UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 1995
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-6620
ANAREN MICROWAVE, INC.
(Exact name of Registrant as specified in its Charter)
New York 16-0928561
(State of incorporation) (I.R.S Employer Identification No.)
6635 Kirkville Road 13057
East Syracuse, New York (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: 315-432-8909
N/A
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by Check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
The number of shares of Registrant's Common Stock outstanding on May 5,
1995 was 3,937,342.
<PAGE>
ANAREN MICROWAVE, INC.
INDEX
PART I -- FINANCIAL INFORMATION Page No.
-------
Item 1. Financial Statement (Unaudited)
Consolidated Balance Sheets 3
April 1, 1995 and July 2, 1994
Consolidated Statements of Earnings 4
Thirteen weeks ended April 1, 1995
and March 26, 1994
Consolidated Statements of Earnings 5
Thirty-nine weeks ended April 1, 1995
and March 26, 1994
Consolidated Statements of Cash Flows - 6
Thirty-nine weeks ended April 1, 1995
and March 26, 1994
Notes to Consolidated Condensed Financial
Statements - April 1, 1995 7
Item 2. Management's Discussion and Analysis 11
of Financial Condition and Results of Operations
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
2
<PAGE>
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
April 1, 1995 and July 2, 1994
<TABLE>
<CAPTION>
Unaudited
April 1, 1995 July 2, 1994
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,177,131 $ 3,556,517
Receivables, less allowance of $13,000 4,889,853 7,060,127
Refundable Income Taxes 69,444 101,190
Inventories 8,226,902 8,724,141
Prepaid expenses 291,789 290,931
Deferred income taxes -- --
------------- -------------
Total current assets 15,655,119 19,732,906
Property, plant and equipment 27,437,203 27,129,116
Less accumulated depreciation and amortization (20,385,477) (19,086,810)
------------- -------------
Net property, plant and equipment 7,051,726 8,042,306
Other assets, net 86,255 166,309
------------- -------------
$ 22,793,100 $ 27,941,521
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 753,399 $ 1,092,858
Accounts payable 576,018 536,454
Accrued expenses 412,026 288,940
Provision for losses on contracts 1,300,837 1,570,000
------------- -------------
Total current liabilities 3,042,280 3,488,252
Postretirement Benefit Obligation 1,013,996 1,013,996
Deferred income taxes -- --
Long-term debt, less current installments 1,256,103 1,760,165
------------- -------------
Total liabilities 5,312,379 6,262,413
Stockholders' equity:
Common stock of $.01 par value. Authorized
12,000,000 shares; issued 4,829,616 shares
at April 1, 1995 and 4,824,216 shares
at July 2, 1994 48,296 48,242
Additional paid-in capital 14,989,363 14,981,992
Retained earnings 4,455,139 7,201,673
------------- -------------
19,492,798 22,231,907
Less cost of 892,274 and 399,974 shares in
treasury at April 1, 1995 and July 2, 1994 2,012,077 552,799
------------- -------------
Total stockholders' equity 17,480,721 21,679,108
------------- -------------
$ 22,793,100 $ 27,941,521
============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
<TABLE>
<CAPTION>
Unaudited
For the 13 Wks. Ended:
April 1, 1995 March 26, 1994
(Current Year) (Preceding Year)
-------------- ----------------
<S> <C> <C>
Net Sales $ 4,684,707 $ 4,334,380
Costs and expenses
Costs of sales 3,191,757 2,882,221
Marketing, including sales commissions 822,851 714,066
General and administrative 528,165 582,241
Research and development 264,742 136,994
Restructuring -- --
------------ ------------
Total costs and expenses 4,807,515 4,315,522
------------ ------------
Income (loss) from operations (122,808) 18,858
Other income 40,449 56,595
Interest expense (41,913) (63,126)
------------ ------------
Earnings (loss) before income taxes
and cumulative effect of change
in accounting principle (124,272) 12,327
Total taxes on income -- 5,000
------------ ------------
Income (loss) before cumulative
effect of change in
accounting principle (124,272) 7,327
Cumulative effect at June 27, 1993 of change
in accounting for post retirement benefits
other than pensions, net of income tax
benefit of $0 -- --
------------ ------------
Net (loss) income $ (124,272) $ 7,327
============ ============
Earnings (loss) per share
Earnings (loss) before cumulative
effect of change in accounting principles $ (.04) $ --
Cumulative effect of change in accounting
for post retirement benefits other than pensions -- --
------------ ------------
Earnings (loss) per share $ (.04) $ --
============ ============
Dividends per share $ -- $ --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statement of Earnings
<TABLE>
<CAPTION>
Unaudited
For the 39 Wks. Ended:
April 1, 1995 March 26, 1994
(Current Year) (Preceding Year)
-------------- ----------------
<S> <C> <C>
Net Sales $ 11,794,489 $ 14,175,358
Costs and expenses
Costs of sales 8,679,486 9,813,599
Provision for losses on contracts 1,050,000 --
Marketing, including sales commissions 2,314,563 2,100,365
General and administrative 1,543,332 1,720,897
Research and development 555,660 442,532
Restructuring 360,000 --
------------ ------------
Total costs and expenses 14,503,041 14,077,393
------------ ------------
Income (loss) from operations (2,708,552) 97,965
Other income 119,463 248,835
Interest expense (157,445) (206,626)
------------ ------------
Earnings (loss) before income taxes
and cumulative effect of change
in accounting principle (2,746,534) 140,174
Total taxes on income -- 55,000
------------ ------------
Income (loss) before cumulative
effect of change in
accounting principle (2,746,534) 85,174
Cumulative effect at June 27, 1993 of change
in accounting for post retirement benefits
other than pensions, net of income tax
benefit of $0 -- (994,727)
------------ ------------
Net earnings (loss) $ (2,746,534) $ (909,553)
============ ============
Earnings (loss) per share
Earnings (loss) before cumulative
effect of change in accounting principles $ (.67) $ .01
Cumulative effect of change in accounting
for post retirement benefits other than pensions -- (.22)
------------ ------------
Earnings (loss) per share $ (.67) $ (.21)
============ ============
Dividends per share $ -- $ --
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Thirty-nine Weeks Ended:
April 1, 1995 and March 26, 1994
1995 1994
---- ----
Cash Flows From Operating Activities:
Net Earnings (loss) $(2,746,534) $ (909,553)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization of
property, plant and equipment 1,298,667 1,264,488
Provision for losses on contracts (269,163) --
Amortization of intangibles 80,054 39,960
Gain on sale of equipment -- (108,427)
Cumulative effect of change in
accouting principle -- 994,727
Changes in:
Receivables 2,170,274 1,680,859
Refundable income taxes 31,746 2,140
Inventories 497,239 (840,195)
Prepaid expenses (858) (84,863)
Accounts payable 39,564 181,549
Accrued expenses 123,086 (47,494)
----------- -----------
Net cash provided by 1,224,075 2,173,191
operating activities
Cash Flows From Investing Activities:
Capital expenditures (308,087) (510,751)
Proceeds from sale of equipment -- 825,000
Other Asset Expenditures -- (69,086)
----------- -----------
Net cash provided (used in)
investing activities (308,087) 245,163
----------- -----------
Cash Flows From Financing Activities:
Principal payments on long-term debt (480,016) (441,574)
Net borrowings under revolving line
of credit and overdrafts (363,505) 256,078
Purchases of treasury stock (1,459,278) (28,465)
Proceeds from Issuance of Common Stock 7,425 19,800
----------- -----------
Net cash provided by (used in)
financing activities (2,295,374) (194,161)
Net increase (decrease) in cash
and cash equivalents (1,379,386) 2,224,193
Cash and cash equivalents at beginning of period 3,556,517 4,171,880
----------- -----------
Cash and cash equivalents at end of period $ 2,177,131 $ 6,396,073
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 138,351 $ 190,344
=========== ===========
Income taxes $ 30,013 $ 52,860
=========== ===========
See accompanying notes to consolidated financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying financial statements and notes should be read in conjunction
with the consolidated financial statements and related notes contained in the
Company's annual report for the year ended July 2, 1994.
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
April 1, 1995, and the results of operations and cash flows for the thirty-nine
weeks ended April 1, 1995 and March 26, 1994.
The income tax rate for interim statement purposes is based on estimates of
income and tax credits for the entire year.
NOTE 1: Inventories
Inventories at April 1, 1995 and July 2, 1994 are summarized
as follows:
April 1 July 2
------- ------
Raw Materials $ 3,118,502 $ 3,616,191
Work in process 5,344,233 4,234,333
Finished Goods 697,167 873,617
----------- -----------
$ 9,159,902 $ 8,724,141
Less progress payments
on contracts 933,000 --
----------- -----------
$ 8,226,902 $ 8,724,141
=========== ===========
NOTE 2: Property, Plant and Equipment
Property, plant and equipment at April 1, 1995 and July 2,
1994 are shown in the following summary:
April 1 July 2
------- ------
Land and Land improvements $ 1,362,050 $ 1,362,050
Buildings and improvements 5,091,997 5,091,997
Machinery and equipment 20,983,156 20,675,069
----------- ----------
$27,437,203 $27,129,116
=========== ===========
7
<PAGE>
NOTE 3: Long-Term Debt
Long-term debt at April 1, 1995 and July 2, 1994 is comprised of the
following:
April 1 July 2
------- ------
75% of prime rate Industrial
Development Revenue Bonds, due
in semi-annual installments
through May 1, 2000 $ 1,246,667 $ 1,360,001
Capitalized lease obligations 755,106 1,121,789
Revolving Line of Credit 7,729 371,233
----------- -----------
$ 2,009,502 $ 2,853,023
Less Current Installments 753,399 1,092,858
----------- -----------
$ 1,256,103 $ 1,760,165
=========== ===========
NOTE 4: Per Share Data
Per share data are based on a weighted average of 4,082,687
common shares issued and outstanding.
NOTE 5: Income Taxes
Effective June 27, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" on a prospective basis. The cumulative effect of the
initial adoption of Statement 109 was insignificant. Under the asset
and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates.
Pursuant to the deferred method under APB Opinion 11, which was
applied in fiscal 1993 and prior years, deferred income taxes are
recognized for income and expense items that are reported in
different years for financial reporting purposes and income tax
purposes using the tax rate applicable in the year of the
calculation. Under the deferred method, deferred taxes are not
adjusted for subsequent changes in tax rates.
8
<PAGE>
Deferring tax assets and liabilities at April 1, 1995 and July 2,
1994 are summarized as follows:
April 1 July 2
------- ------
Gross deferred tax assets $ 3,314,708 $ 2,380,908
Less valuation allowance (2,628,311) (1,694,511)
----------- -----------
Net deferred tax assets 686,397 686,397
Gross deferred tax liabilities (686,397) (686,397)
----------- -----------
Net deferred taxes $ 0 $ 0
The valuation allowance for the deferred tax assets as of April 1,
1995 and July 2, 1994 was $2,628,311 and $1,694,511, respectively.
The net change in the total valuation allowance for the nine months
ended April 1, 1995 was an increase of $933,800. In assessing the
realizability of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income
over the periods which the deferred tax assets are deductible,
management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the
existing valuation allowances at April 1, 1995.
NOTE 6: Postretirement Benefits
The Company provides medical coverage for current and future eligible
retirees of Anaren Microwave, Inc. plus their eligible dependents.
Employees generally become eligible for retiree medical coverage by
retiring from the Company on immediate pension after attaining at
least age 55 with 15 years of service. (Current active employees at
June 27, 1993 are eligible by retiring after attaining at least age
55 with 10 years of service.) Existing retirees at June 27, 1993 pay
approximately $30 per month for health care coverage and the Company
is responsible for paying the remaining costs. For this group, any
increase in health care coverage costs for retired employees will be
shared by the Company and retirees on a fifty-fifty basis, while any
increase in coverage costs for retiree dependents will be totally
paid by the retirees. For eligible new retirees (employees retiring
after June 26, 1993), the Company will contribute a fixed dollar
amount towards the cost of the medical plan. Any future cost
increases for the retiree medical program for these participants
retiring after June 26, 1993 will be charged to the retiree.
The Company adopted Statement of Financial Accounting Standards No.
106, Employers Accounting for Postretirement Benefits Other Than
Pensions (FAS 106), effective June 27, 1993. FAS 106 changed the
practice of accounting for the costs of health insurance coverage for
retired employees on a pay-as-you-go (cash) basis by requiring an
accrual for the expected future benefit expense during the period of
employment. The Company elected to immediately recognize the
Accumulated Postretirement Benefit Obligation ("APBO") of $994,727 in
9
<PAGE>
the quarter ended September 25, 1993. Net periodic postretirement
benefit expense for fiscal 1995 is expected to be approximately
$101,000, consisting of service costs of $27,000 and interest costs
of $74,000.
The components of the accumulated postretirement benefit obligation
included in the Company's balance sheet April 1, 1995 are as follows:
Amount
------
Retirees at June 26, 1993 $ 574,432
Fully eligible active employees 136,281
Other active participants 303,283
----------
Accrued Postretirement Benefit Cost $1,013,996
The discount rate used in determining the APBO was 7.5%. For
measurement purposes in determining the amount of the APBO for
retirees retired prior to June 27, 1993, a 14% annual rate of
increase in the health care cost trend rate was assumed initially
decreasing 1% per year through 1996, then decreasing 0.5% per year
from 1997 through 2005 and thereafter remaining at 5%. Because the
Company contributes a fixed dollar amount to the plan for the
"active" employee group, the medical trend rate does not affect the
calculation of the APBO or net periodic expense for this group of
plan participants.
NOTE 7: 52/53 Weeks Fiscal Year
Beginning with fiscal year 1992, the Company switched to a 52/53 week
fiscal year from the previous twelve month fiscal year. Fiscal 1995
will be 52 weeks and will end on July 1, 1995.
NOTE 8: Restructuring
In November 1994 the Company implemented a restructuring program
designed to reduce overhead costs and improve operating efficiencies.
This program included severance of employees and reorganization of
the manufacturing and engineering functions of the Company. A
restructuring charge, which consists solely of severance costs, is
shown as a separate line item in the accompanying consolidated
statement of operations.
10
<PAGE>
Management Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Results of Operations for the third quarter of fiscal 1995 improved
significantly over those of the previous second quarter ended December 31, 1994
as sales levels rose almost $1,500,000 and the level of loss fell to $125,000
compared to the $2,500,000 loss recorded in the second quarter. Despite these
third quarter improvements in operating performance, the results of operations
for the first nine months of fiscal 1995 continues to reflect the overall
decline in the worldwide defense market and the production problems with the
Ground Based Radar program suffered by the Company during the first six months
of the current fiscal year.
Net sales for the first nine months of fiscal 1995 declined 17% compared to the
same period in fiscal 1994 and the Company incurred a net loss of ($2,746,534)
due to the decline in revenue, higher marketing and R & D expense and two second
quarter charges against earnings for severance costs ($360,000) incurred for
personnel reductions and additional expected losses on contracts in progress
($1,050,000).
The 17% decline in sales revenue in the first nine months of fiscal 1995
compared to the same period in fiscal 1994 was due to a $2,600,000 drop in
shipments of DFD products and a $2,400,000 decline in sales of DRFM products.
During this same period, the decline in sales in the above product areas was
partially offset by a $700,000 increase in sales of Component products and a
$2,000,000 rise in shipments of ESM Receiver and Special Project products, which
included a $230,000 increase in sales of Anaren Microwave, Ltd., the Company's
British foreign subsidiary.
Shipments of DFD products fell $2,600,000, or 45%, in the first nine months of
fiscal 1995 versus the same period in fiscal 1994. The decrease was due to lower
unit volume on a number of both domestic and foreign defense programs in this
product area. These programs, which include the Northrop ALQ-135 program, Loral
Federal Systems STAR program and a Deutche German Jammer program represented
approximately $2,900,000 worth of shipments in the first half of fiscal 1994
compared to $1,225,000 in shipments in the first nine months of fiscal 1995.
Additionally, in the first six months of fiscal 1994, (last year) the Company
was able to record a one time sale of $277,000 for the termination claim for the
DFD portion of the ASPJ program which had been previously canceled by the U.S.
Navy. At April 1, 1995 firm backlog for DFD products was $1,800,000 of which
approximately 50% is expected to ship in the fourth quarter of fiscal 1995.
Shipments of DRFM products fell $2,400,000, or 87%, in the first nine months of
fiscal 1995 compared to the first nine months of fiscal 1994 due mainly to the
low level of backlog in this product area at beginning of fiscal 1995 ($670,000)
compared with backlog of $3,500,000 at the beginning of fiscal 1994. Although
customer interest in DRFM technology remains high, new orders of DRFM products
totaled only $910,000 during the first three quarters of fiscal 1995 and the
Company does not expect any significant new order in this product line until the
first half of fiscal 1996. Current backlog for DRFM products was approximately
$1,000,000 at April 1, 1995 all of which is expected to ship in fiscal 1996.
Sales revenue from ESM receivers and Special Project products rose by $2,000,000
in the first thirty-nine weeks of fiscal 1995 compared to the same period in
fiscal 1994. The majority of this increase was due to $1,800,000 in billing for
ESM receiver production work in the current quarter versus only $800,000 in
sales for repair parts in the first nine months of the previous year. Sales in
this product area in the first nine months of fiscal
11
<PAGE>
1995 were further augmented by a billing of $720,000 by the Company under a
$1,200,000 study contract currently being completed for the U.S. Navy and a
$230,000 increase in sales by Anaren Microwave, Ltd., the Company's British
subsidiary, due to higher simulator and system spare part sales.
Shipment of MIC and Component products increase 14% in first thirty-nine weeks
of fiscal 1995 compared to the same period in fiscal 1994 due to a $1,000,000
increase in third quarter fiscal 1995 revenues in this product area versus the
same period in fiscal 1994. This increase was the result of bringing the U.S.
Army Ground Based Radar program, which the Company is currently producing for
Raytheon Company under a $3,000,000 contract, into full factory production at
the end of January 1995. Shipments under this contract were severely limited in
the first six months of fiscal 1995 due to difficulties in meeting the customers
technical specifications and manufacturing process problems. During the second
quarter of fiscal 1995, the Company received some technical relief from the
customer and during January 1995 many of the manufacturing process problems were
resolved allowing for a tripling of shipment volume on this program in the last
two months of the just completed third quarter. At April 1, 1995 firm backlog
for this program was $1,900,000 of which $1,250,000 is expected to ship in the
fourth quarter of fiscal 1995 and the remainder in the first quarter of fiscal
1996.
Losses for the first nine months of fiscal 1995 were $(2,746,534) compared to
$(909,553) for the first nine months of the prior fiscal year, which included a
$994,727 charge for the cumulative effect of the accounting change for FASB No.
106. The drop in earnings was a direct result of the declining sales levels,
falling margins brought about by production problems, and the recording of
provisions for both severance costs and an additional anticipated contract loss
provision amounting to $360,000 and $1,050,000, respectively, in the second
quarter of fiscal 1995.
The Company recorded a $1,050,000 charge against earnings in the second quarter
of fiscal 1995 which reflected an additional provision for projected losses on
fixed price contracts. This charge, which reduced earnings by $1,050,000 for
both the previous second quarter of fiscal 1995 and nine months ended April 1,
1995, represented expected additional cost overruns on production contracts
expected to ship in the second half of fiscal 1995 and the first quarter of
fiscal 1996. Principal among these contracts is the Army Ground Based Radar
program which represented approximately $2,760,000 in projected second half
fiscal 1995 and first quarter fiscal 1996 revenues. This contract was previously
identified by the Company as being in a loss position at the end of fiscal 1994
and anticipated cost overruns were recorded at that time as part of a $1,570,000
loss provision. This additional loss provision was necessary due to process
problems identified during the second quarter of fiscal 1995 which required
significant additional engineering expenditures and increased estimates for
labor, material and scrap costs to complete the program. The program is
currently projected to loose approximately $2,000,000 million, which represents
a large majority of the $2,620,000 million loss provision made during the past
nine months.
During this same second quarter period, the Company recorded a $360,000
restructuring charge against earnings representing severance and outplacement
costs for reductions in overhead personnel made to improve our competitive
position in the new defense/commercial business environment.
Gross margin on sales for the first nine months of fiscal 1995 was 26%, a five
percentage point decline over gross margins of 31% for the first nine months of
the prior year. This decline in gross margin was caused by higher fixed overhead
costs due to the significant drop in shipment during the period, compared to the
prior year, and process problems with
12
<PAGE>
the Ground Based Radar program which resulted in significant increases in both
scrap and rework costs during the second quarter of the current fiscal year.
Through April 1, 1995 approximately $1,325,000 of costs incurred in building
products for shipment during the first nine months of fiscal 1995 were charged
against the allowance for contract losses established at the end of the fiscal
1994 and increased by $1,050,000 during the second quarter of fiscal 1995. These
expenses represent cost overruns incurred on units shipped during the first nine
months of fiscal 1995 which had previously been identified and provided for when
the allowance was established. The Company expects that gross margin levels will
improve in fiscal 1996 as shipment levels improve.
Research and development expense was $556,000 for the first nine months of
fiscal 1995, up 25% over $443,000 for the same period in fiscal 1994. This
increase reflects a significant rise in prototype development for the Company's
new commercial product lines. Current development efforts are being concentrated
on adapting existing Company technologies to produce new component products
which are suitable for use in the wireless communications market. Research and
development expenditures are expected to fluctuate in the future based on sales
levels and new product requirements.
Marketing expense rose 10% in the first nine months of fiscal 1995 compared to
the same period in the previous fiscal year. This increase was caused by
additional personnel and advertising expenses incurred to begin penetrating the
wireless communications market. This is a new business area for the Company and
this investment is not expected to be reflected in significant new sales in this
market until fiscal 1996 and 1997.
General and administrative expense fell 10% in the first three quarters of
fiscal 1995 compared to the first three quarters of fiscal 1994. This reduction
was the result of lower travel and professional service expenses and continuing
reductions in personnel through attrition and reassignments. General and
administrative expense for the remainder of fiscal 1995 is expected to run
approximately 9-10% below fiscal 1994 levels.
Interest expense fell 24% in the first nine months of fiscal 1995 compared to
the same period in the previous year. This decline reflects the lower level of
debt outstanding over the current period versus last year, which more than
offset the general rise in rates experienced during the past nine months.
Other income fell $130,000 in the first three quarters of fiscal 1995 compared
to the same period in fiscal 1994. Although investable cash balances and
interest rates were comparable during the two periods, during the first nine
months of fiscal 1994, the Company sold an idle fixed asset resulting in a one
time profit of approximately $108,000. No such comparable sale of assets
occurred in fiscal 1995.
Consolidated income tax benefit was $0 in the first nine months of fiscal 1995
versus an expected tax benefit of approximately $(933,800) based on 34% of the
loss before income taxes. The difference between the actual tax benefit
recognized in the financial statements and the expected tax benefit calculated
on the loss incurred was due to an increase in the deferred tax asset valuation
allowance required by the new tax accounting rules (FAS No. 109) adopted by the
Company at the beginning of fiscal 1994. Under the new tax accounting rules the
Company must assess the realizability of deferred tax assets, considering
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income in the period in which
those temporary differences become deductible. Management of the Company has
considered the scheduled reversal of deferred tax liabilities and projected
future taxable income in making the assessment of the realizability of the
deferred tax asset balances at April 1, 1995. Based upon the level of
13
<PAGE>
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, the Company believes it is
more likely than not that it will realize the benefit of these deductible
differences, net of the existing valuation allowances at April 1, 1995.
Liquidity and Capital Resources
Despite the continuing decline in net sales and the loss incurred in the first
nine months of fiscal 1995, the Company has continued to maintain a stable and
liquid financial position. As of April 1, 1995, the Company's cash position had
declined $1,400,000 compared to the end of fiscal 1994 due to $850,000 in
payments on various short and long-term debt and an additional $1,459,000
expended on purchases of treasury stock in the first quarter of the current
fiscal year. During this same period, net working capital fell $3,630,000 due to
a $2,170,000 reduction in accounts receivable, a $500,000 reduction in inventory
and the aforementioned consumption of cash due to the loss incurred, the
purchase of capital equipment and a $450,000 reduction in current liabilities.
Long-term liabilities declined $504,000 during the first nine months due to
payments on long-term debt and various capitalized lease obligations relating to
production equipment. No new long-term debt was taken on as the Company's cash
balances were more than adequate to fund both long and short-term cash needs.
During the remainder of fiscal 1995, the Company's major cash requirements will
be for additions to capital equipment to support new commercial production
facilities and repayment of long-term debt. Capital equipment additions for the
current year have been budgeted at $950,000 and through the first nine months of
fiscal 1995, approximately $308,000 has been expended, all of which was funded
by cash generated from operations. Capital equipment additions for the remainder
of fiscal 1995 will continue to be funded either through cash generated by
operations or through finance leases for larger long-term requirements.
During fiscal 1994, the Company modified its existing loan agreement with its
principal bank in order to obtain better terms and covenants. The modified
agreement provided for a $3.5 million line of credit which was fully secured by
the assets of the Company. This credit facility had no annual fees and interest
on any outstanding loan balance was charged at prime + 3/4% per annum. Under the
terms of the modified agreement the Company was required to maintain a $0 loan
balance for at least thirty days consecutively each fiscal year and meet certain
covenants relating to earnings, retained earnings and capital equipment
acquisitions. This credit facility expired on March 31, 1995.
Presently, the Company is attempting to negotiate a new credit facility with its
bank. Were this credit facility not available, the Company believes that its
cash requirements for the foreseeable future will be satisfied by currently
invested cash balances, expected cash flow from operations and progress payments
from customers.
In October 1992, the Board of Directors of the Company approved a program to
repurchase shares of the Company's common stock in the open market or through
privately negotiated transactions at prevailing market prices. Under this
program, the Company had repurchased 186,004 shares at a total cost of $386,336
as of July 2, 1994. Subsequent to the July 2 year end, the board approved an
additional $1,500,000 in funding for the stock repurchase program. Through
October 1, 1994 the Company acquired an additional 492,300 shares at a total
cost of $1,459,278, including 400,000 shares from Global Securities, Inc., at a
price of $3.00 a share. This investment is being made as the Board of Directors
feels that the Company's stock is currently undervalued and a repurchase at this
14
<PAGE>
time is in the best interest of all shareholders. Existing cash balances were
used to fund this stock purchase and no additional purchases were made during
the six months ended April 1, 1995.
15
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Item 6(a) Exhibits
--------
Exhibit No. 27 Financial Data Schedule for the nine month period ended
April 1, 1995
Item 6(b) Reports on Form 8K
------------------
The registrant was not required to file an 8-K during the current fiscal period.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Anaren Microwave, Inc.
(Registrant)
Date: May 12, 1995 /S/ HUGH A. HAIR
----------------------------------
Hugh A. Hair
Chairman & Chief Executive Officer
Date: May 12, 1995 /S/ JOSEPH E. PORCELLO
----------------------------------
Joseph E. Porcello
Vice President of Finance & Controller
17
<PAGE>
Exhibit Index
Number Description
- ------ -----------
27 Financial Data Schedule for the nine month period ended
April 1, 1995
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for Anaren Microwave, Inc. filed with form 10Q for the nine
months ended April 1, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-01-1995
<PERIOD-END> APR-01-1995
<CASH> 2,177,131
<SECURITIES> 0
<RECEIVABLES> 4,889,853
<ALLOWANCES> 13,000
<INVENTORY> 8,226,902
<CURRENT-ASSETS> 15,655,119
<PP&E> 27,437,203
<DEPRECIATION> (20,385,477)
<TOTAL-ASSETS> 22,793,100
<CURRENT-LIABILITIES> 3,042,280
<BONDS> 1,256,103
<COMMON> 0
0
48,296
<OTHER-SE> 17,432,425
<TOTAL-LIABILITY-AND-EQUITY> 22,793,100
<SALES> 11,794,489
<TOTAL-REVENUES> 11,794,489
<CGS> 8,679,486
<TOTAL-COSTS> 14,143,041
<OTHER-EXPENSES> 360,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 157,445
<INCOME-PRETAX> (2,746,534)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,746,534)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,746,534)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
