987 to April 1987 and a Vice President from 1974 to January 1987. He also was President of the Antenna Specialists Company from 1978 to June 1990. Mr. Paul joined us in 1970 as an Assistant to the President and also served as Assistant Treasurer from 1970 to 1972. He was elected our Treasurer in 1972 and Vice President and Treasurer in 1974. Mr. Paul also is a Director of Rogers Corporation.

      Robert A. Youdelman joined us in 1977 as Director of Taxes and was elected Vice President — Taxation in February 1980. In December 1989, he was elected our Senior Vice President — Finance, Chief Financial Officer and Assistant Secretary and was promoted to Executive Vice President in February 1997. Mr. Youdelman is an attorney.

      Peter G. de Villiers joined us in July 1992 upon our acquisition of Alliance Telecommunications Corporation, where he served as Vice President — Marketing and Sales from March 1991 to June 1993. Mr. de Villiers served as Vice President — Strategic Planning for a subsidiary of Allen Telecom upon the merger of Alliance into the subsidiary in June 1993 until February 1997. In February 1997, he was elected Vice President.

      James L. LePorte, III joined us in 1981 as Senior Financial Analyst. In 1983, he was appointed Manager of Financial Analysis and, in 1984, was named Assistant Controller. Mr. LePorte was elected our Controller in April 1988, elected a Vice President in December 1990, and served as our Treasurer from September 1995 to February 1999. Mr. LePorte was elected Vice President — Finance in April 1999.

      Laura C. Meagher joined us in 1999 as Corporate Counsel and was elected Secretary and General Counsel in September 1999. Prior to joining us, Ms. Meagher was an attorney with the law firm of Benesch, Friedlander, Coplan & Aronoff LLP, Cleveland, Ohio, from September 1989 to August 1999.

      Roger L. Schroeder joined us in 1981 as an Internal Auditor. In 1984, he was appointed Manager of Financial Analysis. He was promoted to Director of Financial Analysis in 1988 and named Director of Financial Analysis and Insurance in 1993. Mr. Schroeder was elected Assistant Secretary in December 1992 and Assistant Treasurer in April 1997, and was promoted to Treasurer and Assistant Secretary in February 1999.

      There is no family relationship between any of our executive officers. All of our officers hold office until the first meeting of directors following the annual meeting of stockholders and until their successors have been elected and qualified.

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PART II

      Our common stock has been traded on the New York Stock Exchange since September 1971 under the symbol “ALN.” Our common stock is also listed on the Pacific Exchange. The following table sets forth, for the periods indicated, the range of high and low sales prices of our common stock as reported by the Dow Jones Composite, which includes the New York Stock Exchange, the American Stock Exchange and all regional markets.

      On March 6, 2003, there were approximately 1,524 holders of record of our common stock. For the years ended 1996 through 2002 the Company paid no cash or stock dividends on its common stock.

      The Company’s debt agreements restrict, under limited circumstances, our ability to pay cash dividends without the bank’s consent. Further, our ability to pay cash dividends may be dependent, in part, on our subsidiaries’ ability to make cash dividends and other payments to us.

      For additional information see the last paragraph of Note 2, “Financing,” on Page F-13 and Note 10 on Page F-28 of this Annual Report on Form 10-K.

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ITEM 6 — SELECTED CONSOLIDATED FINANCIAL DATA

     The information required by this item is included in the Five Year Summary of Operations set forth below.

FIVE YEAR SUMMARY OF OPERATIONS

(a)	For information concerning the effect of the change in accounting for goodwill see “Goodwill and Other Intangible Assets” in Note 1 of the Notes to Consolidated Financial Statements on Page F-9 of this Annual Report on Form 10-K.

     The Company neither declared nor paid any cash dividends on its common shares during the period 1998 through 2002. See also “Critical Accounting Policies” and “Contingency” as set forth in Item 7 — Managements Discussion and Analysis of Financial Condition and Results of Operations on Pages 22 and 27, respectively, of this Annual Report on Form 10-K.

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      The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto beginning on page F-1 of this Annual Report.

Overview

      We design, manufacture and market wireless communications infrastructure equipment and provide wireless engineering and consulting services for the global wireless communications markets. Our products and services improve the capacity, coverage and performance of wireless networks, including emerging 3G networks. As part of our commitment to our customers’ evolving needs, we have also developed new products for E 911 geolocation and other emerging wireless equipment markets such as next generation power amplifiers. Our products and services serve all major wireless standards and frequencies.

      We were founded in 1928 as Allen Electric & Equipment Company and have been listed on the New York Stock Exchange since September 1971. We repositioned our business through a series of strategic acquisitions and divestitures during the 1990s and have been known as Allen Telecom Inc. since February 1997.

      Sales. Our sales are derived primarily from wireless infrastructure equipment and engineering services provided to wireless communications original equipment manufacturers, or OEMs, and carriers. We make the majority of our communications equipment sales pursuant to orders received under master purchase agreements or specific purchase contracts, and our wireless engineering services are typically provided on the basis of time and materials or specific service contracts.

      We derive a significant portion of our sales from some of the world’s largest carriers and OEMs. Our top 10 customers accounted for 55.2%, 55.2% and 65.0% of total sales in 2000, 2001 and 2002, respectively. AT&T Wireless and Siemens AG, our largest customers in 2002, accounted for 19.5% and 10.2% of sales, respectively. Siemens AG, our largest customer in 2001, accounted for 10.2% of total sales in 2001 and in 2000, Nortel Networks Corporation accounted for 15.2% of total sales. These were the only customers to account for more than 10% of sales in 2002, 2001 and 2000.

      We manufacture, distribute and market our products to the following geographic regions: Asia, Australia, Europe, Latin America and North America. International sales constituted approximately 58.5%, 60.8% and 45.4% of total sales in 2000, 2001 and 2002, respectively. The decrease in the percentage of international sales in 2002 was due to the increase in sales of geolocation products, which are installed only in U.S. networks. During 2003, we expect international sales, as a percentage of total sales, to decline compared with 2002, due to higher geolocation product sales in the U.S. Export sales from the U.S. are primarily to major carriers and are typically payable in U.S. dollars. European-based sales are to major OEMs and carriers, and are typically denominated in Euros. As a result of our international position, we are subject to foreign currency translation fluctuations that impact the amount of sales we report in U.S. dollars for financial reporting purposes. Other than these translation effects, we do not believe that such currency fluctuations have significantly impacted our competitive position or our sales to domestic or international customers for either our U.S. or international operations.

      Our annual revenue growth in the past few years has been largely dependent upon the overall growth rate of wireless telecommunications infrastructure equipment spending, which includes spending by both OEMs, principally for our base station subsystems and components product line, and carriers for our other product lines. An independent study by Morgan Stanley in January 2003 indicates that wireless telecommunications equipment spending is expected to decrease 2% in 2003 from 2002 levels. This projected decline in the level of wireless infrastructure equipment spending may not be representative of our results in 2003, as sales of our geolocation products are probably more dependent on FCC regulations and requirements than the market constraints placed on capital budgets. We cannot be certain that our

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      Our historical sales have reflected seasonal fluctuations due to the effect of less infrastructure build out and product installations in the winter months, primarily as a result of the impact of inclement weather conditions in the large northern hemisphere markets of Europe and North America.

      We report our sales in two segments, Wireless Communications Equipment and Wireless Engineering and Consulting Services. Our Wireless Communications Equipment segment consists of four product lines. The following table sets forth our sales by segments and product lines:

      Backlog. Backlog includes all purchase orders and contracts for products and services with requested delivery dates within one year. Generally, purchase orders are subject to cancellation at the request of the customer. Cancelled orders are, in some instances, subject to cancellation or restocking charges payable to us.

      Cost of Sales. Cost of sales consists primarily of: (i) direct material costs of production components; (ii) production salaries, wages and employee benefits; (iii) fees paid to contract manufacturers; (iv) costs of our manufacturing facilities, including rent, depreciation, utilities, maintenance and insurance; and (v) indirect supervisory manufacturing salaries, wages and employee benefits.

      Selling, General and Administrative Expenses. Selling, general and administrative expenses generally include salaries, wages, commissions, employee benefits, travel and entertainment, communications, third party professional fees, bad debt expense and a portion of facility expenses related to sales and administrative activities.

      Research and Development Costs. Research and development costs relate to our engineering and technical operations and include salaries, wages, employee benefits, test equipment, test labs, third party contract research, prototype expenses and related facility expenses. Over the last three years, we have invested a significant portion of our research and development resources in our new initiatives, including products for emerging 3G networks, multi-user distributed antenna systems and next generation power amplifiers.

      Amortization of Goodwill. As more fully described in Note 1 to the Consolidated Financial Statements, effective January 1, 2002, we implemented the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”. This statement changed the accounting for goodwill from an amortization method to an impairment only approach; accordingly, we have ceased amortizing goodwill in 2002.

      Income Taxes. We operate our business in 21 countries and accrue and pay income taxes in each of those countries in accordance with each country’s tax rates and rules.

      Earnings per Common Share. The weighted average common shares outstanding for the Basic Earnings Per Common Share computation increased in 2002 to 30,410,000 shares, as compared with

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      Reporting Matter. In order to facilitate the timely preparation of our financial statements on a consolidated basis, we historically included the results of our principal European operations on a two-month delayed basis. Effective January 1, 2001, such European operations changed their fiscal year-end from October 31 to December 31, consistent with the balance of our operations. The results of operations (net income of $2.4 million) for these European operations for November and December 2000 were recorded directly to retained earnings in the first quarter of 2001.

Results of Operations

      The following table sets forth our consolidated results of operations as a percentage of sales for the periods shown:

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

      Sales. Sales increased to $417.0 million in 2002 from $394.6 million in 2001.

      Sales from our Wireless Communications Equipment segment increased $27.8 million, or 7.4%, to $401.3 million in 2002 from $373.5 million in 2001 due to greater demand for geolocation products, partially offset by a decline in sales of base station subsystems and components and base station and mobile antennas. Sales of repeaters and in-building coverage products were not significantly different in 2002 from 2001. Geolocation sales increased from $7.8 million in 2001 to $88.7 million in 2002. We expect first quarter 2003 geolocation sales to be consistent with strong fourth quarter 2002 levels due primarily to continued robust demand from customers for geolocation products in order to meet FCC mandates. The decrease in 2002 sales of base station subsystems and components and base station and mobile antennas products, compared with 2001, was principally attributable to a decline in base station

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      Sales from our Wireless Engineering and Consulting Services segment decreased $5.4 million, or 25.6%, to $15.7 million in 2002 from $21.1 million in 2001 primarily due to a decrease in demand in the U.S. for consulting services by fixed wireless operators.

      International sales constituted approximately 60.8% and 45.4% of total sales in 2001 and 2002, respectively. This decrease in the percentage of international sales is attributable to the increase in sales of geolocation products to U.S. carriers. Geographically, all regions, with the exception of the U.S., experienced a decrease in sales in 2002 from 2001. However, the decrease in sales in Asia was not significant due to continued strong sales in China and improved sales in Australia, which were partially offset by sales decreases in other Asian regions.

      As a result of the higher-valued Euro compared to the U.S. dollar, our reported sales, when translated into U.S. dollars, were $8.5 million higher in 2002 than they would have been had the average exchange rate remained constant from 2001 to 2002.

      Backlog. Backlog increased $17.0 million, or 13.7%, to $140.4 million at December 31, 2002 from $123.4 million at December 31, 2001 principally due to a significant increase in the backlog for our geolocation products, which increased from $48.7 million at December 31, 2001 to $87.1 million at December 31, 2002. Backlog for all other product lines declined by $21.4 million from year to year. Backlog is not significant for our Wireless Engineering and Consulting Services segment.

      Gross Profit. Gross profit increased $3.8 million to $102.1 million in 2002 from $98.3 million in 2001. Our gross profit margin decreased to 24.5% in 2002 from 24.9% in 2001. The impact of improved gross profit margins from the increase in sales of higher margin products were more than offset by a decline in gross profit margins among our other product lines due to price discounting, changes in product mix and higher inventory reserves. Restructuring charges of $1.2 million were recorded in cost of sales in 2002 compared with restructuring charges of $1.0 million recorded in 2001. For more information on restructuring costs refer to Note 12 in the Notes to Consolidated Financial Statements.

      Gross profit margins for our Wireless Communications Equipment segment decreased to 24.7% in 2002 from 24.9% in 2001. As noted above, the impact of improved gross profit margins from the increase in sales of higher margin products was offset by competitive pricing and higher inventory costs relating to our other product lines.

      Gross profit margins for our Wireless Engineering and Consulting Services segment decreased to 19.5% in 2002 from 25.6% in 2001 primarily due to decreased sales of higher margin software, and decreased utilization of our engineers for various engineering services projects.

      Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $1.6 million, or 2.8%, to $58.4 million in 2002 from $56.8 million in 2001 primarily due to higher compensation and commission expenses and an increase in currency exchange losses in 2002, which went from a gain of $0.3 million in 2001 to a loss of $(2.2) million in 2002.

      Selling, general and administrative expenses for our Wireless Communications Equipment segment increased $1.4 million, or 3.0%, in 2002 from 2001 due to higher compensation and commission expense, as well as higher bad debt expense. Special charges associated with restructuring actions were $1.2 million in 2002 and $1.3 million in 2001.

      Selling, general and administrative expenses for our Wireless Engineering and Consulting Services segment decreased $0.4 million, or 9.8%, in 2002 from 2001 due to restructuring actions taken in the second quarter 2002. Special charges associated with restructuring actions were $0.4 million in 2002.

      Research and Development Costs. Research and development costs remained basically unchanged at $26.0 million in 2002 and $26.1 million in 2001. Special charges associated with restructuring were

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      Net Interest Expenses. Net interest expense decreased $3.2 million, or 31.7%, to $7.0 million in 2002 from $10.2 million in 2001. The decrease in net interest expense is due primarily to lower borrowing levels, as well as lower interest rates. The decrease in debt levels was attributable to the issuance of Convertible Preferred Stock on March 20, 2002, that generated cash proceeds, net of fees and expenses, of $46.8 million which was used to pay down debt, as well as strong cash generation from operating activities. At our current borrowing rates, we estimate annualized interest savings of $2.3 million as a result of using the proceeds from the stock offering to pay down debt.

      Minority Interests. Minority interest expense remained constant at $0.1 million in both 2002 and 2001.

      Special Charges. In 2002, the company incurred pretax charges of $2.9 million, or $0.07 per basic and diluted share after related income tax effect. These costs included charges in connection with headcount reductions at several of its businesses, discontinuation of certain products, particularly relating to our base station and mobile antenna product line, and additional facility costs related to the closing of a manufacturing operation in Nevada. Of the costs, approximately $1.2 million is in cost of sales, $1.5 million is in selling, general and administrative expenses and $0.2 million is in research and development.

      In 2001, the company recognized a pretax restructuring charge of approximately $2.3 million, or $0.05 per basic and diluted share after related income tax effect, with respect to the closing and consolidation of the Company’s U.S. base station subsystems and components manufacturing facility in Nevada into the Bartley manufacturing facility in Massachusetts. Of the cost, approximately $1.0 million is in cost of sales and $1.3 million is in selling, general and administrative expenses.

      Income Taxes. Income tax expense increased by $4.9 million in 2002 to $3.8 million as compared to a tax benefit of $1.1 million in 2001. The effective tax rate decreased to 35.4% in 2002 from 39.0% in 2001. The principal reason for the lower tax rate is due to the change in accounting for goodwill amortization that was almost entirely nondeductible for income tax purposes in 2001.

      Through December 31, 2002, we have recorded a net U.S. deferred tax asset pertaining to the recognition of net operating loss carryforwards, net deductible temporary differences and tax credits in the amount of $40.2 million, down from $41.8 million at December 31, 2001. The tax effects of U.S. income of approximately $21.3 million, partially offset by additional deferred tax assets generated in 2002, caused the decrease of $1.6 million in the deferred tax asset in 2002. These tax losses generally may be carried forward for up to 20 years and expire between the years 2018 and 2021. We have not provided a valuation reserve relating to this asset, as we believe it is more likely than not that we will realize the value of this asset. This determination is based primarily upon our expectation that future U.S. operations will be sufficiently profitable (notwithstanding losses prior to 2002) to utilize the operating loss carryforwards, and various tax, business and other planning strategies available to the company. We cannot assure you that we will be able to realize this asset or that future valuation allowances will not be required. The failure to utilize this asset would adversely affect our results of operations and financial position. We provided a valuation allowance of $5,344,000 with respect to net operating losses of certain operations in Europe. See also “Critical Accounting Policies” below and Note 8 of the Notes to Consolidated Financial Statements.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

      Sales. Sales increased slightly to $394.6 million in 2001 from $392.6 million in 2000. As a result of the lower-valued Euro compared to the U.S. dollar, our reported sales, when translated into U.S. dollars, were $5.3 million lower in 2001 than they would have been had the average exchange rate remained constant from 2000 to 2001.

      Sales from our Wireless Communications Equipment segment increased $6.0 million, or 1.6%, to $373.5 million in 2001 from $367.5 million in 2000 primarily due to greater demand for repeater and in-

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      Sales from our Wireless Engineering and Consulting Services segment decreased $4.0 million, or 16.1%, to $21.1 million in 2001 from $25.1 million in 2000 primarily due to a decrease in demand in the U.S. for consulting services by fixed wireless operators. Sales in the last four months of 2001 were particularly weak, partially due to a decrease in consulting activity following the attack of September 11, 2001.

      International sales constituted approximately 58.5% and 60.8% of total sales in 2000 and 2001, respectively. This increased percent of international sales is attributable to the increase in sales of repeater products to European carriers and an increase in sales of base station antennas in China. Geographically, all regions experienced a small decrease in sales in 2001 from 2000, with the exception of Asia, which had an increase in customer sales to China.

      Backlog. Backlog increased $12.1 million, or 10.9%, to $123.4 million at December 31, 2001 from $111.3 million at December 31, 2000. Backlog for our Wireless Communications Equipment segment increased $15.7 million to $122.6 million at December 31, 2001 from $106.9 million at December 31, 2000 principally due to the acquisition of Bartley R.F. Systems, Inc. (“Bartley”) and a significant increase in the backlog for geolocation products. Backlog of all other product lines declined by $41.1 million from year to year. Backlog for our Wireless Engineering and Consulting Services segment decreased $3.5 million to $0.9 million at December 31, 2001 from $4.4 million at December 31, 2000.

      Gross Profit. Gross profit decreased $16.7 million, or 14.5%, to $98.3 million in 2001 from $114.9 million in 2000. Our gross profit margin decreased to 24.9% in 2001 from 29.3% in 2000 principally due to higher restructuring costs charged to cost of sales, increased price discounting, and changes in product mix with more sales of lower margin coverage projects, microwave radio and booster products and less sales of higher margin measurement and software products. Restructuring charges of $1.0 million were recorded in 2001 compared with restructuring charges of $0.1 million recorded in 2000. For more information on restructuring costs please refer to Note 12 in the Notes to Consolidated Financial Statements.

      Gross profit margins for our Wireless Communications Equipment segment decreased to 24.9% in 2001 from 28.5% in 2000. This decline in gross profit margin is attributable to more competitive pricing and increased sales of lower margin products, including boosters, microwave radios and coverage projects.

      Gross profit margins for our Wireless Engineering and Consulting Services segment decreased to 25.6% in 2001 from 39.0% in 2000 primarily due to decreased sales of higher margin software, and decreased utilization of our engineers for various engineering services projects.

      Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $2.5 million, or 4.6%, to $56.8 million in 2001 from $54.3 million in 2000 primarily due to higher restructuring charges in 2001 as well as an increase in pension expense (the year 2000 had a pension curtailment gain of $0.8 million).

      Selling, general and administrative expenses for our Wireless Communications Equipment segment increased $4.1 million, or 10.0%, in 2001 from 2000 due to higher restructuring costs and higher pension expense, as well as higher selling expenses in our repeaters and in building coverage product line. Special charges associated with restructuring actions were $1.3 million in 2001.

      Selling, general and administrative expenses for our Wireless Engineering and Consulting Services segment decreased $1.0 million, or 18.5%, in 2001 from 2000. As a percentage of sales, these expenses

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      Research and Development Costs. Research and development costs increased $0.7 million, or 2.5%, to $26.1 million in 2001 from $25.4 million in 2000. As a percentage of sales, these costs remained relatively constant in 2001 and 2000. Our research and development and product engineering costs in 2000 and 2001 related exclusively to our Wireless Communications Equipment segment.

      Amortization of Goodwill. Goodwill amortization increased slightly to $7.9 million in 2001 from $7.8 million in 2000.

      Net Interest Expense. Net interest expense increased $1.2 million, or 13.4%, to $10.2 million in 2001 from $9.0 million in 2000. This increase in net interest expense is primarily due to increased debt levels and lower interest income offset, in part, by lower borrowing rates. The increased debt levels were due to increased working capital needs in 2001.

      Income Taxes. Income tax expense decreased $8.6 million to a tax benefit of $1.1 million in 2001 as compared to a tax expense of $7.5 million in 2000. The effective tax rate decreased to 39.0% in 2001 from 41.0% in 2000. The principal reasons for the decrease were due to lower statutory rates at our foreign subsidiaries and an increase in income in lower tax jurisdictions.

      Minority Interests. Minority interest expense remained constant at $0.1 million in both 2001 and 2000.

      Special Charges. With respect to restructuring actions which commenced in 1999, we incurred additional charges and gains in 2000, which resulted in a $35,000 net gain, including the following: (i) a pretax charge of $1.7 million primarily related to termination costs of employees, relocation costs, asset write-offs, and other termination related benefits which were not accruable at the time of the 1999 restructuring; (ii) a non-cash pretax gain of $1.2 million with respect to a pension curtailment gain resulting from the workforce reduction; and (iii) a gain of $0.5 million in the form of an adjustment to the loss accrual for the disposal of a facility sold in January 2001. Of this $35,000 net gain, a $106,000 charge was recorded in cost of sales and a gain of $141,000 was recorded in selling, general and administrative expenses. Please refer to Note 13 of the Notes to Consolidated Financial Statements for additional information regarding special charges in 1999 and 2000.

Impact of New Accounting Pronouncements

      In June 2001, the Financial Accounting Standards Board (FASB) issued Statements of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations”, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs. The new rules apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation of a long-lived asset. SFAS No. 143 is effective for the Company beginning January 1, 2003. The Company believes the adoption of SFAS No. 143 will not, at this time, have a material impact on its consolidated financial position or results of operations.

      In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, for the disposal of a segment of a business (as previously defined in that opinion). SFAS No. 144 requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions than were included under the previous standards. The Company implemented SFAS No. 144 on January 1, 2002, as required, and the adoption

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      In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” This Statement requires that costs associated with exit or disposal activities be recognized when the costs are incurred, rather than at a date of commitment to an exit or disposal plan. The provisions of this Statement are effective for exit and disposal activities that are initiated after December 31, 2002. The Company expects to implement certain cost reductions in 2003 and expects to ultimately incur restructuring costs of approximately $1.0 million to $3.0 in 2003 pursuant to the requirements of this standard.

      In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (FIN 45), which expands previously issued accounting guidance and disclosure requirements for certain guarantees. FIN 45 requires an entity to recognize an initial liability for the fair value of an obligation assumed by issuing a guarantee. The disclosure requirements of FIN 45 are effective for the Company as of December 31, 2002, and require the disclosure of product warranties that are excluded from the initial recognition and initial measurement requirements of this Interpretation. The recognition requirements of FIN 45 are to be applied prospectively to guarantees issued after December 31, 2002. Information on product warranties is disclosed in Note 6 of the Notes to Consolidated Financial Statements. The Company believes the adoption of FIN 45 will not, at this time, have a material impact on its consolidated financial position or results of operations.

      In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition to SFAS No. 123’s fair value method of accounting for stock-based employee compensation. SFAS No. 148 does not require companies to account for employees stock options using the fair value method but does require additional footnote disclosures. The Company presents the disclosure requirements of SFAS No. 123 in Note 5 of the Notes to Consolidated Financial Statements.

Critical Accounting Policies

      We believe there are three important accounting policies, which significantly impact our results of operations and financial position. The first pertains to the recognition of a deferred tax asset with respect to net operating loss carryforwards in the United States, the second relates to our accounting for slow moving and obsolete inventory, and the third relates to goodwill.

      At December 31, 2002, we had a net operating loss carryforward in the U.S. of approximately $76.3 million (see Note 8 of the Notes to Consolidated Financial Statements) and recorded a deferred tax asset with respect to such net operating loss carryforward, together with net deductible temporary differences and tax credits, in the total amount of $40.2 million. This deferred tax asset decreased $1.6 million from $41.8 million at December 31, 2001, primarily due to $21.3 million of income earned in the U.S. on the strength of our Geolocation products business, partially offset by additional deferred tax assets and tax credits generated in 2002. We have not recorded a valuation reserve with respect to this deferred tax asset because we believe the eventual realization of the asset is more likely than not. This determination is based primarily on our expectation that future U.S. operations will be sufficiently profitable (notwithstanding losses prior to 2002) to utilize the operating loss carryforwards before they expire, and various tax, business and other planning strategies available to us. We consider this a “Critical Accounting Policy” since it is possible that future operating results could generate losses in the U.S. if sales decline, and it is possible that the various tax planning strategies available to us may be insufficient

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      Our wireless communications equipment segment is characterized by rapid technological changes, which in turn results in rapid product design changes and new product introductions. These changes result, from time to time, in inventory obsolescence and the requirement for inventory obsolescence reserves. We regularly and routinely examine the need for inventory reserves and consider both quantitative and qualitative factors such as the amount of inventory on hand as compared to historical and projected usage of inventory and an assessment of industry dynamics and customer needs. We believe this accounting estimate is a “Critical Accounting Policy” because changes in reserve provisions can materially affect the amount of our reported net income and require us to exercise a large degree of judgment in assessing the future utilization of inventory, which, at $100.5 million at December 31, 2002 represents 19% of our asset base. In recent years, the telecommunications industry has been in a severe economic downturn resulting in reduced capital expenditures by our OEM and wireless communications carrier customers which has, and may continue to have, the potential to increase the risk of product obsolescence. For example, our inventory significantly increased from $101.6 million at December 31, 2000 to $142.7 million at March 31, 2001. This increase in inventory was attributable to the significant increases planned in production based on preliminary discussions with our customers and their anticipated orders. These customers dramatically changed their outlook from early 2001, forcing us to quickly initiate plans to reduce inventory levels and mitigate the risk of obsolescence. Inventory has since declined from $142.7 million at March 31, 2001 to $100.5 million at December 31, 2002.

      The following is an analysis of the changes in inventory reserves over the past three years (amounts in millions):

      As set forth above, the impact on earnings per common share, after related income tax effects, of the amount charged to cost of sales was approximately $0.32, $0.22, and $0.16 in 2002, 2001 and 2000, respectively.

      In 2002, we completed our initial evaluation of goodwill pursuant to the impairment requirements of SFAS No. 142 — Goodwill and Other Intangible Assets. As a result, we determined that there was impairment with respect to a portion of the $32.7 million of goodwill related to the Decibel Products portion of our base station and mobile antennas product line and recorded an impairment charge of $3.4 million as a “Cumulative effect of change in accounting principle”.

      We consider this impairment test for goodwill to be a “Critical Accounting Policy”. In computing the fair value of goodwill, we primarily used a discounted present value of future cash flow technique; however, we also used a market based approach in valuing one of our reporting units because we had valid points for comparison. The discounted cash flow methodology involves the use of two key assumptions: 1) estimated future income and resulting cash flows and 2) an estimated discount rate, both of which are highly subjective and likely to change in the future. The estimated future cash flows rely upon our management’s estimate of future profitability over an extended period of time. The discount rate is based upon externally sourced information. These estimates will likely change in the future and, if such changes are adverse, could impact the recorded value of goodwill on our consolidated balance sheet. Accordingly, we may be required to record a non-cash charge to operations for goodwill impairment in the future, which would adversely affect reported earnings and, consequently, our stockholders’ equity.

      We have allocated goodwill among each of our reporting units, which includes $130.4 million allocated to our wireless communications equipment segment and $8.7 million to our wireless engineering

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      While any negative impact of these Critical Accounting Policies would generally result in non-cash charges to earnings, the severity of any charge and its impact on stockholders’ equity could adversely affect our borrowing agreements, cost of capital and ability to raise external capital. Our senior management has reviewed these Critical Accounting Policies with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed our disclosure in this management discussion and analysis.

Quarterly Results of Operations

      The following are our unaudited quarterly consolidated statements of operations for 2001 and 2002. We have prepared this unaudited information on a basis consistent with the audited consolidated financial statements and have included all adjustments, consisting only of normal recurring adjustments, that we considered necessary for a fair presentation of our financial position and operating results for the quarters presented. You should read this quarterly financial data in conjunction with the historical Condensed Consolidated Financial Statements and the related notes thereto included in our Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission. In 2002, we changed our accounting for goodwill and, in both 2001 and 2002, incurred restructuring charges that impacted the comparability of

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