<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANAREN MICROWAVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
NEW YORK 16-0928561
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------------
6635 KIRKVILLE ROAD
EAST SYRACUSE, NEW YORK 13057
(315) 432-8909
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
LAWRENCE A. SALA, PRESIDENT AND CEO
6635 KIRKVILLE ROAD
EAST SYRACUSE, NEW YORK 13057
(315) 432-8909
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
It is requested that copies of notices and communications be sent to:
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GEORGE J. GETMAN, ESQ. DAVID A. WESTENBERG, ESQ.
DAVID M. FERRARA, ESQ. HALE AND DORR LLP
BOND, SCHOENECK & KING, LLP 60 STATE STREET
ONE LINCOLN CENTER BOSTON, MASSACHUSETTS 02109
SYRACUSE, NEW YORK 13202 (617) 526-6000
(315) 422-0121
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.......... 1,897,500 shares $24.00 $45,540,000 $13,800.00
===========================================================================================================
</TABLE>
(1) Determined in accordance with Rule 457 and estimated solely for the purpose
of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 29, 1997
1,650,000 SHARES
[ANAREN MICROWAVE, INC. LOGO]
ANAREN MICROWAVE, INC.
COMMON STOCK
------------------------
Of the 1,650,000 shares of Common Stock offered hereby, 1,000,000 shares
are being sold by Anaren Microwave, Inc. (the "Company") and 650,000 shares are
being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "ANEN." On October 28, 1997, the last reported sale price for the
Company's Common Stock on the Nasdaq National Market was $24.00 per share. See
"Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(3)
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Per Share.............................. $ $ $ $
Total.................................. $ $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and for other information.
(2) Before deducting expenses of the offering payable by the Company estimated
at $600,000.
(3) The Company and certain Selling Stockholders have granted options to the
Underwriters, exercisable within thirty (30) days of the date hereof, to
purchase up to an aggregate of 247,500 additional shares of Common Stock for
the purpose of covering over-allotments, if any. If the Underwriters
exercise such over-allotment options in full, the total Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters when,
as and if delivered to and accepted by them, subject to their right to withdraw,
cancel or reject orders in whole or in part and subject to certain other
conditions. It is expected that delivery of the certificates representing the
shares will be made against payment on or about , 1997,
at the office of Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial
Center, New York, New York 10281.
------------------------
OPPENHEIMER & CO., INC.
NEEDHAM & COMPANY, INC.
PACIFIC GROWTH EQUITIES, INC.
The date of this Prospectus is , 1997
<PAGE> 3
[Graphic depicting some of the Company's products. The top half of the page has
three photographs under the heading "Wireless Communications Products"
captioned "Xinger(R) Line of Surface Mount Components," showing a Xinger(R)
perched on a fingertip, "Microwave Backplane Assembly," showing a microwave
backplane, and "Microwave Signal Distribution Networks," showing two
distribution network boards. The accompanying paragraph reads as follows: "The
Company designs and manufactures custom signal distribution networks, microwave
backplanes and catalog Xinger(R) components for leading wireless communications
OEMs. These products eliminate the need for bulky discrete components and
interconnecting cables, enabling wireless OEMs to reduce the size, cost and
complexity of their base station products while improving performance." The
bottom half of the page has three photographs under the heading "Satellite
Communications Products" captioned "Signal Distribution Networks," showing
multiple sized distribution boards, "Antenna Beamformer for LEO System,"
showing a beamformer, and "Satellite Beam Switch Matrix Assembly," showing a
beam switch matrix board. The accompanying paragraph reads as follows: "Through
the use of its Multi-Layer Stripline manufacturing technology, the Company is
able to provide compact, light weight antenna beamforming and signal
distribution networks to leading satellite communications OEMs. These networks
increase the caller capacity of satellite systems and enable system operators
to optimally allocate satellite resources."]
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMPANY'S SECURITIES ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is not intended to be complete and is qualified in
its entirety by the more detailed information and the financial statements
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
financial and share information in this Prospectus assumes the Underwriters'
over-allotment options are not exercised. Unless the context otherwise requires,
references in this Prospectus to the "Company" and "Anaren" are to Anaren
Microwave, Inc. and its consolidated subsidiaries. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Anaren designs, develops, manufactures and sells complex microwave signal
distribution networks and components for the wireless communications, satellite
communications and defense electronics markets. The Company utilizes its
advanced, proprietary "Multi-Layer Stripline" technology to deliver compact,
light-weight, cost effective and highly integrated microwave products into the
rapidly expanding markets for cellular/PCS base stations, microcells and new
generations of communications satellites. The Company is also a leading provider
of electronic counter measure subsystems which primarily protect fighter
aircraft. The Company has leveraged over 30 years of microwave expertise to
rapidly develop and implement leading commercial microwave products, with
commercial sales growing from $982,000 in fiscal 1995 to over $16 million,
representing 67% of total Company sales, in fiscal 1997.
The growing demand for wireless and satellite-based services is placing
increasing demands upon providers of infrastructure equipment, both in terms of
volume, complexity and design requirements. Wireless subscriber use is estimated
to increase from 136 million subscribers at the end of 1996 to 520 million by
the end of 2000. The rollout of digital PCS, which operates at twice the
frequency as analog cellular, will require several times as many base stations.
The increased demand for cell sites is driving equipment manufacturers to
provide smaller, more cost effective and highly integrated equipment solutions.
Additionally, the satellite communications market is experiencing significant
growth, driven by opportunities where satellite based communications offer cost
and logistical advantages over land based communications. According to the Teal
Group, there are an estimated 1,335 commercial satellites scheduled to launch
between 1997 and 2006, including large scale communications projects (Iridium,
Global Star, ICO and Teledesic) in various stages of implementation. Key design
factors for new satellite systems being launched are increased complexity,
higher frequency communications, and smaller and more cost effective payload
packages.
The Company's proprietary Multi-Layer Stripline technology enables the
Company to eliminate discrete components and discrete microwave cables,
dramatically reducing size, cost and weight while improving performance. The
Multi-Layer Stripline technology is used in combination with the Company's
proprietary turnkey design, development and manufacturing capabilities to
provide custom solutions for major customers. The Company's technology has been
implemented in products utilizing passive components, including beamforming and
signal distribution networks, and is currently being utilized by the Company to
incorporate active devices, including switches, phase shifters and amplifiers.
The Company has a strong base of major customers in each of its key market
segments. In the wireless market, the Company supplies custom designed
assemblies and its standard line of Xinger(R) components to leading
manufacturers of base station equipment, such as Motorola, Inc., Lucent
Technologies Inc., Northern Telecom, Ltd. and Ericsson, Inc. These integrated
assemblies, which range from simple splitting and combining networks to complete
microwave backplanes, distribute microwave signals throughout the base station,
from reception at the antenna, to multiple radios, to multiple amplifiers, and
back to the antenna for transmission. Key customers in the satellite market are
the world's leading satellite manufacturers, including Lockheed Martin
Corporation, Hughes Space and Communications International, Inc., Loral Space &
Communications Ltd. and TRW Inc. The Company's subsystems, which include
beamforming networks and signal distribution networks, are found on low Earth
orbit ("LEO") satellite networks including Motorola's Iridium program, as well
as a regional geosynchronous Earth orbit ("GEO") system. Defense customers for
the Company's electronic counter measure subsystems include Raytheon Company,
the Avionics division of ITT Defense and Electronics Company, Lockheed Martin
Corporation and Racal, Ltd.
The Company's strategy is to continue to leverage its proprietary,
Multi-Layer Stripline technology and microwave turnkey design and manufacturing
expertise to further expand penetration in the satellite communications and
terrestrial wireless communications markets. The key components of the Company's
strategy are to: (i) increase levels of component integration and value added
content; (ii) further expand into commercial markets; (iii) maintain leadership
in microwave technology; (iv) strengthen and expand customer relationships; and
(v) enhance capabilities as a turnkey supplier.
The Company was incorporated in New York in 1967. The Company's executive
offices are located at 6635 Kirkville Road, East Syracuse, New York 13057. The
phone number is (315) 432-8909.
3
<PAGE> 5
THE OFFERING
Common Stock offered by the Company......... 1,000,000 shares
Common Stock offered by the Selling
Stockholders................................ 650,000 shares
Common Stock to be outstanding after the
offering.................................... 5,233,442 shares(l)
Use of proceeds............................. Working capital and general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol............... ANEN
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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YEARS ENDED THREE MONTHS
--------------------------------------------------- ENDED
JUNE JUNE JUNE SEPTEMBER 30,
26, JULY 2, JULY 1, 30, 30, ----------------
1993 1994(2) 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------ ------
(UNAUDITED)
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STATEMENT OF OPERATIONS DATA:
Net sales...................... $26,996 $20,237 $17,996 $17,082 $24,227 $5,066 $7,721
Gross profit................... 7,690 4,252 4,615 5,935 7,984 1,494 2,868
Operating income (loss)........ 758 (1,504) (1,753) (1,105) 2,035 213 1,098
Net income (loss).............. $ 278 $(2,357) $(1,472) $(1,080) $ 2,055 $ 210 $ 760
======= ======= ======= ======= ======= ====== ======
Net income (loss) per common
and common equivalent share:
Primary................... $ 0.06 $ (0.53) $ (0.36) $ (0.27) $ 0.50 $ 0.05 $ 0.17
======= ======= ======= ======= ======= ====== ======
Assuming full dilution.... $ 0.06 $ (0.53) $ (0.36) $ (0.27) $ 0.46 $ 0.05 $ 0.17
======= ======= ======= ======= ======= ====== ======
Shares used in computing net
income (loss) per common and
common equivalent share:
Primary................... 4,530 4,435 4,047 4,057 4,106 4,103 4,504
Assuming full dilution.... 4,530 4,435 4,047 4,057 4,440 4,103 4,524
</TABLE>
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SEPTEMBER 30, 1997
-----------------------
AS
ACTUAL ADJUSTED(3)
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents.............................................. $ 3,998 $26,006
Working capital........................................................ 16,040 38,048
Total assets........................................................... 27,521 49,529
Long-term debt, less current installments.............................. 453 453
Total stockholders' equity............................................. 21,431 43,439
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(1) Based on the number of shares outstanding at September 30, 1997. Excludes
718,400 shares of Common Stock reserved for issuance pursuant to the
Company's stock option plans, of which options to purchase 567,400 shares of
Common Stock at a weighted average exercise price of $5.22 per share are
currently outstanding and options to purchase 151,000 shares of Common Stock
are currently available for issuance. See Note 6 of Notes to Consolidated
Financial Statements.
(2) The year ended July 2, 1994 represents a 53 week fiscal year.
(3) Adjusted for the sale by the Company of 1,000,000 shares of Common Stock
offered hereby at an assumed public offering price of $24.00 per share after
deducting the estimated underwriting discount and the estimated offering
expenses.
4
<PAGE> 6
RISK FACTORS
An investment in the Common Stock offered hereby is speculative in nature
and involves a high degree of risk. In addition to the other information
contained in this Prospectus, the following factors should be considered
carefully in evaluating the Company and its business before purchasing the
Common Stock offered hereby. This Prospectus contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), such as statements of the Company's plans, objectives,
expectations and intentions. Discussions containing such forward-looking
statements may be found in the material set forth under "Prospectus
Summary -- The Company," "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and "Business," as well as
the Prospectus generally. Actual events or results may differ materially from
those discussed in the forward-looking statements as a result of various
factors, including, without limitation, the risk factors set forth below and the
matters set forth in the Prospectus generally.
Uncertain Market Development. Historically, the Company's business has
been almost exclusively focused on the defense electronics market. With the
contraction of the defense industry, the Company has had to increase its focus
on the commercial markets, particularly the wireless and satellite
communications markets. The Company believes that its future growth depends on
continued success in these markets. A number of the commercial markets for the
Company's products in the wireless and satellite communications area have only
recently begun to develop. Because these markets are relatively new, it is
difficult to predict the rate at which these markets will grow, if at all.
Existing or potential wireless and satellite communications market applications
for the Company's products may fail to develop or may erode for many different
reasons, including insufficient growth to support expensive infrastructure
equipment, insufficient consumer demand for wireless products or services
because of pricing or otherwise, or real or perceived security risks associated
with wireless communications. If the markets for the Company's products in
commercial wireless and satellite communications fail to grow, or grow more
slowly than anticipated, the Company's business, financial condition and results
of operations could be materially adversely affected.
In addition, while the Company believes that the technologies used in the
defense and commercial markets are very similar, the two markets differ
significantly in terms of, among other things, the customer base, contractual
terms, manufacturing requirements and lead times, and the need to expend
substantial resources for research and development without the assurance of
reimbursement or recovery of those costs. As a result, the Company is subject to
risks inherent in the operation of an expanding commercial enterprise, including
risks associated with managing the expansion of a business operation and
attracting and retaining qualified engineering, manufacturing and marketing
personnel with commercial industry experience. No assurance can be given as to
the continuing viability of the Company's commercial markets or the Company's
ability to successfully meet the challenges inherent in competing in those
markets.
Reliance on a Limited Number of Prime Contractors and Original Equipment
Manufacturers ("OEMs"). During the fiscal year ended June 30, 1997,
approximately 16% of the Company's consolidated net sales were attributable to
contracts with prime contractors to the United States government. The Company
had two customers who received shipments in excess of 10% of consolidated net
sales. Approximately 14% of the Company's consolidated net sales resulted from
shipments to Raytheon Company ("Raytheon") and approximately 11% resulted from
shipments to Motorola, Inc. ("Motorola"). Other than Raytheon and Motorola, the
Company derives a majority of its revenues from a limited group of customers,
including Hughes Space and Communications International, Inc. ("Hughes"), Loral
Space & Communications Ltd. ("Loral Space & Communications"), Northern Telecom,
Ltd. ("Nortel"), Lucent Technologies Inc. ("Lucent"), Ericsson, Inc.
("Ericsson"), the Avionics division of ITT Defense and Electronics Company
("ITT"), Texas Instruments Incorporated, Lockheed Martin Corporation ("Lockheed
Martin"), TRW Inc. ("TRW"), Harris Corporation ("Harris") and the United States
Department of Defense. The Company anticipates that it will continue to sell
products to a relatively small group of customers. As a result, any
cancellation, reduction or delay in orders by or shipments to a significant
customer, as a result of manufacturing or supply difficulties or otherwise,
would materially adversely affect the Company's business, financial condition
and results of operations. In addition, a substantial portion of the Company's
products are designed to address the needs of individual customers. The
Company's future success depends in significant
5
<PAGE> 7
part upon the decision of the Company's current customers to continue to
purchase products from the Company, as well as the decision of prospective
customers to develop and market wireless communications systems that incorporate
the Company's products. There can also be no assurance that the Company's
current customers will continue to place orders with the Company or that the
Company will be able to obtain orders from new customers. The Company's future
success will also depend in part upon the financial condition and success of its
customers. Customers' orders are affected by factors such as new product
introductions, regulatory approvals, product life cycles, inventory levels,
manufacturing strategy, contract awards, competitive conditions and general
economic conditions. If the Company were to lose a major customer, or if orders
by a major customer were to otherwise decrease or be delayed, including
reductions due to market or competitive conditions in the wireless
communications markets or decreases in government defense spending, the
Company's business, financial condition and results of operations would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Customers."
Rapid Technological Change. The markets in which the Company competes are
characterized by rapidly changing technologies, evolving industry standards and
frequent improvements in products and services. If technologies supported by the
Company's products become obsolete or fail to gain widespread commercial
acceptance, the Company's business, financial condition and results of
operations could be materially adversely affected. The Company's future success
will depend in part on its ability to enhance the functionality of its existing
products in a timely and cost-effective manner; to identify, develop and achieve
market acceptance of new products that address new technologies and meet
customer needs in wireless communications markets; and to continue to apply its
expertise and technologies to existing and emerging commercial wireless and
satellite communications markets. The Company's success in penetrating these
commercial markets also depends upon the success of new product introductions by
the Company, which is dependent upon several factors, including timely
completion and introduction of new product designs, achievement of acceptable
product costs, establishment of close working relationships with major customers
for the design of their new wireless transmission systems incorporating the
Company's products and market acceptance. Developing these enhancements, new
designs and technologies requires significant investments by the Company in
research and development efforts, and there can be no assurance that funds for
such investments will be available when needed on acceptable terms or that such
efforts will be successful. No assurance can be given that the Company's product
development efforts for commercial products will be successful or that any new
commercial products it develops will achieve market acceptance. If the Company
is unable to design, manufacture and market new products for existing or
emerging commercial markets successfully, its business, financial condition and
results of operations will be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Products" and "-- Customers."
Limitation on Protection of Proprietary Technology; Risk of Third Party
Claims. The Company's ability to compete will depend, in part, on its ability
to obtain and enforce intellectual property protection for its technology in the
United States and internationally. Although the Company holds several U.S.
patents, it currently relies primarily on a combination of trade secret,
copyright and trademark laws and employee and third-party nondisclosure
agreements. It also limits access to and distribution of proprietary
information. There can be no assurance that the steps taken by the Company to
protect its intellectual property rights will be adequate to prevent
misappropriation of the Company's technology or to preclude competitors from
independently developing such technology. Furthermore, there can be no assurance
that, in the future, third parties will not assert infringement claims against
the Company or with respect to its products for which the Company has
indemnified certain of its customers. Asserting the Company's rights or
defending against third party claims could involve substantial costs and
diversion of resources, thus materially adversely affecting the Company's
business, financial condition and results of operations. In the event a third
party were successful in a claim that one of the Company's products infringed
its proprietary rights, the Company may have to pay substantial royalties or
damages, remove that product from the marketplace or expend substantial amounts
in order to modify the product so that it no longer infringes such proprietary
rights, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Intellectual Property."
6
<PAGE> 8
Fluctuations in Quarterly Results. The Company's quarterly results have in
the past been, and will continue to be, subject to significant fluctuations due
to a number of factors, any one of which could substantially affect the
Company's results of operations for any particular fiscal quarter. In
particular, quarterly results of operations can fluctuate due to the timing,
cancellation or rescheduling of customer orders and shipments, the pricing and
mix of products sold, new product introductions by the Company, competitive
conditions, the Company's ability to obtain components and subassemblies from
contract manufacturers and suppliers, and variations in manufacturing
efficiencies. Accordingly, the Company's performance in any one fiscal quarter
is not necessarily indicative of financial trends or future performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Management of Growth. The growth in size and complexity of the Company's
business and the expansion of its product lines and customer base have placed,
and are expected to continue to place, significant demands on the Company's
management and operations. The pace of the Company's expansion, in combination
with the complexity of the technology involved in the manufacture of the
Company's systems, demands an unusually high level of managerial effectiveness
in anticipating, planning, coordinating and meeting the operational needs of the
Company and the needs of the Company's customers for quality, reliability,
timely delivery and post-installation field support. Given the small number of
existing and potential customers for the Company's systems, a lack of effective
management in any of these areas will magnify the potential adverse effect on
the Company. The Company's systems, procedures or controls may not be adequate
to support the Company's operations and Company management may not be able to
achieve the rapid expansion necessary to exploit potential market opportunities
for the Company's products. The Company's ability to compete effectively and to
manage future growth will depend on its ability to improve its manufacturing
capabilities to meet the high volume, low cost demands for the commercial
wireless market, and will also require the Company to continue to implement and
improve operational and financial systems on a timely basis. There can be no
assurance that the Company will be able to manage its future growth, and the
failure to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.
Uncertain Nature of Defense Market. The United States defense budget has
been reduced in recent years and may be further reduced. The Company expects to
continue to derive a substantial portion of its revenues from its existing
defense products and to develop microwave products for defense applications. As
a result, the Company could be materially adversely impacted by government
spending cuts, general budgetary constraints, and complex and competitive
government procurement processes. In addition, during fiscal 1997, sales to
foreign customers, most of which were prime contractors to foreign governments,
accounted for approximately 19% of the Company's consolidated net sales, and
included shipments to 23 countries. Export sales of certain military
applications must be approved by the United States Department of State, and any
tightening of restrictions on the export of military hardware could materially
adversely affect the Company's sales of defense electronics products to foreign
customers. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Business Interruptions and Dependence on a Single U.S. Facility. The
Company's primary operations, including engineering, manufacturing, management
information systems, customer service, distribution and general administration,
are housed in a single facility in East Syracuse, New York. Any material
disruption in the Company's operations due to fire, natural disaster or
otherwise, could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Facilities."
Competition. The markets for the Company's products are extremely
competitive and are characterized by technological change, new product
development, product obsolescence and evolving industry standards. In addition,
price competition is intense and significant price erosion generally occurs over
the life of a product. The Company faces some competition from component
manufacturers which have integration capabilities, including Electromagnetic
Sciences, Inc. (satellite), S.T. Microwave, Inc. (defense), the M/A-Com division
of AMP, Inc., Mini Circuits, Inc. and Filtronic Comtek, Inc. The Company
believes that its primary competition is from the internal capabilities of large
telecommunications OEMs (including all of the major telecommunications equipment
providers) and defense prime contractors. The Company's future success is
dependent upon the extent to which these OEMs and defense prime contractors
elect to purchase from outside
7
<PAGE> 9
sources rather than manufacture their own microwave components. The Company's
customers and large manufacturers of components could also elect to enter into
the non-captive market for microwave products and compete directly with the
Company. Many of the Company's current and potential competitors have
substantially greater technical, financial, marketing, distribution and other
resources than the Company and have greater name recognition and market
acceptance of their products and technologies. No assurance can be given that
the Company's competitors will not develop new technologies or enhancements to
existing products or introduce new products that will offer superior price or
performance features, or that new products or technologies will not render
obsolete the products of the Company's customers. See "Business -- Competition."
Risks of Cost Overruns and Product Non-Performance; Loss of Investment in
Design and Engineering. The Company's customers establish demanding
specifications for product performance, reliability and cost. The majority of
the Company's contracts with prime contractors to United States and foreign
governmental departments or their agencies, as well as satellite communications
and wireless infrastructure equipment customers, are fixed price contracts, some
of which require delivery over periods of time in excess of one year. With this
type of contract, the Company agrees to deliver products at an agreed upon
price, except for costs incurred as a result of change orders issued by the
customer. Some of these contacts contain provisions for escalation due to
inflation incurred between the effective contract date, and some are subject to
various statutes, regulations and provisions governing defense contracts. Most
of these contracts contain termination clauses, which allow the customer to
terminate the contract for convenience upon proper notice and payment of
predetermined charges. The Company, therefore, faces the risk of experiencing
cost overruns or order cancellation if it fails to achieve forecasted product
design and manufacturing efficiencies or if products cost more to produce
because of increased cost of materials, components or labor or otherwise.
Manufacture of the Company's products is an extremely complex process and the
Company has in the past experienced cost overruns on fixed price contracts.
There can be no assurance that cost overruns or problems with performance or
reliability of Company products will not occur in the future. Any such cost
overruns or performance problems may have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the Company often makes significant investments in design and engineering of new
products for customers without any commitment by the customer for the future
purchase of such products. Failure to receive initial or follow-on orders may
have a material adverse effect on results of operations. See
"Business -- Backlog" and "-- Manufacturing."
Declining Average Selling Prices. Many of the Company's wireless customers
are under continuous pressure to reduce costs and, therefore, the Company
expects to continue to experience downward pricing pressure on its products. The
Company's customers frequently negotiate supply arrangements well in advance of
delivery dates, requiring the Company to commit to price reductions before it is
determined that assumed cost reductions can be achieved. To offset declining
average sales prices, the Company believes that it must achieve manufacturing
cost reductions and obtain orders for higher volume products. If the Company is
unable to offset declining average selling prices, the Company's gross margins
will decline, and such decline could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Backlog. The Company's order backlog as of June 30, 1997 was approximately
$32.8 million, approximately 57% of which was attributable to defense
electronics, approximately 37% of which was attributable to satellite
communications, and approximately 6% of which was attributable to wireless
products. All of the orders included in backlog are covered by signed contracts.
Backlog is not necessarily indicative of future sales, particularly with respect
to the Company's wireless group. As part of the Company's close working
relationships with its major wireless communications customers, these customers
expect the Company to respond quickly to changes in the volume and delivery
schedule of the orders, and if necessary, to inventory products at the Company's
facilities for just-in-time delivery. Although contracts with these customers
typically specify aggregate dollar volumes of products to be purchased over an
extended time period, these contracts also provide that scheduled shipment dates
of particular volumes are generally released to the Company only a few days or
weeks prior to the actual required delivery dates. Accordingly, the Company does
not believe that its backlog as of any particular date is representative of
actual sales for any
8
<PAGE> 10
succeeding period, and there can be no assurance that current order backlog will
necessarily lead to sales in any future period. In addition, the Company's
customers may cancel or defer orders without significant penalty. Cancellations
of pending purchase orders or termination or reductions of purchase orders in
progress from customers of the Company could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Backlog."
Government Regulation. The Company's products are incorporated into
wireless telecommunications systems that are subject to regulation domestically
by the Federal Communications Commission ("FCC") and internationally by other
government agencies. Although the equipment operators and not the Company are
responsible for compliance with such regulations, regulatory changes, including
changes in the allocation of available frequency spectra, could materially
adversely affect the Company's operations by restricting development efforts by
the Company's customers, rendering current products obsolete or increasing the
opportunity for additional competition. Changes in, or the failure by the
Company to manufacture products in compliance with, applicable domestic and
international regulations could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, the
increasing demand for wireless and satellite communications has exerted pressure
on regulatory bodies worldwide to adopt new standards for such products,
generally following extensive investigation of and deliberation over competing
technologies. The delays inherent in this governmental approval process have in
the past caused and may continue to cause the cancellation, postponement or
rescheduling of the installation of communications systems by the Company's
customers, which in turn may have a material adverse effect on the sale of
products by the Company to such customers. Because of its participation in the
defense industry, the Company is subject to audit from time to time for
compliance with government regulations by various agencies, including the
Defense Contract Audit Agency, the Defense Investigative Service and the Office
of Federal Control Compliance Programs. These and other governmental agencies
may also from time to time conduct inquiries or investigations that cover a
broad range of Company activity. Responding to any such audits, inquiries or
investigations may involve significant expense and divert management attention.
An adverse finding in any such audit, inquiry or investigation could involve
penalties that may have a material adverse effect on the Company's business,
financial condition or results of operations. See "Business -- Government
Regulation."
Environmental Regulations and Risks. The Company is subject to a variety
of local, state and federal governmental regulations relating to the storage,
discharge, handling, emission, generation, manufacture and disposal of toxic or
other hazardous substances used to manufacture the Company's products. The
failure to comply with current or future regulations could result in the
imposition of substantial fines on the Company, suspension of production,
alteration of its manufacturing processes or cessation of operations. News
reports have asserted that power levels associated with hand held cellular
telephones and infrastructure equipment may pose certain health risks. If it
were determined or perceived that electromagnetic waves carried through wireless
telecommunications equipment create a significant health risk, the market for
these products could be materially adversely affected, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Moreover, if wireless telecommunications systems or other
systems or devices that rely on or incorporate the Company's products are
determined or alleged to create a significant health risk, the Company could be
named as a defendant, and held liable, in product liability lawsuits commenced
by individuals alleging that the Company's products harmed them, which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Dependence on Suppliers and Contract Manufacturers. The Company relies on
contract manufacturers and suppliers, in some cases limited groups of suppliers,
to provide it with services and materials necessary for the manufacture of its
products. The Company has one vendor from which it makes approximately 10% of
its total raw material purchases. While the Company believes that substitute
sources of supply at reasonably similar costs are available for these and other
products purchased, the Company's reliance on limited groups of suppliers
involves several risks, including a potential inability to obtain critical
materials or services and reduced control over production costs, delivery
schedules, reliability and quality of components or assemblies. Any inability to
obtain timely deliveries of acceptable quality, or any other circumstance that
would require the Company to seek alternative contract manufacturers or
suppliers, could delay the Company's ability to
9
<PAGE> 11
deliver products to customers, which in turn would have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, in the event that costs for the Company's contract manufacturers or
suppliers increase, the Company may suffer losses due to an inability to recover
such cost increases under fixed price production commitments to its customers.
See "Business -- Manufacturing."
Dependence on Key Personnel. The Company is highly dependent on the
continued service of, and on its ability to attract and retain, qualified
engineering, management, manufacturing, quality assurance, marketing and support
personnel. The Company maintains key man life insurance on Lawrence A. Sala, its
President and Chief Executive Officer. The loss of Mr. Sala's services could
have a material adverse effect on the Company's business, financial condition
and results of operations. Competition for key personnel is intense, and there
can be no assurance that the Company will be successful in attracting or
retaining such personnel. For example, the Company believes that engineers with
the skills necessary to develop products for the wireless and satellite
communications market currently are in high demand and that the Company may not
be able to attract and retain sufficient engineering expertise. See
"Business -- Employees" and "Management."
Control by Significant Stockholder. Upon completion of this offering,
Global Securities, Inc. will own 15.44% of the outstanding shares of the
Company's Common Stock (13.56% if the Underwriter over-allotment options are
exercised in full), as to which Herbert I. Corkin, a Director of the Company and
owner of 24% of the Capital Stock of Global Securities, Inc., disclaims
beneficial ownership. As a result, Global Securities, Inc. has the ability to
exercise influence over matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. Such a
high level of influence may have a significant effect in delaying, deferring or
preventing a change in control of the Company. See "Principal and Selling
Stockholders."
Volatility of Stock Price. The market price of the shares of Common Stock,
like the stock prices of many technology companies, is subject to wide
fluctuations in response to such factors as actual or anticipated operating
results, announcements of technological innovations, new products or new
contracts by the Company, its competitors or their customers, government
regulatory action, developments with respect to wireless and satellite
communications, general market conditions and other factors. In addition, the
stock market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the stocks of
technology companies and that have often been unrelated to the operating
performance of particular companies. In the 12 month period from October 29,
1996 to October 28, 1997, the price of the Common Stock has ranged from $5.87 to
$35.75. In the 30-day period from September 29, 1997 to October 28, 1997, the
price of the Common Stock has ranged from $14.25 to $35.75. The market price of
the Company's Common Stock has been volatile and may continue to be highly
volatile. See "Price Range of Common Stock."
Dilution. The public offering price is expected to be substantially higher
than the net tangible book value per share of Common Stock. Investors purchasing
shares of Common Stock in this offering will therefore incur immediate and
substantial net tangible book value dilution. To the extent that stock options
(currently outstanding or subsequently granted) to purchase Common Stock are
exercised, there will be further dilution.
Shares Eligible for Future Sale. Sales of substantial amounts of shares in
the public market or the prospect of such sales could adversely affect the
market price of the Common Stock. Upon completion of this offering, the Company
will have outstanding 5,233,442 shares of Common Stock. Immediately upon the
effectiveness of this offering, the 1,650,000 shares offered hereby (plus any
shares issued upon exercise of the Underwriters' over-allotment options) will be
freely tradeable. Of the remaining 3,583,442 shares, 1,143,080 are subject to
lock-up agreements pursuant to which the holders of such shares have agreed not
to sell, offer, contract to sell, make any short sale, pledge or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase Common Stock for
a period of 90 days after the effective date of this offering without the prior
written consent of Oppenheimer & Co., Inc. The shares not subject to lock-up
agreements may be freely sold after the offering. In addition, the Company has
filed registration statements under the Securities Act covering the sale of an
10
<PAGE> 12
aggregate of 718,400 shares of Common Stock reserved for issuance under the
Company's Incentive Stock Option Plans. See "Shares Eligible for Future Sale"
and "Underwriting."
Management's Discretion Over Use of Proceeds. The Company has no current
specific plan for a significant portion of the proceeds of this offering. As a
consequence, the Company's management will have discretion over a significant
portion of the proceeds for the foreseeable future. There can be no assurance
that the proceeds can or will be invested to yield a return as great as the
Company has historically experienced or any significant return at all. See "Use
of Proceeds."
Dividends. The Company has not declared or paid any cash dividends in the
past and does not expect to pay cash dividends in the foreseeable future. The
Company currently intends to retain its future earnings, if any, to finance the
development of its business. Any future dividend policy will be determined by
the Board of Directors in light of conditions then existing, including the
Company's earnings and its financial condition and requirements. See "Dividend
Policy."
Anti-Takeover Measures. The Company maintains a plan providing for
severance compensation to employees after a hostile takeover, as defined therein
("Severance Plan"). All full-time employees of the Company who have completed at
least two years of continuous full-time employment with the Company are
participants in the Severance Plan. The Severance Plan could discourage
potential acquisition proposals, could delay or prevent a change in control of
the Company and could make removal of management more difficult. In addition,
the Severance Plan could diminish the opportunities for stockholders to
participate in tender offers, including tender offers that are priced above the
then current market value of the Common Stock, and may inhibit increases in the
market price of the Common Stock that could result from takeover attempts.
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to the Company from the sale of 1,000,000 shares of Common
Stock offered by the Company hereby are estimated to be approximately $22.0
million based on an assumed public offering price of $24.00 per share, after
deducting the estimated underwriting discount and the estimated offering
expenses. The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Stockholders.
The Company expects to use the net proceeds from this offering primarily
for working capital and general corporate purposes. With the recent growth of
its Satellite Communications group, the Company has sought larger, higher
dollar-volume satellite contracts. The Company expects that it will use a
substantial portion of the net proceeds to fund working capital for these larger
contracts, as well as to fund the continued growth of its Wireless group. As
part of its business strategy, the Company occasionally evaluates potential
acquisitions of businesses, products and technologies. Accordingly, a portion of
the net proceeds may be used for the acquisition of complementary businesses,
technologies or products. The Company currently has no understanding,
commitment, agreement or present intentions with respect to any acquisitions.
Pending such uses, the Company intends to invest the net proceeds of this
offering in short-term, investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on shares of its
Common Stock. The Company currently intends to retain all future earnings, if
any, for use in the operation and development of its business and does not
expect to declare or pay any cash dividends on its Common Stock in the
foreseeable future.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "ANEN." The following table sets forth for the periods indicated the
high and low sale prices for the Company's Common Stock as reported by the
Nasdaq National Market.
<TABLE>
<CAPTION>
PRICE RANGE OF
COMMON STOCK
-------------------
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year Ended June 30, 1996
First Quarter.......................................... $ 8.500 $ 5.250
Second Quarter......................................... 8.375 5.500
Third Quarter.......................................... 7.250 5.500
Fourth Quarter......................................... 8.750 5.750
Fiscal Year Ended June 30, 1997
First Quarter.......................................... $ 7.625 $ 4.250
Second Quarter......................................... 8.000 5.000
Third Quarter.......................................... 9.125 6.250
Fourth Quarter......................................... 14.250 7.625
Fiscal Year Ending June 30, 1998
First Quarter.......................................... $28.250 $13.000
Second Quarter (through October 28, 1997).............. 35.750 14.250
</TABLE>
The last reported sale price of the Company's Common Stock as reported by
the Nasdaq National Market on October 28, 1997 was $24.00 per share. As of
September 30, 1997, there were approximately 610 holders of record of the
Company's Common Stock.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of September 30, 1997, and as adjusted to reflect the sale of 1,000,000 shares
of Common Stock offered by the Company hereby, at an assumed public offering
price of $24.00 per share, after deducting the estimated underwriting discount
and estimated offering expenses.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current installments.............................. $ 453 $ 453
Stockholders' equity(1):
Common stock, $0.01 par value, Authorized 12,000,000 shares;
5,125,716 shares issued, 4,233,442 shares outstanding, actual;
6,125,716 shares issued, 5,233,442 shares outstanding, as
adjusted.......................................................... 51 61
Additional paid-in capital............................................. 15,927 37,925
Retained earnings...................................................... 7,465 7,465
Less cost of 892,274 treasury shares................................... (2,012) (2,012)
------- ----
Total stockholders' equity............................................. 21,431 43,439
------- ----
Total capitalization......................................... $21,884 $43,892
======= ====
</TABLE>
- ---------------
(1) Based on the number of shares outstanding at September 30, 1997. Excludes
718,400 shares of Common Stock reserved for issuance pursuant to the
Company's stock option plans, of which options to purchase 567,400 shares of
Common Stock at a weighted average exercise price of $5.22 per share are
currently outstanding and options to purchase 151,000 shares of Common Stock
are currently available for issuance. See Note 6 of Notes to Consolidated
Financial Statements.
13
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below with respect to
the Company's statements of operations for each of the years in the three year
period ended June 30, 1997, and with respect to the balance sheets at June 30,
1996 and 1997, are derived from the consolidated financial statements that have
been audited by KPMG Peat Marwick LLP, independent auditors, which are included
elsewhere in this Prospectus and are qualified by reference to such consolidated
financial statements. The statement of operations data for the years ended June
26, 1993 and July 2, 1994 and the balance sheet data at June 26, 1993, July 2,
1994 and July 1, 1995 are derived from audited consolidated financial statements
not included in this Prospectus. The statement of operations data for the three
months ended September 30, 1996 and September 30, 1997, and the balance sheet
data at September 30, 1997 are derived from unaudited consolidated financial
statements which are included elsewhere in this Prospectus. The unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, which the Company considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the three months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 1998. The following selected financial data should be read in
conjunction with the Consolidated Financial Statements for the Company and notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
------------------------------------------------------ SEPTEMBER 30,
JUNE 26, JULY 2, JULY 1, JUNE 30, JUNE 30, ----------------
1993 1994(1) 1995 1996 1997 1996 1997
-------- ------- ------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................. $ 26,996 $20,237 $17,996 $ 17,082 $ 24,227 $5,066 $7,721
Cost of sales......................................... 19,306 14,415 13,081 11,147 16,243 3,572 4,853
Provision for losses on contracts..................... -- 1,570 300 -- -- -- --
------- ------- ------- ------- ------- ------ ------
Gross profit.......................................... 7,690 4,252 4,615 5,935 7,984 1,494 2,868
------- ------- ------- ------- ------- ------ ------
Operating expenses:
Marketing........................................... 3,158 2,931 3,028 2,970 3,170 668 940
Research and development............................ 923 559 939 1,185 540 109 189
General and administrative.......................... 2,399 2,266 2,041 2,075 2,239 504 641
Restructuring....................................... 452 -- 360 810 -- -- --
------- ------- ------- ------- ------- ------ ------
Total operating expenses..................... 6,932 5,756 6,368 7,040 5,949 1,281 1,770
------- ------- ------- ------- ------- ------ ------
Operating income (loss)............................... 758 (1,504) (1,753) (1,105) 2,035 213 1,098
------- ------- ------- ------- ------- ------ ------
Other income (expense):
Interest expense.................................... (434) (271) (213) (123) (94) (22) (25)
Other, primarily interest income.................... 134 298 164 148 114 19 62
------- ------- ------- ------- ------- ------ ------
Total other income (expense)................. (300) 27 (49) 25 20 (3) 37
------- ------- ------- ------- ------- ------ ------
Income (loss) before income taxes and cumulative
effect of change in accounting principle............ 458 (1,477) (1,802) (1,080) 2,055 210 1,135
Income taxes.......................................... 180 (115) (330) -- -- -- 375
------- ------- ------- ------- ------- ------ ------
Income (loss) before cumulative effect of change in
accounting principle................................ 278 (1,362) (1,472) (1,080) 2,055 210 760
Cumulative effect of change in accounting for
post-retirement benefits............................ -- (995) -- -- -- -- --
------- ------- ------- ------- ------- ------ ------
Net income (loss)..................................... $ 278 $(2,357) $(1,472) $ (1,080) $ 2,055 $ 210 $ 760
======= ======= ======= ======= ======= ====== ======
Net income (loss) per common and common equivalent
share:
Primary........................................... $ 0.06 $ (0.53) $ (0.36) $ (0.27) $ 0.50 $ 0.05 $ 0.17
======= ======= ======= ======= ======= ====== ======
Assuming full dilution............................ $ 0.06 $ (0.53) $ (0.36) $ (0.27) $ 0.46 $ 0.05 $ 0.17
======= ======= ======= ======= ======= ====== ======
Shares used in computing net income (loss) per common
and common equivalent share:
Primary........................................... 4,530 4,435 4,047 4,057 4,106 4,103 4,504
Assuming full dilution............................ 4,530 4,435 4,047 4,057 4,440 4,103 4,524
</TABLE>
<TABLE>
<CAPTION>
JUNE JUNE JUNE
26, JULY 2, JULY 1, 30, 30, SEPTEMBER 30,
1993 1994(1) 1995 1996 1997 1997
------- ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 4,172 $ 3,557 $ 2,140 $ 1,740 $ 3,807 $ 3,998
Working capital........................................... 17,560 16,245 13,258 12,914 15,042 16,040
Total assets.............................................. 28,470 27,942 23,365 21,794 25,973 27,521
Long-term debt, less current installments................. 2,482 1,760 1,052 680 453 453
Stockholders' equity...................................... 24,098 21,679 18,824 18,195 20,327 21,431
</TABLE>
- ---------------
(1) The year ended July 2, 1994 represents a 53 week fiscal year.
14
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the consolidated
financial statements for the Company and the notes thereto appearing elsewhere
in this Prospectus. The following discussion contains forward-looking statements
that involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
The Company was incorporated in New York in 1967. Historically, the Company
has principally engaged in designing and manufacturing microwave components and
subsystems for the defense industry. In fiscal 1995, the Company expanded its
capabilities in order to serve the emerging commercial wireless and satellite
communications markets.
In order to better serve its emerging commercial markets, the Company
reorganized into three internal business groups during the first quarter of
fiscal 1996: Wireless, Satellite Communications (formerly known as Radar and
Telecommunications) and Defense Electronics (formerly known as Electronic
Warfare). Each business group is composed of an independent engineering and
marketing/sales team whose purpose is to develop, market and deliver products to
its customers. The Company believes that the reorganization has resulted in
better responsiveness to customer needs and has enhanced fiscal accountability
throughout the organization.
During the third quarter of fiscal 1996, the Company terminated the
manufacturing operations of its European subsidiary, Anaren Microwave, Ltd. The
disposition of the net assets of this subsidiary resulted in a restructuring
charge of $810,000 during fiscal 1996. See Note 10 of Notes to Consolidated
Financial Statements.
The Company recognizes sales at the time products are shipped to its
customers. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
The Company believes that it develops a significant amount of intellectual
capital through funded research and development. Customer-funded design and
development in fiscal 1997 represented approximately $6.2 million in sales
compared to $2.0 million in fiscal 1996.
15
<PAGE> 17
RESULTS OF OPERATIONS
The following table sets forth the percentage relationships of certain
items from the Company's consolidated statements of operations as a percentage
of net sales for the periods indicated:
<TABLE>
<CAPTION>
YEAR THREE MONTHS ENDED
ENDED YEARS ENDED JUNE 30, SEPTEMBER 30,
JULY 1, -------------------- ------------------
1995 1996 1997 1996 1997
--------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales........................... 100.0% 100.0% 100.0% 100.0 % 100.0 %
Cost of sales....................... 72.7 65.3 67.1 70.5 62.9
Provision for losses on contracts... 1.7 0.0 0.0 0.0 0.0
----- ----- ----- ----- -----
Gross profit........................ 25.6 34.7 32.9 29.5 37.1
----- ----- ----- ----- -----
Operating expenses:
Marketing......................... 16.8 17.4 13.1 13.2 12.2
Research and development.......... 5.2 6.9 2.2 2.2 2.4
General and administrative........ 11.3 12.2 9.2 9.9 8.3
Restructuring..................... 2.0 4.7 0.0 0.0 0.0
----- ----- ----- ----- -----
Total operating
expenses................ 35.3 41.2 24.5 25.3 22.9
----- ----- ----- ----- -----
Operating income (loss)............. (9.7) (6.5) 8.4 4.2 14.2
----- ----- ----- ----- -----
Other income (expense):
Interest expense.................. (1.2) (0.7) (0.4) (0.4) (0.3)
Other, primarily interest
income......................... 0.9 0.9 0.5 0.3 0.8
----- ----- ----- ----- -----
Total other income
(expense)............... (0.3) 0.2 0.1 (0.1) 0.5
----- ----- ----- ----- -----
Income (loss) before income taxes... (10.0) (6.3) 8.5 4.1 14.7
Income taxes........................ (1.8) 0.0 0.0 0.0 4.9
----- ----- ----- ----- -----
Net income (loss)................... (8.2)% (6.3)% 8.5% 4.1 % 9.8 %
===== ===== ===== ===== =====
</TABLE>
The following table sets forth the Company's net sales by industry segment
for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JUNE 30, SEPTEMBER 30,
YEAR ENDED -------------------- ------------------
JULY 1, 1995 1996 1997 1996 1997
------------ ------- ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Wireless............................. $ 341 $2,097 $7,645 $ 862 $3,599
Satellite communications............. 3,239 5,642 8,518 2,478 1,496
Defense electronics.................. 14,416 9,343 8,064 1,726 2,626
------- ------- ------- ------ ------
$ 17,996 $17,082 $24,227 $5,066 $7,721
======= ======= ======= ====== ======
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
Net Sales. Net sales increased 52.4% to $7.7 million for the three months
ended September 30, 1997 from $5.1 million for the three months ended September
30, 1996. Sales of Wireless products consist of surface mount and custom
components used in building wireless base station equipment. Wireless sales
increased 317.5% to $3.6 million for the three months ended September 30, 1997
from $862,000 for the three months ended September 30, 1996. The increase was
due to continued strong demand in the worldwide market for base station
equipment. Sales of Satellite Communications products consist of custom
multi-layer components, such as Butler matrices and beamforming networks for
commercial and military communications. Satellite Communications sales decreased
39.6% to $1.5 million for the three months ended September 30, 1997 from $2.5
million for the three months ended September 30, 1996. The decrease was a result
of the completion of the initial product order for the Iridium program in the
last quarter of fiscal 1997 and a delay
16
<PAGE> 18
from the first to the second quarter of approximately $900,000 in shipments of
parts for satellite programs for Harris and Hughes. Sales of Defense Electronic
products consist of Digital Frequency Discriminators ("DFDs"), Digital RF
Memories ("DRFMs"), ESM receivers and Microwave Integrated Circuit components
("MICs"). Defense Electronics sales increased 52.1% to $2.6 million for the
three months ended September 30, 1997 from $1.7 million for the three months
ended September 30, 1996. The increase was a result of increased shipments of
DFDs and DRFMs for foreign sales of the Airborne Self Protection Jammer ("ASPJ")
system.
Gross Profit. Cost of sales consists primarily of engineering design
costs, material, fabrication costs, assembly costs and test costs. Gross profit
increased 92.0% to $2.9 million for the three months ended September 30, 1997
from $1.5 million for the three months ended September 30, 1996. Gross margin
was 37.1% for the three months ended September 30, 1997 compared to 29.5% for
the three months ended September 30, 1996. The increase in gross margin was due
to economies of scale and improved manufacturing efficiencies.
Marketing. Marketing expenses consist mainly of employee related expenses,
commissions paid to sales representatives, trade show, advertising and related
travel expenses. Marketing expenses increased 40.7% to $940,000 (12.2% of net
sales) for the three months ended September 30, 1997 from $668,000 (13.2% of net
sales) for the three months ended September 30, 1996. The increase was a result
of higher commission and advertising expenses related to increased sales volume
and further development of the marketing organization to support the Company's
expanding commercial markets.
Research and Development. Research and development expenses consist of
material and salaries and related overhead costs of employees engaged in ongoing
research, design and development activities associated with new products and
technology development. Gross research and development costs are reduced by
expense reimbursements received under a Technology Reinvestment Program through
Raytheon, for the Advance Research Project Agency of the United States
Government. Net research and development expenses increased 73.4% to $189,000
(2.4% of net sales) for the three months ended September 30, 1997, from $109,000
(2.2% of net sales) for the three months ended September 30, 1996. Research and
development expenses expanded to support the increased development of wireless
infrastructure products.
General and Administrative. General and administrative expenses increased
27.2% to $641,000 (8.3% of net sales) for the three months ended September 30,
1997 from $504,000 (9.9% of net sales) for the three months ended September 30,
1996. General and administrative expenses increased due to the hiring of
additional employees, increased staffing levels, higher professional fees and
normal increases in compensation levels for existing personnel.
Interest Expense. Interest expense represents interest paid on the
Company's outstanding term loan and letter of credit. Interest expense increased
13.6% to $25,000 (0.3% of net sales) for the three months ended September 30,
1997 from $22,000 (0.4% of net sales) for the three months ended September 30,
1996.
Other Income. Other income is primarily interest income received on
invested cash balances. Other income increased 226.3% to $62,000 (0.8% of net
sales) for the three months ended September 30, 1997 from $19,000 (0.3% of net
sales) for the three months ended September 30, 1996, due to a higher level of
investable cash balances in the current three month period.
Income Taxes. Income tax expense for the three months ended September 30,
1997 was $375,000 (4.9% of net sales), an effective tax rate of 33%. The Company
incurred no income tax for the three months ended September 30, 1996 due to the
utilization of substantially all of its available loss carryforwards and
recognizing available tax credits in fiscal 1997.
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Net Sales. Net sales increased 41.8% to $24.2 million for fiscal 1997 from
$17.1 million for fiscal 1996. Wireless sales increased 264.6% to $7.6 million
for fiscal 1997 from $2.1 million for fiscal 1996. The increase was primarily
due to significant shipments of custom base station components being built for
Lucent, Motorola and Nortel. Satellite Communications sales increased 51.0% to
$8.5 million for fiscal 1997 from $5.6
17
<PAGE> 19
million for fiscal 1996. The increase was a result of substantial sales for
contract engineering design work on two beamformers for commercial satellite
applications for Loral Space & Communications and Martin Marietta Overseas Corp.
Defense Electronics sales decreased 13.7% to $8.1 million for fiscal 1997 from
$9.3 million for fiscal 1996. The decrease was a result of the continuing
decline in the overall worldwide defense market, as well as the completion of a
large DFD program in fiscal 1996.
Gross Profit. Gross profit increased 34.5% to $8.0 million for fiscal 1997
from $5.9 million for fiscal 1996. Gross margin was 32.9% for fiscal 1997
compared to 34.7% for fiscal 1996. The decline in gross margin was a direct
result of lower margins on initial product runs of Wireless custom components
during the period due to excess scrap costs and rework costs incurred in
repairing production units above normal levels in fiscal 1997.
Marketing. Marketing expenses increased 6.7% to $3.2 million (13.1% of net
sales) for fiscal 1997 from $3.0 million (17.4% of net sales) for fiscal 1996.
This increase was caused mainly by additions to marketing personnel in Europe,
and a rise in commission expense due to a 41.8% increase in sales and a 23.7%
increase in advertising expenditures targeted mainly for the Company's wide
variety of new commercial Wireless products.
Research and Development. Research and development expenses decreased
54.4% to $540,000 (2.2% of net sales) for fiscal 1997 from $1.2 million (6.9% of
net sales) for fiscal 1996. This decline resulted from a significant increase in
customer funded engineering design work in both the Defense Electronics and
Satellite Communications groups during fiscal 1997.
General and Administrative. General and administrative expenses increased
7.9% to $2.2 million (9.2% of net sales) for fiscal 1997 from $2.1 million
(12.2% of net sales) for fiscal 1996. Approximately half of this increase was
attributable to normal increases in payroll costs for existing personnel, while
the remaining increase represents a small increase in new personnel, as well as
minor increases in professional services and stockholder expense.
Interest Expense. Interest expense decreased 23.6% to $94,000 (0.4% of net
sales) in fiscal 1997 from $123,000 (0.7% of net sales) in fiscal 1996,
reflecting the Company's continuing reduction of long-term debt.
Other Income. Other income decreased 23.0% to $114,000 (0.5% of net sales)
for fiscal 1997 from $148,000 (0.9% of net sales) for fiscal 1996, due to lower
investable cash balances caused by the Company's reduction of long-term debt.
Income Taxes. The Company incurred no income tax for fiscal 1997, versus
an expected tax expense of approximately $699,000 based on a 34% tax rate. The
difference between the actual tax expense and the expected tax calculated on
income before income taxes was due to the utilization of previously unrecognized
net operating loss carryforwards and to a decrease in the deferred tax asset
valuation allowance.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net Sales. Net sales decreased 5.1% to $17.1 million for fiscal 1996 from
$18.0 million for fiscal 1995. Wireless sales increased 515.0% to $2.1 million
for fiscal 1996 from $340,000 for fiscal 1995. The increase was primarily due to
sales of catalog microwave components and pilot production runs of custom
components for base station manufacturers. Satellite Communications sales
increased 74.2% to $5.6 million for fiscal 1996 from $3.2 million for fiscal
1995. The increase was attributable to increased shipments under the Army Ground
Based Radar program and shipments of beamforming networks to Raytheon for the
Iridium project. Defense Electronics sales decreased 35.2% to $9.3 million for
fiscal 1996 from $14.4 million for fiscal 1995. The decrease was a result of the
continuing decline in the overall worldwide defense market, as well as the
completion of a number of large DFD programs in fiscal 1994 and early fiscal
1995.
Gross Profit. Gross profit increased 28.6% to $5.9 million for fiscal 1996
from $4.6 million for fiscal 1995. Gross margin was 34.7% for fiscal 1996
compared to 25.6% for fiscal 1995. The increase in gross margin was the result
of higher sales volume at the Company's U.S. manufacturing facility, which
allowed for better absorption of fixed overhead costs, as well as personnel
reductions made in the second quarter of fiscal 1995.
18
<PAGE> 20
Marketing. Marketing expenses were flat at $3.0 million for fiscal 1996
and fiscal 1995, but increased as a percentage of net sales to 17.4% for 1996
from 16.8% for 1995.
Research and Development. Research and development expenses increased
26.2% to $1.2 million (6.9% of net sales) for fiscal 1996 compared to $939,000
(5.2% of net sales) for fiscal 1995. This increase represented the continuing
rise in the prototype development efforts for the Company's new wireless
commercial product line, as development efforts were targeted on adapting
existing Company technologies to produce new wireless component products to fit
specific customer requirements.
General and Administrative. General and administrative expenses increased
1.7% to $2.1 million (12.2% of net sales) for fiscal 1996 from $2.0 million
(11.3% of net sales) for fiscal 1995. This increase represented normal recurring
increases in payroll expenditures.
Interest Expense. Interest expense decreased 42.3% to $123,000 (0.7% of
net sales) for fiscal 1996 from $213,000 (1.2% of net sales) for fiscal 1995,
reflecting the Company's reduction of long-term debt.
Other Income. Other income decreased 9.8% to $148,000 (0.9% of net sales)
for fiscal 1996 from $164,000 (0.9% of net sales) for fiscal 1995, due to lower
investable cash balances caused by the Company's reduction of long-term debt.
Income Taxes. The Company incurred no income tax for fiscal 1996, versus
an expected tax benefit of approximately $367,000 based on a 34% tax rate. The
primary difference between the actual tax expense and the expected tax benefit
calculated on the loss before income taxes was due to the Company's equity in
the operating loss of its English subsidiary, which is not subject to U.S.
taxation, and offset by a decrease in the deferred tax asset valuation
allowance.
19
<PAGE> 21
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly financial
information for each of the Company's last nine quarters and such data expressed
as a percentage of net sales. The data have been prepared on a basis consistent
with the Company's audited consolidated financial statements included elsewhere
in this Prospectus and include all necessary adjustments, consisting only of
normal recurring accruals that management considers necessary for a fair
presentation. The operating results for any quarter are not necessarily
indicative of results for any future period. See "Risk Factors."
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................. $ 4,449 $4,442 $ 4,102 $4,089 $ 5,066 $5,314 $ 6,059 $7,788 $ 7,721
Cost of sales............. 2,809 2,745 2,914 2,679 3,572 3,481 3,996 5,194 4,853
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit.............. 1,640 1,697 1,188 1,410 1,494 1,833 2,063 2,594 2,868
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Marketing............... 667 798 831 674 668 762 896 844 940
Research and
development........... 385 376 229 195 109 122 150 159 189
General and
administrative........ 508 533 529 505 504 564 562 609 641
Restructuring........... -- -- 810 -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.......... 1,560 1,707 2,399 1,374 1,281 1,448 1,608 1,612 1,770
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss)... 80 (10) (1,211) 36 213 385 455 982 1,098
------ ------ ------ ------ ------ ------ ------ ------ ------
Other income (expense):
Interest expense........ (43) (31) (26) (23) (22) (30) (20) (22) (25)
Other, primarily
interest income....... 28 53 39 28 19 16 28 51 62
------ ------ ------ ------ ------ ------ ------ ------ ------
Total other income
(expense)......... (15) 22 13 5 (3) (14) 8 29 37
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes............ 65 12 (1,198) 41 210 371 463 1,011 1,135
Income taxes.............. -- -- -- -- -- -- -- -- 375
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)......... $ 65 $ 12 $(1,198) $ 41 $ 210 $ 371 $ 463 $1,011 $ 760
====== ====== ====== ====== ====== ====== ====== ====== ======
Net income (loss) per
common and common
equivalent share
Primary............... $ 0.02 $ -- $ (0.30) $ 0.01 $ 0.05 $ 0.09 $ 0.11 $ 0.25 $ 0.17
====== ====== ====== ====== ====== ====== ====== ====== ======
Assuming full
dilution............ $ 0.02 $ -- $ (0.30) $ 0.01 $ 0.05 $ 0.09 $ 0.11 $ 0.23 $ 0.17
====== ====== ====== ====== ====== ====== ====== ====== ======
Shares used in computing
net income (loss) per
common and common
equivalent share:
Primary............... 3,998 4,032 4,045 4,057 4,103 4,104 4,104 4,106 4,504
Assuming full
dilution............ 3,998 4,032 4,045 4,057 4,103 4,104 4,104 4,440 4,524
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1995 1996 1996 1996 1996 1997 1997 1997
--------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............. 63.1 61.8 71.0 65.5 70.5 65.5 66.0 66.7 62.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit.............. 36.9 38.2 29.0 34.5 29.5 34.5 34.0 33.3 37.1
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Marketing............... 15.0 18.0 20.3 16.5 13.2 14.3 14.8 10.8 12.2
Research and
development........... 8.7 8.4 5.6 4.8 2.2 2.3 2.5 2.1 2.4
General and
administrative........ 11.4 12.0 12.9 12.3 9.9 10.6 9.2 7.8 8.3
Restructuring........... -- -- 19.7 -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses.......... 35.1 38.4 58.5 33.6 25.3 27.2 26.5 20.7 22.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss)... 1.8 (0.2) (29.5) 0.9 4.2 7.3 7.5 12.6 14.2
------ ------ ------ ------ ------ ------ ------ ------ ------
Other income (expense):
Interest expense........ (0.9) (0.7) (0.6) (0.6) (0.5) (0.6) (0.3) (0.3) (0.3)
Other, primarily
interest income....... 0.6 1.2 0.9 0.7 0.4 0.3 0.4 0.7 0.8
------ ------ ------ ------ ------ ------ ------ ------ ------
Total other income
(expense)......... (0.3) 0.5 0.3 0.1 (0.1) (0.3) 0.1 0.4 0.5
------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes............ 1.5 0.3 (29.2) 1.0 4.1 7.0 7.6 13.0 14.7
Income taxes.............. -- -- -- -- -- -- -- -- 4.9
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)......... 1.5% 0.3% (29.2)% 1.0% 4.1% 7.0% 7.6% 13.0% 9.8%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
20
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations for fiscal 1996, 1997 and for the
three months ended September 30, 1997 primarily from cash flow from operations.
Net cash provided by operations for the fiscal years ended June 30, 1996 and
1997 was $978,000 and $3.5 million, respectively, while net cash provided by
operations for the three months ended September 30, 1997 was $227,000. The
increase in cash provided by operations in fiscal 1997 compared to fiscal 1996
was due primarily to the $2.1 million profit in fiscal 1997 and a $754,000
increase in advance payments from customers which offset the increases in
inventory and receivables caused by higher sales volume. The decrease in cash
provided by operations for the three months ended September 30, 1997, compared
to the same period in fiscal 1997, resulted primarily from continuing increases
in inventory levels due to higher production volume.
Net cash used in investing activities consists solely of capital
expenditures. Capital equipment additions in fiscal 1996, fiscal 1997 and for
the three months ended September 30, 1997 amounted to $1.1 million, $1.2 million
and $378,000, respectively. These capital investments consisted primarily of
equipment needed to further automate production for the Company's new Wireless
and Satellite Communications products, as well as testing and production
equipment required to produce Defense Electronics products for the initial
production of the ASPJ program. Capital equipment expenditures for fiscal 1998
have been budgeted at approximately $1.5 million and are expected to consist
primarily of additional automated high volume production equipment to further
expand production capacity for the new Wireless products. The Company believes
that cash generated from operations and currently existing cash balances will be
adequate to meet these financing needs.
Net cash used in financing activities for fiscal 1996 and 1997 was $239,000
and $316,000, respectively, and consisted primarily of scheduled payments on
long-term debt and, to a lesser extent, proceeds from the exercise of stock
options. Net cash provided by financing activities in the first three months of
fiscal 1998 was $342,000 and was primarily cash generated by the exercise of
stock options, as no payments on the Company's term loan were due in the first
quarter.
Long-term liabilities, which consist of the Company's unfunded liability
for postretirement benefit costs, long-term debt in the form of a commercial
term loan and deferred income taxes, decreased $309,000 and $119,000 in fiscal
1996 and 1997, respectively. The decline in both fiscal years represents
scheduled repayment of debt. The Company presently has no plans to fund the
long-term liability recognized for postretirement benefit costs. No new
long-term debt, other than the transfer of its term loan to a new lender, was
taken on during this two year period, as the Company's cash balances were more
than adequate to fund both long- and short-term cash needs. Long-term
liabilities decreased $43,000 for the three months ended September 30, 1997, due
mainly to a change in deferred income taxes.
In October 1996, the Company signed an agreement for a credit facility with
a bank providing for a $3.0 million working capital revolving line of credit
bearing interest at the prime rate plus 1% and maturing on November 30, 1998, as
well as a $907,000 term loan payable in semi-annual installments of $113,000
through May 2000 and bearing interest at the prime rate plus 1.25%. The proceeds
of the term loan were used to refinance existing Onondaga County Industrial
Development Agency Revenue bonds of the Company, while the revolving line of
credit has been and will be used to supplement short-term working capital needs
brought about by expected growth in production and sales volumes. Borrowings
under this credit facility are secured by substantially all the assets of the
Company. The terms of the credit facility require the Company to maintain a
minimum tangible net worth, ratio of cash flows to maturities, and leverage
ratio, as defined in the respective agreements; the Company was in compliance
with all restrictions and covenants under its credit facilities at September 30,
1997.
The Company believes that its cash requirements for at least the next 12
months will be satisfied by the proceeds from this offering, currently invested
cash balances, expected cash flow from operations and funds available under its
credit facilities. See "Use of Proceeds."
21
<PAGE> 23
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standard No. 123,
Accounting for Stock-based Compensation ("SFAS 123"), beginning with the first
quarter of fiscal 1997. Upon adoption of SFAS 123, the Company continued to
measure compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by APB No. 25, Accounting for Stock
Issued to Employees. The consolidated financial statements appearing elsewhere
in this Prospectus include pro forma disclosures of the effect on net income and
earnings per share as if the fair value-based method prescribed by SFAS 123 has
been applied in measuring compensation expense. See Note 6 of Notes to
Consolidated Financial Statements.
Statement of Financial Accounting Standard No. 128, Earnings Per Share
("SFAS 128"), was issued in February 1997. SFAS 128 specifies the computation,
presentation, and disclosure requirements for earnings per share. Adoption of
SFAS 128 will be required for the Company beginning in the second quarter of
fiscal 1998. Adoption of SFAS 128 is not expected to have a material effect on
the Company's operating results.
Additionally, Statement of Financial Accounting Standard No. 131,
Disclosures About Segments of an Enterprise and Related Information ("SFAS 131")
was issued in 1997. SFAS 131 establishes standards for the reporting of
information about operating segments and related disclosures about products and
services, geographic areas, and major customers. Adoption of SFAS 131 will be
required in fiscal 1999, and will require interim disclosures beginning in
fiscal 2000. Adoption of SFAS 131 is not expected to have a material effect on
the Company's financial statement disclosures.
22
<PAGE> 24
BUSINESS
GENERAL
Anaren designs, develops, manufactures and sells complex microwave signal
distribution networks and components for the wireless communications, satellite
communications and defense electronics markets. The Company utilizes its
advanced, proprietary "Multi-Layer Stripline" technology to deliver compact,
lightweight, cost effective and highly integrated microwave products into the
rapidly expanding markets for cellular/Personal Communications Systems ("PCS")
base stations, microcells and new generations of communications satellites.
Anaren's customer base includes leading global systems suppliers for these
markets, including Motorola, Lucent, Nortel, Ericsson, Lockheed Martin, Loral
Space Communications and Hughes. The Company is also a leading provider of
electronic counter measure subsystems which primarily protect fighter aircraft.
The Company has leveraged over 30 years of microwave expertise to rapidly
develop and implement leading commercial microwave products, with commercial
sales growing from approximately $900,000 in fiscal 1995 to over $16 million,
representing 67% of total Company sales, in fiscal 1997.
INDUSTRY BACKGROUND
Worldwide demand for telecommunications services has grown rapidly in
recent years, including basic telephony, mobile cellular communications, video
broadcast, high speed data transmission and paging. Mobile communications serve
basic needs for convenience and flexibility and have grown at rates higher than
the overall market for telecommunications services. This trend has led to
increased growth in the number of subscribers for existing and emerging wireless
applications that are served by terrestrial and satellite based networks. This
demand has resulted in an increased need for cost effective and reliable
telecommunications equipment among service providers.
Telecommunications networks require interconnections and transmission
systems to link geographically dispersed nodes and to provide access to
customers and end users. Available transmission technologies include
twisted-pair copper, coaxial cable, fiber optic cable, microwave radio
technology and satellite broadcast technology. Wireless solutions, microwave and
satellite, offer advantages over wireline, including typically lower cost of
implementation and relatively rapid infrastructure deployment. Wireless
solutions are especially superior where geographically dispersed customers or
operations, difficult terrain and environmental constraints render the
installation of copper, coaxial cable or fiber optic cable impractical or
prohibitively expensive.
Wireless Communications
The demand for cellular, PCS and wireless local loop ("WLL") (collectively,
"wireless") communications services has grown significantly during the past
decade, fueled by decreasing prices for wireless handsets, a more favorable
regulatory environment, increasing competition among service providers and a
greater availability of services and microwave spectrum. In addition, many
developing countries are installing wireless telephone networks as an
alternative to installing, expanding or upgrading traditional wireline networks.
Emerging bi-directional wireless data transmission applications have the
potential to further expand the market for wireless communications by allowing
service providers to increase revenue-generating traffic on their networks.
Industry sources estimate that the number of cellular and PCS subscribers in
North America will increase from approximately 47 million at the end of 1996 to
approximately 140 million by the end of 2000. In addition, industry sources
project that the number of cellular and PCS subscribers worldwide will grow from
136 million at the end of 1996 to 520 million by the end of 2000.
The growth in wireless communications has required, and will continue to
require, substantial investment by service providers in infrastructure
equipment. Industry sources estimate that spending by wireless service providers
on infrastructure equipment was approximately $21.0 billion at the end of 1996
and will increase to approximately $44.0 billion by the end of 2000.
23
<PAGE> 25
A typical wireless communications system comprises a geographic region
containing a number of cells, each of which contains a cell site (or base
station), which are networked to form a service provider's coverage area. Each
base station houses the equipment that receives incoming telephone calls from
the switching offices of the local wireline telephone company and broadcasts
calls to the wireless users within the cell. A base station can process a fixed
number of radio channels, through the use of multiple transceivers, power
amplifiers and tunable filters, along with an antenna to receive and transmit
signals to and from the wireless telephone user.
Traditional cellular systems, which are based on analog technology, are
capable of carrying only one call per channel of spectrum. The continuing growth
of the wireless communications market has resulted in the crowding of
transmissions within the available spectrum. Because the radio frequencies
assigned to transmissions are fixed, service providers are now seeking new
methods to more efficiently use the spectrum to increase capacity. Analog
systems are being supplanted by digital systems, which convert voice
transmissions into bits of electronic information, allowing more calls per
carrier frequency, improved quality and improved security, thereby significantly
increasing the performance of a given wireless network. In addition to digital
cellular networks, which operate within the 800 MHz and 900 MHz bandwidths,
service providers have also begun to construct PCS networks operating within the
1800 MHz and 2000 MHz bandwidths. PCS networks generally require two to three
times as many base stations as cellular networks. As a consequence of these
factors, wireless service providers must anticipate evolving industry standards,
and must invest in infrastructure equipment that both maximizes efficiency in
the management of the limited spectrum licensed to them, and is available in
volume for rapid deployment. There is also strong demand for wireless
infrastructure manufacturers to provide improved performance in smaller, more
cost effective cells and microcells which operate at higher frequencies.
Satellite Communications
Satellites provide a number of advantages over terrestrial facilities for
many high-speed communications service applications. First, satellites enable
high-speed communications service where there is no suitable terrestrial
alternative available, or where the terrestrial alternative is inadequate.
Second, unlike the cost of terrestrial networks, the cost to provide services
via satellite does not increase with the distance between sending and receiving
stations. Finally, in contrast to the installation of fiber optic cable,
satellite networks can be rapidly and cost-effectively deployed.
Demand for commercial satellites is determined by several factors
including: growth in demand for new satellite-based applications such as mobile
telephone services, business networking, direct-to-home television and related
voice, video and data systems; development of new satellite-based communications
architectures to provide basic telephone and television services in developing
regions of the world; and replenishment of orbiting satellite constellations
nearing the end of their useful lives. During the ten year period from 1997 to
2006, substantial launch activity for commercial satellites is expected.
Industry sources estimate that during this period 1,062 commercial satellites
will be launched into either low Earth orbit ("LEO") or medium Earth orbit
("MEO"), and 273 commercial satellites will be launched into geostationary Earth
orbit ("GEO"). There are at least four large-scale telecommunications projects
(Iridium, Global Star, ICO and Teledesic) in various stages of development and
implementation that are contributing to the demand for commercial satellites.
Launch cost and capacity, which are directly related to satellite size and
weight, are significant factors in the viability of these proposed systems. As a
result, current commercial satellite designs are being driven to incorporate
lighter weight, smaller and more highly integrated subsystems and components.
Due to the narrowband frequency (10MHz) allocated for commercial
satellites, system planners have moved from the traditional approach of
broadcasting signals over a large area of the Earth, to receiving and
transmitting via many small beams that cover much smaller areas of the Earth
(multi-beam transmission). The advantage of multi-beam transmission and
reception is that the same frequency can be used by different callers in
different beams (frequency re-use), allowing for significantly higher caller
capacity with the same amount of frequency allocation and increased system
sensitivity to allow for the use of lower-powered
24
<PAGE> 26
handsets. Caller capacity and system sensitivity increase approximately in
proportion to the number of beams per satellite.
In addition, new multi-satellite systems are being developed in order to
provide the same global coverage for wideband (500MHz) services such as
video-conferencing, data transmission, Internet access, and other multi-media
applications. These applications require significantly more bandwidth than
current voice communications systems because the information content in the
transmitted signal is much greater for these new applications. To implement
these systems, much wider frequency band allocations are required than have been
granted for existing voice communications systems. Such large bandwidth
allocations are not available at the operating frequencies of current
communications systems and regulatory authorities, therefore, have provided
wideband frequency allocations at 20-30GHz, where a more limited base of
technology is available to implement the proposed systems. These proposed
systems are significantly more complex than current systems in that system
operators desire substantially more beams and increased flexibility. With
real-time adjustment of the size and location of the Earth being covered by a
particular beam and by incorporating signal switching networks into the
satellite payload, substantial improvements in system performance and
utilization rates can be achieved, thereby substantially increasing the revenue
generating ability of a satellite system. Increasingly, satellite system
developers are incorporating what has traditionally been ground-based
infrastructure into the satellite payload to improve system performance.
THE ANAREN SOLUTION
Anaren has developed a system of proprietary processes, called "Multi-Layer
Stripline" ("MLS") technology, which enable the Company to deliver compact,
lightweight, cost effective and highly integrated complex microwave signal
distribution and interconnection networks for wireless and satellite
communication systems. The MLS process integrates multiple layers of microwave
circuitry, allowing the elimination of discrete components and discrete
microwave cables, dramatically reducing size, cost and weight while improving
performance. The MLS technology is used in combination with the Company's
extensive proprietary design libraries and turnkey design, development and
manufacturing capabilities which are required to provide custom solutions for
major OEM customers. This technology has been implemented into products
utilizing passive components, including beamforming networks and signal
distribution networks, and is currently being utilized by the Company to
incorporate active devices, including switches, phase shifters and amplifiers.
TECHNOLOGY
Traditional stripline technology, which the Company has historically
utilized in its Defense Electronics product line, consists of circuit runs
etched on dielectric sheets that are sandwiched in a precision machined aluminum
case. The case provides grounding on the top and bottom, and also provides a
structure on the edge for mounting connectors. Integration is achieved through
connecting multiple stripline components via numerous cables.
Multi-Layer Stripline technology is a technique of processing stripline
circuits, in which multiple layers of etched stripline circuits are laminated
together in a manner that is similar to digital Printed Circuit Board ("PCB")
manufacturing, but with superior microwave characteristics. Like PCB
manufacturing, layers can be interconnected via plated-through holes. The
Company's proprietary techniques, however, enable it to implement multi-layer
transitions that perform optimally at microwave frequencies. Unlike PCB
manufacturing, simply connecting the appropriate points on the multi-layer board
does not ensure adequate performance. In order to achieve optimal microwave
performance consistently, material and process variations must be tightly
controlled, and the circuit design must take into consideration all variation in
the manufacturing process. The Company's microwave design engineering staff has
developed proprietary modeling techniques and component design libraries that
allow for consistent and efficient design and production of complex microwave
products.
25
<PAGE> 27
['MULTI-LAYER STRIPLINE GRAPHIC']
After laminating multiple layers of etched stripline layers into a
multi-layer assembly, the entire exterior of the assembly is plated, rather than
being incorporated into a machined aluminum case. Extensive integration is
achieved through the multi-layer integration process, resulting in increased
performance and substantial size, weight and cost reductions.
The Company's microwave antenna beamforming technology, developed in the
defense industry, coupled with its MLS manufacturing process, produces
lightweight, cost-effective L band beamforming networks for Motorola's Iridium
Program. These passive networks provide multibeam coverage where the size and
direction of beams is fixed. Additionally, the Company is utilizing its MLS
technology and microwave design experience to develop cost effective solutions
for high data rate transmission applications, such as Internet access and
multi-media communications. In conjunction with Raytheon, the Company is
developing a next generation of its MLS technology to address applications at
20-30GHz. In addition, the Company has developed high density microwave switch
matrices by incorporating active microwave switches into its passive MLS
technology, and is currently qualifying a production subsystem for a commercial
communications satellite program. These switch matrices are a key element in
providing the flexibility that system designers desire. In addition, the Company
is developing active beamforming networks, in which the size and direction of
the beams being produced can be remotely manipulated in real-time. Through these
advancements, system operators can direct capacity in response to changes in
demand, and more efficiently utilize their space infrastructure assets.
STRATEGY
The Company's strategy is to continue to leverage its proprietary
Multi-Layer Stripline technology, extensive proprietary microwave design
libraries, and turnkey design, development and manufacturing capabilities to
further expand its penetration in the wireless communications and satellite
communications markets. Key components of the Company's strategy include the
following:
Increase Levels of Component Integration and Value Added Content. The
Company plans to increase the value of its content in wireless and satellite
communications systems. Through its MLS manufacturing technology, the Company is
able to integrate multiple discrete functions into a single assembly.
Integration of active technologies, such as switching and amplification, into
its MLS assemblies would significantly broaden the array of functions that can
be integrated by the Company on satellite and terrestrial wireless communication
systems.
Further Expansion into Commercial Markets. The Company has 30 years'
experience in microwave technology used in designing and manufacturing complex
microwave subsystems for the defense market. During the past three years, the
Company has successfully expanded into the commercial satellite and wireless
communications markets as demonstrated by its revenue growth from commercial
applications to 67% of net sales in fiscal 1997 from 5% in fiscal 1995.
Maintain Leadership in Microwave Technology. The Company intends to pursue
further technological advances through continued investment in research and
development. The Company will seek to advance its
26
<PAGE> 28
leadership in microwave technology by continuing its participation in selected
defense and satellite programs that involve highly sophisticated,
state-of-the-art microwave technology. The Company will continue to leverage
these technological advancements into its terrestrial wireless products, as well
as other commercial applications.
Strengthen and Expand Customer Relationships. The commercial wireless and
satellite communications markets are driven by a limited number of large systems
manufacturers. The Company has developed customer relationships with many of
these manufacturers, including Motorola, Lucent, Ericsson and Nortel for
wireless communications and Lockheed Martin, Hughes, Loral Space &
Communications and TRW for satellite communications. The Company intends to
continue to build strong technical and business relationships with major
customers that are global industry leaders that will provide opportunities for
recurring high volume supply contracts.
Enhance Capabilities as Turnkey Supplier. The Company has in place
extensive design libraries, automated manufacturing equipment and statistical
process controls which have enabled it to competitively manufacture high volume
MLS assemblies. The Company intends to continue to expand, improve and automate
its design, manufacturing and test capabilities to provide innovative, cost
effective solutions. The Company believes that these investments are necessary
to maintain and enhance its position as a turnkey supplier to industry-leading
OEMs.
PRODUCTS
Wireless Communications
The Company provides custom microwave signal distribution networks to
leading wireless infrastructure equipment manufacturers. Traditionally, all of
the signal distribution (combining and splitting) within a base station has been
accomplished with discrete signal splitting/combining components with discrete
microwave cables providing the necessary interconnectivity. Through the use of
its MLS technology, the Company provides highly integrated microwave signal
distribution networks that eliminate the need for discrete componentry and
interconnecting cables. These integrated assemblies, which range from simple
splitting and combining networks to complete microwave backplanes, distribute
microwave signals throughout the base station, from reception at the antenna, to
multiple radios, to multiple amplifiers, and back to the antenna for
transmission. Much like the mother board in a personal computer efficiently
provides interconnectivity of digital signals between multiple subsystems, the
Company's microwave signal distribution networks provide efficient
interconnectivity of microwave signals between subsystems in wireless base
stations.
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<PAGE> 29
A typical base station is made up of a receive/transmit antenna and an
array of radios and signal amplifiers, as depicted below.
[Graphic showing path of signals from antenna to base station, through the
interior of the base station and back out to antenna. The location of the
Company's "Xinger(R)" and custom products used in amplifiers is identified.
Locations showing areas of opportunity for the Company's signal
distribution/combination assemblies are shown. The caption reads as follows:
"Signals that are received from a subscriber's handset at the base station
antenna are distributed to one of several (typically dozens) radios within the
base station to be processed and to be passed to the digital wireline network.
The radios also take the incoming signals from the wireline network, process
them for transmission and distribute them to power amplifiers to boost the
strength of the signal. The amplified signals are then combined and sent back
out the base station antenna to the subscriber's handset."]
In addition to providing custom integrated system level signal distribution
solutions to wireless OEMs, the Company has developed and markets a line of
standard surface mount microwave signal splitting and combining components,
trade named Xinger(R), that are used in terrestrial wireless communications base
station amplifiers. The Company originally developed these products in response
to customers' needs for economical, high power signal splitting and combining
components that could be utilized in an automated production environment. The
Company is currently the market leader in this product area, supplying industry
leading OEMs such as Ericsson, Motorola and Lucent, as well as leading power
amplifier manufacturers such as Powerwave Technologies, Inc. and Spectrian
Corporation.
Satellite Communications
The Company is a supplier of passive (fixed) beamforming networks for
communications satellite multi-beam antennas. These products are custom designed
for a particular satellite program, and determine the number, size and quality
of beams that are produced from a single antenna array. Multibeam satellite
antennas, which can have more than 100 independently modulated beams, require
very complex microwave signal distribution matrices, which would be too bulky,
heavy and unreliable for use in satellites if they used
28
<PAGE> 30
conventional microwave interconnection techniques. These networks are utilized
by leading communications satellite manufacturers to achieve the desired ground
coverage and to provide the desired capacity allocation. Through the forming of
multiple beams, service providers are able to allocate a satellite's capacity
based on projected demand, and to increase the number of callers that can be
serviced simultaneously. In addition, the Company has recently developed the
capability to produce high-density microwave switch matrices which allow the
dynamic allocation of satellite capacity, thereby increasing utilization and
revenue generation.
[Graphic showing two communications stations on the ground transmitting
information to two orbiting satellites. A group of satellites form a grid in
the sky, with two communications satellites forming multiple beams, which are
projected on the ground, to allocate capacity based on the projected demand. The
caption reads as follows: "Multi-beam transmission allows different beams to
use the same frequency for different callers (frequency re-use) thereby greatly
expanding caller capacity with the same amount of frequency allocation."]
Defense Electronics
The Company is a leading supplier of certain subsystem products to the
defense electronics market, including Digital Frequency Discriminators ("DFDs")
and Digital RF Memories ("DRFMs"). These products are vertically integrated
within the Company utilizing advanced stripline, Application Specific Integrated
Circuits ("ASIC"), digital and signal processing technologies. DFD products
rapidly measure the frequency and other characteristics of radar signals. This
information is then used in electronic warfare systems to identify, classify
and/or counter radar systems. DRFM products digitize and store radar signals,
and can reproduce them in real time to counter advanced radar systems. DRFM
products are currently the only technology available that can replicate radar
signals with sufficient fidelity to counter today's advanced radar systems.
The Company also produces a wide range of standard component products for
defense applications. These products include mixers, couplers, power dividers,
pin attenuators and correlators that are utilized in a variety of electronic
warfare applications to perform various RF and microwave functions including
signal distribution, measurement and frequency conversion.
CUSTOMERS
Wireless Communications. The Company sells its custom wireless products to
major wireless infrastructure OEMs including Motorola, Nortel, Lucent and
Ericsson. In addition, the Company sells its standard line of Xinger(R)
components to leading OEMs and a broad range of other wireless equipment
manufacturers.
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<PAGE> 31
Satellite Communications. The Company currently sells satellite
communications subsystems to the world's leading satellite manufacturers,
including Lockheed Martin, Hughes, Loral Space & Communications and TRW. The
Company's subsystems are found on LEO satellite communications networks like
Motorola's Iridium program, as well as regional GEO communications satellites
for Lockheed Martin. The Company is now actively involved in developing products
for a number of major, near-term commercial satellite programs.
Defense Electronics. The Company currently sells its defense electronics
products to the United States and foreign governments through prime contractors
such as Raytheon, ITT, Lockheed Martin and Racal, Ltd. The Company's DRFMs are
being utilized in ITT Avionic's portion of the Sanders division of Lockheed
Martin's IDECM program, an RF countermeasures subsystem to be used on multiple
platforms, including Navy F/A-18s and Air Force B-1B Lancer Jet bombers. In
addition, the Defense Electronics group has teamed with Lockheed Martin in the
development of a passive emitter location subsystem. The Company has also teamed
with a large defense OEM on a new, custom ASIC converter chip for
next-generation receivers.
SALES AND MARKETING
The Company markets its products worldwide to OEMs in commercial markets
and prime contractors in defense markets primarily through a sales force of 15
people generally organized by geographic territory and market segment. In
addition, the Company has contracts with 17 manufacturers' representatives in
the United States and 24 international representatives which are located in
Western Europe, the Middle East and Asia. As part of its marketing efforts, the
Company advertises in major trade publications and attends major industry shows
in the commercial wireless communications and defense markets.
After the Company has identified key potential customers in its market
segments, the Company makes sales calls with its own sales, management and
engineering personnel and its manufacturers' representatives. Many of the
companies entering the wireless communications markets possess expertise in
digital processing, but have relatively little experience in analog signal
processing and wireless transmission. In order to promote widespread acceptance
of its products and provide customers with support for their wireless
communications needs, the Company's sales and engineering teams work closely
with its customers to develop tailored solutions to their wireless requirements.
The Company believes that its customer engineering support provides it with a
key competitive advantage.
BACKLOG
The Company's total backlog of orders was $32.8 million and $23.3 million
at June 30, 1997 and 1996, respectively. The Company's wireless products
accounted for approximately 6% and 16% of backlog at June 30, 1997 and 1996,
respectively. Satellite communications products comprised approximately 37% and
18% of backlog at June 30, 1997 and 1996, respectively. Defense Electronics
products accounted for approximately 57% and 66% of backlog at June 30, 1997 and
1996, respectively.
All of the orders included in backlog are covered by signed contracts or
purchase orders. However, backlog is not necessarily indicative of future sales,
particularly with respect to the Company's Wireless group. Accordingly, the
Company does not believe that its backlog as of any particular date is
representative of actual sales for any succeeding period. As part of the
Company's close working relationships with its major wireless communications
customers, these customers expect the Company to respond quickly to changes in
the volume and delivery schedule of their orders, and if necessary, to inventory
products at the Company's facilities for just-in-time delivery. Therefore,
although contracts with these customers typically specify aggregate dollar
volumes of products to be purchased over an extended time period, these
contracts also provide that scheduled shipment dates of particular volumes are
generally released to the Company only a few days or weeks prior to the actual
required delivery dates. In addition, the Company's customers may cancel or
defer orders without significant penalty.
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<PAGE> 32
RESEARCH AND DEVELOPMENT
The Company's research and development efforts are focused on design,
development, engineering and implementation activities. These activities include
customer-funded design and development, as well as efforts funded directly by
the Company.
The Company's net sales for fiscal 1997 included approximately $6.2 million
paid by customers for the design and development of products to meet their
specific requirements. In any given year, the amount of customer funding for
design and development can vary widely depending upon the status of particular
contracts. The Company typically is not restricted in its use of technologies
developed through customer funding.
Research and development costs are charged to expense as incurred. The
Company receives fees under a technology development contract and such fees are
recorded as a reduction of research and development costs as work is performed
pursuant to the related contract and as defined milestones are attained. In
fiscal 1997, Company funded research and development expenses were $540,000, net
of recognized product development fees of $339,000 under the contract. Prior to
fiscal 1997, the Company did not engage in technology development contracts.
Company funded research and development expenses were $939,000 in fiscal
1995 and $1.2 million in fiscal 1996 and were funded solely from the Company's
current operating budget. Company funded research and development expenditures
during the three months ended September 30, 1997 were approximately $189,000.
The Company's current development efforts include: (i) advanced MLS
manufacturing processes for use in low-cost, light-weight satellite and wireless
applications; (ii) advanced manufacturing technology to produce millimeter wave
stripline structures for communication satellite applications; (iii) products
for use in cellular, PCS and other terrestrial wireless base station equipment
for both mobile and fixed wireless applications; and (iv) technologies for
airborne receiver systems.
MANUFACTURING
The Company's manufacturing operations are vertically integrated from the
production of specialized hybrid circuits to the final assembly of complete
subsystems such as DRFMs and antenna beamforming networks. Most of the Company's
contracts for assemblies and subsystems have required engineering efforts to
modify existing Company products to meet a particular customer's technical
needs.
The Company manufactures its products from standard components, as well as
from items which are manufactured by vendors to the Company's specifications. A
majority of the Company's commercial and defense electronics assemblies and
subsystem products contain proprietary MLS technology which is designed and
tested by the Company's engineers and technicians and is manufactured at the
Company's own facilities.
The Company continues to invest in the advancement of its proprietary MLS
manufacturing processes and in automation of the manufacturing processes of its
Wireless group. Automation is critical in meeting its customers' demands for
price improvement competitiveness, world class quality and on-time delivery. The
Company is also investing to enhance its responsiveness to increased production
demands from its wireless customers, as well as the need to accommodate
unpredictable surges in production rates that are common in this market.
The raw materials utilized in the Company's various product areas are
readily accessible. The Company purchases most of its raw materials from a
variety of vendors and most of these raw materials are available from a number
of sources. The Company has one vendor from which it makes approximately 10% of
its total raw material purchases, but the Company believes that alternate
sources of supply are readily available for these and all other products
purchased.
The Company utilizes skilled permanent and contract personnel in the
manufacture of its products. Quality assurance checks are performed on
manufacturing processes, purchased items, work-in-process and
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<PAGE> 33
finished products. Due to the complexity of the Company's products, final tests
are performed on some products by highly skilled engineers and technicians.
COMPETITION
The microwave component and subsystems industry is highly competitive and
the Company competes against many companies, both foreign and domestic, many of
which are larger, have greater financial resources and are better known. As a
supplier to prime contractors and OEMs, the Company also experiences significant
competition from the in-house capabilities of its actual and prospective
customers in all three of its market segments. Other competitors include
Electromagnetic Sciences, Inc. (satellite), S.T. Microwave, Inc. (defense), the
M/A-Com division of AMP, Inc., Mini Circuits Inc. and Filtronic Comtek, Inc.
The principal competitive factors in both the domestic and foreign markets
are technical performance, reliability, ability to produce, on time delivery and
price. Based on a combination of these factors, the Company believes that it
competes favorably in its markets. The Company's most important competitive
attributes are its emphasis on technical superiority and its ability to produce
in quantity to specific delivery schedules.
GOVERNMENT REGULATION
The Company's wireless communications products are incorporated into
wireless telecommunications systems that are subject to regulation domestically
by the FCC and internationally by other government agencies. In addition,
because of its participation in the defense industry, the Company is subject to
audit from time to time for its compliance with government regulations by
various governmental agencies. The Company is also subject to a variety of
local, state and federal governmental regulations relating to, among other
things, the storage, discharge, handling, emission, generation, manufacture and
disposal of toxic or other hazardous substances used to manufacture the
Company's products. The Company believes that it operates its business in
material compliance with applicable laws and regulations. However, any failure
to comply with existing or future laws or regulations could have a material
adverse impact on the Company's business, financial condition and results of
operations. See "Risk Factors -- Government Regulation" and "-- Environmental
Regulations and Risks."
INTELLECTUAL PROPERTY
While the Company holds several patents, the Company relies primarily on a
combination of trade secret, copyright and trademark laws and employee and
third-party nondisclosure agreements to protect its intellectual property, as
well as limiting access to and distribution of proprietary information. There
can be no assurance that the steps taken by the Company to protect its
intellectual property rights will be adequate to prevent misappropriation of the
Company's technology or to preclude competitors from independently developing
such technology. Furthermore, there can be no assurance that, in the future,
third parties will not assert infringement claims against the Company or with
respect to its products for which the Company has indemnified certain of its
customers. Asserting the Company's rights or defending against third party
claims could involve substantial costs and diversion of resources, thus
materially and adversely affecting the Company's business, financial condition
and results of operations. In the event a third party were successful in a claim
that one of the Company's products infringed its proprietary rights, the Company
may have to pay substantial royalties or damages, remove that product from the
marketplace or expend substantial amounts in order to modify the product so that
it no longer infringes such proprietary rights, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
EMPLOYEES
As of September 30, 1997, the Company employed 232 persons full time. Of
these employees, 64 comprise the engineering staff, 134 constitute manufacturing
personnel, 15 occupy sales and marketing positions, and 19 are in management and
support functions. In addition, the Company utilizes approximately 45 temporary
personnel in various positions throughout its organization.
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<PAGE> 34
FACILITIES
The Company's principal facility is a 105,000 square foot building located
on a thirty acre parcel owned by the Company in East Syracuse, New York. The
plant was constructed during fiscal 1981 and expanded during fiscal 1985. This
facility houses all of the Company's marketing, manufacturing, administrative,
research and development, systems design and engineering experimentation
activities. The Company believes that its existing facilities are adequate to
meet its current needs and that suitable additional or alternative space will be
available on commercially reasonable terms as needed.
Anaren Microwave, Ltd., the Company's wholly-owned subsidiary in the United
Kingdom, leases a 20,000 square foot facility in Frimley, England which
previously housed the administrative, marketing, and manufacturing operations of
that subsidiary prior to the Company's divestiture of its electronic warfare
simulator manufacturing operation in March 1996. Annual rental cost of this
facility is approximately $385,000 and the Company is presently subletting the
facility at the full lease rental value. The existing lease term on this
facility extends until 2014, however, and there can be no assurance that the
Company will be able to sublet the facility during the remaining unexpired term
of the lease to an extent that is sufficient to offset its rental cost in whole
or in part.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Hugh A. Hair.............................. 62 Chairman of the Board
Carl W. Gerst, Jr......................... 60 Vice Chairman, Chief Technical Officer,
Treasurer and Director
Lawrence A. Sala.......................... 34 President, Chief Executive Officer and
Director
Gert R. Thygesen.......................... 42 Vice President of Operations
Joseph E. Porcello........................ 45 Vice President of Finance
Stanley S. Slingerland.................... 50 Vice President of Human Resources
Abraham Manber(1)......................... 68 Director
Herbert I. Corkin(1)...................... 75 Director
Dale F. Eck(1)............................ 54 Director
David Wilemon............................. 60 Nominee for Director
</TABLE>
- ---------------
(1) Member of Compensation Committee and Audit Committee
Mr. Hair was a founder of the Company and has been actively engaged in its
business since its founding in 1967. Mr. Hair served as Chairman of the Board,
President and Chief Executive Officer of the Company from its founding until May
1995 when he resigned from the office of President and in September 1997 when he
resigned as Chief Executive Officer. Mr. Hair holds a Bachelor of Science degree
from the University of Glasgow, Scotland.
Mr. Gerst was a founder of the Company and has been actively engaged in the
Company's business since its founding in 1967. Mr. Gerst served as Executive
Vice President from 1967 until May 1995, when he became Chief Technical Officer
and Vice Chairman. Mr. Gerst has also served as Treasurer since 1992 and as a
Director of the Company since 1968. Mr. Gerst currently serves as a Director of
Skaneateles Savings Bank. Mr. Gerst holds a Bachelors degree from Youngstown
University and a Masters in Business Administration from Syracuse University.
Mr. Sala joined the Company in 1984. He has held various engineering and
management positions with the Company, including Vice President of Marketing.
Mr. Sala has served as President of the Company and a Director since May 1995
and as Chief Executive Officer since September 1997. Mr. Sala holds a Bachelors
Degree in Electrical Engineering, a Masters Degree in Electrical Engineering and
a Masters in Business Administration, all from Syracuse University.
Mr. Porcello joined the Company in 1977. He has served as Controller from
1981 to 1995, and as Vice President of Finance and Controller since May 1995.
Mr. Porcello holds a Bachelors degree from the State University of New York at
Buffalo and is a Certified Public Accountant licensed in the State of New York.
Mr. Thygesen joined the Company in 1981. He served as Program Manager, DRFM
& Advanced Systems, from 1988 to 1992, as Operations Manager from 1992 until
1995, and has served as Vice President of Operations since April 1995. Mr.
Thygesen holds a Masters in Electrical Engineering from Aalborg University
Center, Denmark.
Mr. Slingerland joined the Company in 1980 and served as Human Resource
Manager until 1996. Since November 1996, he has served as Vice President of
Human Resources. Mr. Slingerland holds a Bachelors degree from Hope College.
Mr. Manber has served as a Director of the Company since 1971. He was
President of Amtech Patent Licensing Corp., a privately-held corporation created
to license certain patents, from 1979 until his retirement
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<PAGE> 36
in March 1993. Mr. Manber has served as President of Ad Connect, an advertising
and promotional imprint firm, since July 1997. Mr. Manber holds a degree from
the College of the City of New York.
Mr. Corkin has served as a Director of the Company since 1989. Mr. Corkin
has been Chairman of the Board of The Entwhistle Company, a defense contractor
located in Hudson, Massachusetts providing mobile equipment directly to the
United States government, since 1959. Mr. Corkin served as the President of The
Entwhistle Company from 1959 through December 1993 and has served as its Chief
Executive Officer since December 1993. Mr. Corkin is also a Director of Bird
Corporation, a roofing shingle manufacturer located in Norwood, Massachusetts.
Mr. Eck was Vice President of Finance and Treasurer of The Entwhistle
Company from 1978 until his retirement in February 1997. Mr. Eck has also served
as a Director of The Entwhistle Company since 1978, and continues to serve in
that capacity. Mr. Eck has provided consulting services to the Company since
March 1997. Mr. Eck holds a Bachelors degree from Augustana College and a
Masters in Business Administration from Harvard Business School.
Dr. Wilemon has been nominated as Director of the Company and will stand
for election at the annual meeting of stockholders to be held on November 10,
1997. Dr. Wilemon has been a Professor of Marketing and Innovation Management at
the Syracuse University -- School of Management since 1966. He has also served
as Director of the Snyder Innovation Management Program at the University since
1980, and as Co-Director of the Entrepreneurship and Emerging Enterprises
Program at Syracuse University since 1993. Dr. Wilemon has also been a frequent
speaker at the University of Wisconsin -- College of Engineering Professional
Development since 1978.
Members of the Company's Board of Directors are each elected for one year
terms at the annual stockholders' meeting. Officers are elected at the first
Board of Directors meeting following the stockholders' meeting at which
Directors are elected, and serve at the discretion of the Board of Directors.
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<PAGE> 37
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 12,000,000 shares
of Common Stock, par value $0.01 per share (the "Common Stock"). As of September
30, 1997, there were 4,233,442 shares of Common Stock outstanding held of
record, with approximately 610 stockholders of record.
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders of the Company. The holders of Common Stock
are entitled to a ratable distribution of any dividends that may be declared by
the Board of Directors out of funds legally available therefor. In the event of
a liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities. The Common Stock has no preemptive, redemption or conversion
rights. The outstanding shares of Common Stock are, and the shares offered by
the Company in the offering, when issued and paid for, will be, fully paid and
nonassessable.
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<PAGE> 38
PRINCIPAL AND SELLING STOCKHOLDERS
The following sets forth certain information with respect to beneficial
ownership of the Common Stock as of September 30, 1997 and as adjusted to
reflect the sale of the Common Stock offered hereby, by: (i) each of the
Company's Directors and executive officers; (ii) all Directors and executive
officers as a group; (iii) each person who is known by the Company to own
beneficially more than 5% of the Common Stock; and (iv) the Selling
Stockholders:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) NUMBER OF OFFERING(1)
---------------------- SHARES -------------------
DIRECTORS AND EXECUTIVE OFFICERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------------------------------- --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C>
Hugh A. Hair(2)......................... 207,100 4.81 80,000 127,100 2.39
Carl W. Gerst. Jr.(3)................... 359,931 8.35 25,000 334,931 6.31
Lawrence A. Sala(4)..................... 43,200 1.01 14,000 29,200 *
Abraham Manber.......................... -- -- -- -- --
Dale F. Eck(5).......................... 10,000 * -0- 10,000 *
Herbert I. Corkin(6).................... 7,500 * -0- 7,500 *
Gert R. Thygesen(7)..................... 35,500 * 15,000 20,500 *
Joseph E. Porcello(8)................... 24,490 * 9,000 15,490 *
Stanley S. Slingerland(9)............... 41,559 1.00 7,000 34,559 *
David Wilemon........................... -- -- -- -- --
All directors and executive officers
as a group (10 persons)(10)........... 729,280(10) 16.29 150,000 579,280 10.58
5% STOCKHOLDERS
Global Securities, Inc.(11) ............ 1,307,800 30.89 500,000 807,800 15.44
Dimensional Fund Advisors, Inc.(12) .... 239,100 5.65 -- 239,100 4.57
OTHER SELLING STOCKHOLDER
Renee A. Hair(13)....................... 207,100 4.81 80,000 127,100 2.39
</TABLE>
- ---------------
* Indicates less than one percent of the outstanding shares of Common Stock.
(1) Except as otherwise indicated, as of September 30, 1997, all of such shares
are owned with sole voting and investment power.
(2) The number of Shares Beneficially Owned Prior to Offering includes 75,000
shares which Mr. Hair has the right to acquire within 60 days after
September 30, 1997 pursuant to outstanding stock options and 82,300 shares
owned by Mr. Hair's wife, Renee A. Hair. The Number of Shares Offered
includes 40,000 shares to be offered by Mrs. Hair. The number of Shares
Beneficially Owned After Offering includes 42,300 shares to be owned by
Mrs. Hair after the offering.
(3) Includes 54,331 shares held in trust for, or owned by, Mr. Gerst's family
and relatives and includes 75,000 shares which Mr. Gerst has the right to
acquire within 60 days after September 30, 1997 pursuant to outstanding
stock options. Mr. Gerst's address is c/o Anaren Microwave, Inc., 6635
Kirkville Road, East Syracuse, New York 13057.
(4) Includes 28,000 shares which Mr. Sala has the right to acquire within 60
days after September 30, 1997 pursuant to outstanding stock options.
(5) Includes 10,000 shares which Mr. Eck has the right to acquire within 60
days after September 30, 1997 pursuant to outstanding stock options.
(6) Does not include 1,307,800 shares owned by Global Securities, Inc.
("Global"), as to which Mr. Corkin, the owner of 24% of the capital stock
of Global, disclaims beneficial ownership.
(7) Includes 20,500 shares which Mr. Thygesen has the right to acquire within
60 days after September 30, 1997 pursuant to outstanding stock options.
(8) Includes 21,500 shares which Mr. Porcello has the right to acquire within
60 days after September 30, 1997 pursuant to outstanding stock options.
(9) Includes 14,000 shares which Mr. Slingerland has the right to acquire
within 60 days after September 30, 1997 pursuant to outstanding stock
options.
(10) Includes 244,000 shares which all directors and officers as a group have
the right to acquire within 60 days after September 30, 1997 pursuant to
outstanding stock options.
(11) Global's address is P.O. Box 560, Sudbury, Massachusetts 01776.
(12) Dimensional Fund Advisors, Inc.'s address is 1299 Ocean Avenue, Santa
Monica, California 90401.
(13) The number of Shares Beneficially Owned Prior to Offering includes 49,800
shares owned by Hugh A. Hair and 75,000 shares that Mr. Hair has the right
to acquire within 60 days of September 30, 1997 pursuant to outstanding
stock options. The Number of Shares Offered includes 40,000 shares to be
offered by Mr. Hair. The Number of Shares Beneficially Owned After Offering
includes 84,800 shares to be beneficially owned by Mr. Hair after the
offering.
37
<PAGE> 39
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
5,233,442 shares of Common Stock. Of these shares, the 1,650,000 shares sold in
this offering (plus any shares issued upon exercise of the Underwriters'
over-allotment option) will be freely tradeable without restriction under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act. Of the remaining 3,583,442 shares,
holders of 1,143,080 shares, including all executive officers and directors and
Global Securities, Inc., have entered into contractual "lock-up" agreements
generally providing that they will not, directly or indirectly, sell, offer,
contract to sell, make any short sale, pledge or otherwise dispose of any shares
of Common Stock or any securities convertible into or exchangeable or
exercisable for or any other rights to purchase Common Stock for a period of 90
days after the effective date of this offering without the prior written consent
of Oppenheimer & Co., Inc. The remaining 2,440,362 shares outstanding prior to
this offering that are not subject to lockup agreements and are not held by the
affiliates of the Company may be freely sold after the offering. In addition,
the Company has filed registration statements under the Securities Act covering
the sale of up to an aggregate of 718,400 shares of Common Stock issuable under
the Company's Incentive Stock Option Plans. Pursuant to Rule 144, affiliates may
not sell in any three-month period a number of shares exceeding the greater of:
(i) one percent of the number of shares of Common Stock then outstanding (which
will equal approximately 52,334 shares immediately after this offering); or (ii)
the average weekly trading volume of the Common Stock during the four calendar
weeks preceding the filing of a Form 144 with respect to such sale.
No predictions can be made as to the effect, if any, that market sales of
shares of Common Stock will have on the market price of the Common Stock
prevailing from time to time. Nevertheless, sales of significant numbers of
shares of the Common Stock in the public market could adversely affect the
market price of the Common Stock, and could impair the Company's future ability
to raise capital through an offering of its equity securities.
38
<PAGE> 40
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Selling Stockholders and
Oppenheimer & Co., Inc., Needham & Company, Inc., and Pacific Growth Equities,
Inc., as Representatives (the "Representatives") of the Underwriters of this
offering, the Company and the Selling Stockholders have agreed to sell to the
Underwriters, and the Underwriters named below have severally agreed to purchase
from the Company and the Selling Stockholders, the number of shares of Common
Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------ ---------
<S> <C>
Oppenheimer & Co., Inc. ..........................................
Needham & Company, Inc. ..........................................
Pacific Growth Equities, Inc. ....................................
-------
Total...................................................
=======
</TABLE>
The Underwriters propose to offer the shares of Common Stock directly to
the public at the offering price set forth on the cover page of this Prospectus
and at such price less a concession of not in excess of $ per share to
certain securities dealers, of which a concession of not in excess of $ per
share may be reallowed to certain other securities dealers. After this offering,
the public offering price, allowances, concessions and other selling terms may
be changed by the Representatives.
The Underwriting Agreement provides that the obligations of the
Underwriters to purchase Common Stock are subject to certain conditions,
including that if any of the Common Stock is purchased by the Underwriters
pursuant to the Underwriting Agreement, all such shares must be so purchased.
The Company and a Selling Stockholder have granted options to the
Underwriters, exercisable within 30 days after the date of this Prospectus, to
purchase from the Company and such Selling Stockholder up to an aggregate of
247,500 additional shares of Common Stock to cover over-allotments, if any, at
the public offering price less the underwriting discount set forth on the cover
page of this Prospectus. If the Underwriters exercise their over-allotment
options to purchase any of such 247,500 additional shares of Common Stock, the
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof as the number of shares to be
purchased by each of them bears to the 1,650,000 shares of Common Stock offered
hereby. The Company and such Selling Stockholder will be obligated to sell
shares of Common Stock to the Underwriters to the extent such over-allotment
options are exercised.
Certain of the Company's officers, directors and significant stockholders
have agreed that they will not, without the prior written consent of Oppenheimer
& Co. Inc., offer, sell, contract to sell, make any short sale, pledge or
otherwise dispose of any shares of Common Stock or securities convertible into
or exchangeable or exercisable for or any other rights to purchase Common Stock
until 90 days after the effective date of this offering. The Company has also
agreed that it will not, without the consent of Oppenheimer & Co., Inc., offer,
sell, contract to sell, make any short sale, pledge or otherwise dispose of any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for or other rights to purchase Common Stock until 90 days after the
effective date of this offering (except for (i) shares issued pursuant to stock
options outstanding on the date hereof and (ii) stock options issued pursuant to
employee benefit or incentive compensation plans in effect on the date hereof).
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act, and to contribute to certain payments that the Underwriters
may be required to make in respect thereof.
39
<PAGE> 41
The Representatives do not intend to confirm sales of the Common Stock to
any account over which they exercise discretionary authority.
In connection with this offering, the Representatives, the several
Underwriters, and the selling group members (if any) or their respective
affiliates intend to engage in passive market making transactions in the Common
Stock of the Company on the Nasdaq National Market in accordance with Rule 103
under Regulation M during the two business day period before commencement of
offers or sales of the shares of Common Stock offered hereby. The passive market
making transactions must be identified as such and comply with applicable volume
and price limits. In general, a passive market maker may display its bid at a
price not in excess of the highest independent bid for security, if all
independent bids are lowered below the passive market makers bid; however, such
bid must then be lowered when certain purchase limits are exceeded.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Bond, Schoeneck & King, LLP, Syracuse, New York. Certain legal
matters relating to the offering will be passed upon for the Underwriters by
Hale and Dorr LLP, Boston, Massachusetts.
EXPERTS
The consolidated financial statements of the Company as of June 30, 1996
and 1997, and for each of the years in the three year period ended June 30,
1997, included in this Prospectus and Registration Statement have been audited
and reported upon by KPMG Peat Marwick LLP, independent certified public
accountants. Certain financial information for the five years ended June 30,
1997, in the table under "Selected Consolidated Financial Data" included in this
Prospectus and Registration Statement has been derived from consolidated
financial statements audited by KPMG Peat Marwick LLP and has been reported upon
by KPMG Peat Marwick LLP to the extent set forth in their report. Such
consolidated financial statements and selected consolidated financial data have
been included in this Prospectus and Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents are incorporated in this Prospectus by reference:
(i) The Company's Annual Report on Form 10-K for the year ended June
30, 1997;
(ii) The Company's Quarterly Report on Form 10-Q for the three months
ended September 30, 1997;
(iii) Schedule 14A information filed by the Company with respect to
its 1997 annual stockholders meeting; and
(iv) All other reports filed by the Company pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), since June 30, 1997.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge and upon oral or written request,
to each person to whom this Prospectus is delivered, a copy of any or all of the
documents that have been incorporated by reference in this Prospectus (other
than exhibits to such documents). Requests for such documents should be directed
to Anaren Microwave, Inc., 6635 Kirkville Road, East Syracuse, New York 13057,
Attention: David M. Ferrara, Corporate Secretary, (315) 432-8909.
40
<PAGE> 42
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act. In accordance therewith, the Company files proxy statements, annual reports
and other information with the United States Securities and Exchange Commission
(the "Commission"). Such material concerning the Company is available for
inspection and copying at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such material may also be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1993, as amended, with respect to the Common
Stock offered hereby. This Prospectus does not contain all the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
41
<PAGE> 43
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1997 (audited) and as of September
30, 1997 (unaudited)................................................................. F-3
Consolidated Statements of Operations for the years ended July 1, 1995, June 30, 1996
and June 30, 1997 (audited) and for the three months ended September 30, 1996 and
1997 (unaudited)..................................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended July 1, 1995, June
30, 1996 and June 30, 1997 (audited) and for the three months ended September 30,
1997 (unaudited)..................................................................... F-5
Consolidated Statements of Cash Flows for the years ended July 1, 1995, June 30, 1996
and June 30, 1997 (audited) and for the three months ended September 30, 1996 and
1997 (unaudited)..................................................................... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 44
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Anaren Microwave, Inc.:
We have audited the accompanying consolidated balance sheets of Anaren
Microwave, Inc. and subsidiaries as of June 30, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended June 30, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Anaren Microwave,
Inc. and subsidiaries as of June 30, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three year period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Syracuse, New York
August 14, 1997
F-2
<PAGE> 45
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
------------------- SEPTEMBER 30,
1996 1997 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,740 $ 3,807 $ 3,998
Receivables, less allowance for bad debts of $13 in 1996
and 1997 and at September 30, 1997 (Unaudited)........ 5,168 6,717 6,880
Refundable income taxes.................................. 321 -- --
Inventories (Note 2)..................................... 7,210 7,736 8,924
Prepaid expenses......................................... 256 197 278
Deferred income taxes (Note 9)........................... -- 532 394
------ ------ ------
Total current assets............................. 14,695 18,989 20,474
Net property, plant and equipment (Note 3)................. 7,055 6,969 7,034
Other assets, net.......................................... 44 15 13
------ ------ ------
$21,794 $25,973 $27,521
====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (Note 5).......... $ 395 $ 229 $ 227
Accounts payable......................................... 664 1,501 2,013
Income taxes payable..................................... -- 494 281
Accrued expenses (Note 4)................................ 472 719 894
Customer advance payments................................ 250 1,004 1,019
------ ------ ------
Total current liabilities........................ 1,781 3,947 4,434
Postretirement benefit obligation (Note 8)................. 1,138 1,181 1,181
Long-term debt, less current installments (Note 5)......... 680 453 453
Deferred income taxes (Note 9)............................. -- 65 22
------ ------ ------
Commitments and concentrations (Note 11 and Note 12)
Total liabilities................................ 3,599 5,646 6,090
------ ------ ------
Stockholders' equity:
Common stock of $0.01 par value. Authorized 12,000,000
shares; issued 4,992,116 and 5,012,116 shares in 1996
and 1997, respectively, and 5,125,716 shares at
September 30, 1997 (Unaudited)........................ 50 50 51
Additional paid-in capital............................... 15,507 15,584 15,927
Retained earnings........................................ 4,650 6,705 7,465
------ ------ ------
20,207 22,339 23,443
Less cost of 892,274 treasury shares in 1996 and 1997 and
at September 30, 1997 (Unaudited)..................... 2,012 2,012 2,012
------ ------ ------
Total stockholders' equity....................... 18,195 20,327 21,431
------ ------ ------
$21,794 $25,973 $27,521
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 46
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED JUNE THREE MONTHS ENDED
30, SEPTEMBER 30,
YEAR ENDED ------------------- ----------------------
JULY 1, 1995 1996 1997 1996 1997
------------ ------- ------- ----------- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ 17,996 $17,082 $24,227 $ 5,066 $7,721
Cost of sales........................... 13,081 11,147 16,243 3,572 4,853
Provision for losses on contracts....... 300 -- -- -- --
------ ------ ------ ----- -----
Gross profit............................ 4,615 5,935 7,984 1,494 2,868
------ ------ ------ ----- -----
Operating expenses:
Marketing............................. 3,028 2,970 3,170 668 940
Research and development.............. 939 1,185 540 109 189
General and administrative............ 2,041 2,075 2,239 504 641
Restructuring (Note 10)............... 360 810 -- -- --
------ ------ ------ ----- -----
Total operating expenses...... 6,368 7,040 5,949 1,281 1,770
------ ------ ------ ----- -----
Operating income (loss)................. (1,753) (1,105) 2,035 213 1,098
------ ------ ------ ----- -----
Other income (expense):
Interest expense...................... (213) (123) (94) (22) (25)
Other, primarily interest income...... 164 148 114 19 62
------ ------ ------ ----- -----
Total other income
(expense)................... (49) 25 20 (3) 37
------ ------ ------ ----- -----
Income (loss) before income taxes....... (1,802) (1,080) 2,055 210 1,135
Income taxes (Note 9)................... (330) -- -- -- 375
------ ------ ------ ----- -----
Net income (loss)....................... $ (1,472) $(1,080) $ 2,055 $ 210 $ 760
====== ====== ====== ===== =====
Net income (loss) per common and common
equivalent share:
Primary............................ $ (0.36) $ (0.27) $ 0.50 $ 0.05 $ 0.17
====== ====== ====== ===== =====
Assuming full dilution............. $ (0.36) $ (0.27) $ 0.46 $ 0.05 $ 0.17
====== ====== ====== ===== =====
Shares used in computing net income
(loss) per common and common
equivalent share:
Primary............................ 4,047 4,057 4,106 4,103 4,504
Assuming full dilution............. 4,047 4,057 4,440 4,103 4,524
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 47
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------ PAID-IN RETAINED ----------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT EQUITY
---------- ------ ---------- -------- -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 2, 1994............... 4,824,216 $ 48 $ 14,982 $ 7,202 399,974 $ (553) $21,679
Net loss............................ -- -- -- (1,472) -- -- (1,472)
Stock options exercised (Note 6).... 25,800 1 75 -- -- -- 76
Purchase of treasury shares......... -- -- -- -- 492,300 (1,459) (1,459)
--------- --- ------- ------- ------- ------- -------
Balance at July 1, 1995............... 4,850,016 49 15,057 5,730 892,274 (2,012) 18,824
Net loss............................ -- -- -- (1,080) -- -- (1,080)
Stock options exercised (Note 6).... 142,100 1 450 -- -- -- 451
--------- --- ------- ------- ------- ------- -------
Balance at June 30, 1996.............. 4,992,116 50 15,507 4,650 892,274 (2,012) 18,195
Net income.......................... -- -- -- 2,055 -- -- 2,055
Stock options exercised (Note 6).... 20,000 -- 77 -- -- -- 77
--------- --- ------- ------- ------- ------- -------
Balance at June 30, 1997.............. 5,012,116 50 15,584 6,705 892,274 (2,012) 20,327
Net income (Unaudited).............. -- -- -- 760 -- -- 760
Stock options exercised (Unaudited)
(Note 6)......................... 113,600 1 343 -- -- -- 344
--------- --- ------- ------- ------- ------- -------
Balance at September 30, 1997
(Unaudited)......................... 5,125,716 $ 51 $ 15,927 $ 7,465 892,274 $(2,012) $21,431
========= === ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 48
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE THREE MONTHS ENDED
30, SEPTEMBER 30,
YEAR ENDED ------------------ --------------------------
JULY 1, 1995 1996 1997 1996 1997
------------ ------- ------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $ (1,472) $(1,080) $ 2,055 $ 210 $ 760
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization... 1,722 1,565 1,240 320 313
Deferred income taxes........... -- -- (467) -- 95
Net loss on disposition of
Anaren Microwave, Ltd. net
assets....................... -- 810 -- -- --
Changes in operating assets and
liabilities, exclusive of
disposition of Anaren
Microwave, Ltd. net assets:
Provision for losses on
contracts............... (982) (588) -- -- --
Receivables................ 948 945 (1,549) (953) (163)
Refundable income taxes.... (229) 9 321 321 --
Inventories................ 1,870 (748) (526) 222 (1,188)
Prepaid expenses........... 56 (21) 59 (42) (81)
Other assets............... 89 34 29 3 2
Accounts payable........... 169 (41) 837 344 512
Income taxes payable....... -- -- 494 -- (213)
Accrued expenses........... 119 (219) 247 68 175
Customer advance
payments................ -- 250 754 124 15
Postretirement benefit
obligation.............. 62 62 43 -- --
------- ------- ------- ----- ------
Net cash provided by
operating activities.... 2,352 978 3,537 617 227
------- ------- ------- ----- ------
Cash flows from investing activities:
Capital expenditures................. (1,297) (1,139) (1,154) (215) (378)
------- ------- ------- ----- ------
Net cash used in investing
activities.............. (1,297) (1,139) (1,154) (215) (378)
------- ------- ------- ----- ------
Cash flows from financing activities:
Proceeds from long-term debt......... -- -- 907 -- --
Principal payments on long-term
debt.............................. (726) (690) (1,300) (97) (2)
Net repayments under revolving line
of credit......................... (363) -- -- -- --
Proceedings from issuance of common
stock............................. 76 451 77 6 344
Purchase of treasury stock........... (1,459) -- -- -- --
------- ------- ------- ----- ------
Net cash provided by (used
in) financing
activities.............. (2,472) (239) (316) (91) 342
------- ------- ------- ----- ------
Net increase (decrease) in cash and
cash equivalents..................... (1,417) (400) 2,067 311 191
Cash and cash equivalents at beginning
of year.............................. 3,557 2,140 1,740 1,740 3,807
------- ------- ------- ----- ------
Cash and cash equivalents at end of
year................................. $ 2,140 $ 1,740 $ 3,807 $ 2,051 $ 3,998
======= ======= ======= ===== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 49
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Anaren
Microwave, Inc. and its wholly-owned subsidiaries ("the Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation. In fiscal 1996, the Company changed its financial reporting
period to a calendar month end.
(b) Operations
The Company is engaged in the design, development and manufacture of
microwave signal processing devices which receive and analyze radar signals and
other microwave transmissions. Its primary products include devices and systems
used in the wireless communications market, the satellite communications market,
and defense electronics market.
Anaren Microwave, Ltd., a wholly-owned subsidiary, is incorporated in
England. As discussed in note 10, during fiscal 1996, the Company disposed of
substantially all of the net assets of Anaren Microwave, Ltd. and discontinued
its manufacturing operations. Currently, the Company continues to maintain its
marketing function in England to serve the European marketplace.
(c) Sales Recognition
The Company recognizes sales at the time products are shipped to its
customers. Provisions for estimated losses on uncompleted contracts are made in
the period in which such losses are determined.
(d) Cash Equivalents
Cash equivalents of $1.4 million and $3.8 million at June 30, 1996 and
1997, respectively, consist of certificates of deposit and money market
instruments having maturities of three months or less. Cash equivalents are
stated at cost which approximates fair value.
(e) Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis.
(f) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of land
improvements and buildings is calculated by the straight-line method over an
estimated service life of 25 years. Machinery and equipment are depreciated
primarily by the straight-line method based on estimated useful lives of five to
ten years.
(g) Net Income Per Share
Net income per common and common equivalent share are computed using the
weighted average number of shares outstanding adjusted for the incremental
shares attributed to outstanding options to purchase common stock pursuant to
the treasury stock method, unless the results would be anti-dilutive or not
material. Common equivalent shares consist of outstanding stock options.
(h) Pension Plan
The projected unit credit method is utilized for measuring net periodic
pension costs over the employees' service life. Contributions are intended to
provide not only for benefits attributed to service to date but also for
F-7
<PAGE> 50
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
those expected to be earned in the future, and such contributions meet the
minimum funding requirements set forth in the Employee Retirement Income
Security Act of 1974.
(i) Research and Development Costs
Research and development costs are charged to expense as incurred. The
Company receives fees under a technology development contract and such fees are
recorded as a reduction of research and development costs as work is performed
pursuant to the related contract and as defined milestones are attained. In
fiscal 1997, the Company recognized product development fees of $339,000 under
the contract, which were netted with research and development costs. Prior to
fiscal 1997, the Company did not engage in technology development contracts.
(j) Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, 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 carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates.
(k) Financial Instruments
The Company's financial instruments, which include cash and cash
equivalents, accounts receivable, accounts payable, and long-term debt, are
stated at cost which approximates their fair values at June 30, 1996 and 1997.
(l) Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123,
Accounting for Stock-based Compensation (Statement 123), beginning with the
Company's first quarter of fiscal 1997. Upon adoption of Statement 123, the
Company continued to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by APB No. 25,
Accounting for Stock Issued to Employees, and has provided pro forma disclosures
of the effect on net income and earnings per share as if the fair value-based
method prescribed by Statement 123 has been applied in measuring compensation
expense.
(m) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates.
(n) Interim Results (Unaudited)
The accompanying consolidated balance sheet at September 30, 1997 and the
related consolidated statements of operations and cash flows for the three
months ended September 30, 1996 and 1997, and the statement of stockholders'
equity for the three months ended September 30, 1997 are unaudited. In the
opinion of management, these consolidated statements have been prepared on the
same basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments,
F-8
<PAGE> 51
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
necessary for the fair statement of results of the interim periods. The data
disclosed in these notes to the consolidated financial statements at such dates
and for such periods are also unaudited.
(o) Recent Pronouncements
Statement of Financial Accounting Standard No. 128, Earnings Per Share
(Statement 128), was issued in February 1997. Statement 128 specifies the
computation, presentation, and disclosure requirements for earnings per share.
Adoption of Statement 128 will be required for the Company beginning in the
second quarter of fiscal 1998. Adoption of Statement 128 is not expected to have
a material effect on the Company's operating results.
Statement of Financial Accounting Standard No. 131, Disclosures About
Segments of an Enterprise and Related Information (Statement 131) was issued in
1997. Statement 131 establishes standards for the reporting of information about
operating segments and related disclosures about products and services,
geographic areas, and major customers. Adoption of Statement 131 will be
required in fiscal 1999 and require interim disclosures beginning in fiscal
2000. Adoption of Statement 131 is not expected to have a material effect on the
Company's financial statement disclosures.
(p) Reclassifications
Certain 1995 and 1996 amounts have been reclassified to conform with the
1997 presentation.
NOTE 2: INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
----------------- SEPTEMBER 30,
1996 1997 1997
------ ------ -------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials........................................ $3,028 $3,685 $ 3,720
Work-in-process...................................... 3,031 3,072 4,084
Finished goods....................................... 1,151 979 1,120
------ ------ ------
$7,210 $7,736 $ 8,924
====== ====== ======
</TABLE>
NOTE 3: PROPERTY, PLANT & EQUIPMENT
Components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------------- SEPTEMBER 30,
1996 1997 1997
------- ------- -------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Land and land improvements......................... $ 1,362 $ 1,362 $ 1,362
Buildings.......................................... 5,120 5,129 5,129
Machinery and equipment............................ 22,444 23,589 23,967
------- ------- -------
28,926 30,080 30,458
Less accumulated depreciation and amortization..... 21,871 23,111 23,424
------- ------- -------
$ 7,055 $ 6,969 $ 7,034
======= ======= =======
</TABLE>
F-9
<PAGE> 52
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4: ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30,
------------- SEPTEMBER 30,
1996 1997 1997
---- ---- -------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Compensation............................................ $169 $313 $ 420
Commissions............................................. 180 242 273
Other................................................... 123 164 202
---- ---- ----
$472 $719 $ 895
==== ==== ====
</TABLE>
NOTE 5: LONG-TERM DEBT
Long-term debt is comprised as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------- SEPTEMBER 30,
1996 1997 1997
------ ---- -------------
<S> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
Industrial Development Revenue
Bonds............................................... $ 907 $ -- $ --
Term loan............................................. -- 680 680
Capitalized lease obligation.......................... 168 2 --
------ ---- ----
1,075 682 680
Less current installments............................. 395 229 227
------ ---- ----
$ 680 $453 $ 453
====== ==== ====
</TABLE>
In August 1985, Onondaga County Industrial Development Agency (OCIDA)
issued revenue bonds bearing interest at 75% of the prime rate in the amount of
$3.4 million. The proceeds from the bonds were used to construct additions to
the Company's manufacturing facility and for the purchase of additional land and
equipment. The related lease agreement, which matured on May l, 2000, required
semi-annual principal payments of $113,000, plus interest. In October 1996, the
bonds were extinguished with the proceeds of the term loan described below.
In October 1996, the Company entered into an agreement for a credit
facility providing for (i) a $3.0 million working capital revolving line of
credit bearing interest at prime plus 1% (9.5% at June 30, 1997), maturing on
November 30, 1998, and (ii) a $907,000 term loan payable in semi-annual
installments of $113,000 through May 1, 2000, bearing interest at prime plus
1.25% (9.75% at June 30, 1997). The proceeds of the term loan were used to
refinance the OCIDA revenue bonds. Borrowings under the credit facility are
secured by substantially all assets of the Company.
The terms of the credit facility require maintenance of a minimum tangible
net worth, ratio of cash flow to current maturities, and leverage ratio, as
defined in the respective agreement. The Company was in compliance with all
restrictions and covenants at June 30, 1997.
Maturities of long-term debt at June 30, 1997 are $229,000 in 1998; and
$227,000 in each of 1999 and 2000.
Cash payments for interest were $187,000, $111,000 and $92,000 during
fiscal 1995, 1996 and 1997, respectively.
F-10
<PAGE> 53
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6: STOCK OPTION PLANS
Under the Company's 1988 Incentive Stock Option Plan (1988 ISO), 1,000,000
shares of common stock were reserved for the granting of options to officers and
key employees. Options were granted at the fair market value of shares at the
date of grant, become exercisable 20% at the date of grant and 20% per year
thereafter, and must be exercised within ten years of the date of grant. No
shares are available for grant under the 1988 plan as of June 30, 1997.
During fiscal 1996, an Incentive Stock Option Plan (1996 ISO) was approved,
under which 400,000 shares of common stock were reserved for issuance to
eligible employees. Options are granted at a price not less than fair market
value of shares at the date of grant, become exercisable 20% twelve months from
the date of grant and 20% per year thereafter, and must be exercised within 10
years of the date of grant.
The Company also has a Non-Statutory Stock Option Plan (NSO) which allows
for the granting of options to Board members and nonemployees. Under the Plan,
100,000 shares of common stock were reserved for the granting of options at
prices to be determined by the Board (options granted to Board members may not
be less than the fair market value on the date of grant). Options become
exercisable immediately and must be exercised within five years of the date of
grant.
F-11
<PAGE> 54
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information for the three years ended June 30, 1997 and the three months
ended September 30, 1997 (unaudited) with respect to these plans are as follows:
<TABLE>
<CAPTION>
SHARES
--------------------------------- WEIGHTED AVERAGE
ISO NSO TOTAL EXERCISE PRICE EXERCISE PRICE
-------- ------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Outstanding at July 2,
1994....................... 621,550 82,500 704,050 $1.38 to $6.88 $ 3.78
Issued..................... 100,000 -- 100,000 $4.13 $ 4.13
Canceled................... (25,930) (7,500) (33,430) $1.38 to $6.88 $ 4.70
Exercised.................. (10,800) (15,000) (25,800) $1.38 to $4.13 $ 2.97
-------- ------- --------
Outstanding at July 1,
1995....................... 684,820 60,000 744,820 $1.38 to $6.88 $ 3.81
Issued..................... 68,000 -- 68,000 $6.50 to $7.50 $ 7.43
Canceled................... (30,000) -- (30,000) $1.38 to $6.88 $ 4.90
Exercised.................. (82,100) (60,000) (142,100) $1.38 to $6.88 $ 3.19
Expired.................... (12,850) -- (12,850) $6.00 $ 6.00
-------- ------- --------
Outstanding at June 30,
1996....................... 627,870 -- 627,870 $1.38 to $7.50 $ 4.25
Issued..................... 95,000 10,000 105,000 $6.50 to $8.25 $ 6.95
Exercised.................. (20,000) -- (20,000) $1.38 to $7.50 $ 2.97
Expired.................... (31,870) -- (31,870) $6.88 $ 6.88
-------- ------- --------
Outstanding at June 30,
1997....................... 671,000 10,000 681,000 $1.38 to $8.25 $ 4.58
Exercised (Unaudited)...... (113,600) -- (113,600) $1.38 to $7.50 $ 3.02
-------- ------- --------
Outstanding at September 30,
1997 (Unaudited)........... 557,400 10,000 567,400 $1.38 to $8.25 $ 5.22
======== ======= ========
Shares exercisable at June
30, 1997................... 461,600 10,000 471,600 $1.38 to $8.25 $ 3.86
======== ======= ========
Shares exercisable at
September 30, 1997
(Unaudited)................ 348,000 10,000 358,000 $1.38 to $8.25 $ 4.44
======== ======= ========
Shares available for grant at
June 30, 1997 and September
30, 1997 (Unaudited)....... 137,000 14,000 151,000
======== ======= ========
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
RANGE OF WEIGHTED AVERAGE ----------------------------
EXERCISE REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICES SHARES LIFE IN YEARS EXERCISE PRICE SHARES EXERCISE PRICE
- -------------- ------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$1.38 to
$4.12....... 205,000 3.25 $ 1.38 205,000 $ 1.38
$4.13 to
$6.00....... 306,000 3.45 $ 5.30 246,000 $ 5.30
$6.01 to
$8.25....... 170,000 8.64 $ 7.13 20,600 $ 7.82
------- -------
681,000 471,600
======= =======
</TABLE>
F-12
<PAGE> 55
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The per share weighted average fair value of stock options granted during
fiscal year 1996 and 1997 was $4.94 and $4.71, respectively. The fair value of
options at the date of the grant was estimated using the Black-Scholes model
with the following weighted average assumptions for the respective fiscal year:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1997
------- -------
<S> <C> <C>
Expected life............................................. 5 years 5 years
Interest rate............................................. 5.63% 6.08%
Volatility................................................ 77% 78%
Dividend yield............................................ 0% 0%
</TABLE>
Stock based compensation costs would have reduced pretax income by $67,000
and $166,000 in fiscal 1996 and 1997 ($67,000 and $162,000 after tax and $0.02
and $0.04 per share in fiscal 1996 and 1997, respectively) if the fair values of
options granted in that year had been recognized as compensation expense on a
straight-line basis over the vesting period of the grant. The pro forma effect
on net income for fiscal 1996 and 1997 is not representative of the pro forma
effect on net income in future years because it does not take into consideration
pro forma compensation expense related to grants made prior to fiscal 1996.
NOTE 7: EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all of its employees. Benefits under this plan generally are based
on the employee's years of service and compensation. The following table sets
forth the plan's funded status at June 30, 1996 and 1997:
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated benefit obligation (vested
$3,886 in 1996 and $4,196 in 1997)............................... $3,945 $4,260
Effect of assumed increase in compensation levels.................. 341 369
------ ------
Projected benefit obligation for services rendered to date......... 4,286 4,629
Plan assets at fair value.......................................... 4,401 4,971
------ ------
Plan assets in excess of projected benefit obligation.............. 115 342
Unrecognized net gain.............................................. (270) (502)
Unrecognized prior service cost.................................... 152 134
Unrecognized net transition asset (15 year amortization)........... 66 57
------ ------
Prepaid pension asset.............................................. $ 63 $ 31
====== ======
</TABLE>
The following table details the components of net periodic pension cost:
<TABLE>
<CAPTION>
JUNE 30,
JULY 1, -------------
1995 1996 1997
------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................. $ 146 $149 $141
Interest cost................................................ 259 292 317
Actual return on plan assets................................. (795) (406) (549)
Net amortization and deferral................................ 572 115 223
----- ----- -----
Net periodic pension cost.................................. $ 182 $150 $132
===== ===== =====
</TABLE>
F-13
<PAGE> 56
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The projected benefit obligation was determined using an assumed discount
rate of 7.5% and an assumed long-term rate of increase in compensation of 5.0%
for 1996 and 1997. The assumed long-term rate of return on plan assets was 8.0%
for 1996 and 1997.
Plan assets consist principally of equity securities, and U.S. government
and corporate obligations.
The Company maintains a voluntary contributory salary savings plan to which
participants may contribute up to 15% of their total compensation. During fiscal
1995 and 1996, the Company contributed an amount equal to 50% of the
participants' contribution up to a maximum of 3% of the participants'
compensation. In fiscal 1997, the Company increased its matching contribution to
an amount equal to 50% of the participants' contribution up to a maximum of 5%
of the participants' compensation. During fiscal 1995, 1996 and 1997, the
Company contributed $112,000, $81,000 and $129,000, respectively, to this plan.
NOTE 8: POSTRETIREMENT BENEFITS
The Company provides medical coverage for current and future eligible
retirees of the Company plus their eligible dependents. Employees generally
become eligible for retiree medical coverage by retiring from the Company after
attaining at least age 55 with 15 years of service (active employees at June 27,
1993 were eligible by retiring after attaining at least age 55 with 10 years of
service). 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 employees retiring after June 26, 1993, the Company
contributes a fixed dollar amount towards the cost of the medical plan. Any
future cost increases for the retiree medical program for these participants
will be charged to the retiree.
The following table presents the accumulated postretirement benefit
obligation at June 30, 1996 and 1997:
<TABLE>
<CAPTION>
JUNE 30,
-----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Retirees........................................................... $ 550 $ 554
Fully eligible active plan participants............................ 284 144
Other active participants.......................................... 296 494
Unrecognized net gain (loss)....................................... 8 (11)
------ ------
Accumulated postretirement benefit obligation...................... $1,138 $1,181
====== ======
</TABLE>
The following table details the components of net periodic postretirement
benefit cost:
<TABLE>
<CAPTION>
JUNE 30,
JULY 1, -------------
1995 1996 1997
------- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost................................................. $ 31 $ 29 $ 33
Interest cost................................................ 71 78 85
---- ---- ----
Net periodic postretirement benefit cost................... $ 102 $107 $118
==== ==== ====
</TABLE>
For measurement purposes, a 10% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
fiscal 1997; the rate was assumed to decrease gradually to 5% by the year 2013
and remain at that level thereafter. The health care cost trend rate assumption
has an effect on the amounts reported. However, as the Company contributes a
fixed dollar amount to the plan for the active employee group, this impact is
minimized. For example, increasing the assumed health care cost trend rates
F-14
<PAGE> 57
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of June 30, 1997 by approximately $83,000
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended June 30, 1997 by approximately
$6,300.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% at June 30, 1996 and 1997.
NOTE 9: INCOME TAXES
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Year ended July 1, 1995:
U.S. Federal........................................... $(330) $ -- $(330)
State.................................................. -- -- --
----- ----- -----
$(330) $ $(330)
===== ===== =====
Year ended June 30, 1996:
U.S. Federal........................................... $ -- $ -- $ --
State.................................................. -- -- --
----- ----- -----
$ -- $ -- $ --
===== ===== =====
Year ended June 30, 1997:
U.S. Federal........................................... $ 450 $ (739) $(289)
State.................................................. 17 272 289
----- ----- -----
$ 467 $ (467) $ --
===== ===== =====
Three months ended September 30, 1997 (Unaudited):
U.S. Federal........................................... $ 253 $ 42 $ 295
State.................................................. 27 53 80
----- ----- -----
$ 280 $ 95 $ 375
===== ===== =====
</TABLE>
A reconciliation of the expected consolidated income tax expense (benefit),
computed by applying the U.S. Federal corporate income tax rate of 34% to income
(loss) before income taxes, to income tax expense (benefit), is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE
30,
YEAR ENDED -------------------
JULY 1, 1995 1996 1997
------------ ----- -------
SEPTEMBER 30,
1997
-------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Expected consolidated income tax
expense (benefit)................... $ (613) $(367) $ 699 $ 386
State income taxes, net of federal
income tax benefit.................. -- -- 190 52
Foreign tax effect, net............... 199 497 138 43
Change in valuation allowance......... 58 (141) (1,061) (114)
Other, net............................ 26 11 34 8
----- ----- ----- -----
$ (330) $ -- $ -- $ 375
===== ===== ===== =====
</TABLE>
F-15
<PAGE> 58
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
JUNE 30,
----------------- SEPTEMBER 30,
1996 1997 1997
------ ------ -------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Inventories........................................ $ 43 $ 53 $ 54
Retirement benefits................................ 7 -- 2
Postretirement benefits............................ 444 461 461
General business credit carryforwards.............. 31 31 31
Federal net operating loss carryforwards........... 724 -- --
State net operating loss carryforwards............. 171 37 --
State investment tax credit carryforwards.......... 766 805 805
Alternative minimum tax credit carryforwards....... 212 492 326
Nondeductible reserves............................. 11 11 11
----- ------ ------
Total deferred tax assets.................. 2,409 1,890 1,690
Less valuation allowance................... 1,644 583 469
----- ------ ------
Net deferred tax asset..................... 765 1,307 1,221
----- ------ ------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation................................. (765) (838) (849)
Retirement benefits................................ -- (2) --
----- ------ ------
Total deferred tax liabilities............. (765) (840) (849)
----- ------ ------
Net deferred taxes......................... $ -- $ 467 $ 372
===== ====== ======
Presented as:
Current deferred tax asset......................... $ -- $ 532 $ 394
Long-term deferred tax liability................... -- (65) (22)
----- ------ ------
$ -- $ 467 $ 372
===== ====== ======
</TABLE>
The valuation allowance for deferred tax assets as of June 30, 1996 and
1997 was $1.6 million and $583,000, respectively. The net change in the total
valuation allowance for the years ended June 30, 1996 and 1997 was a decrease of
$141,000 and $1.1 million, respectively. 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 June 30, 1997.
At June 30, 1997, the Company has net operating loss carryforwards for
state income tax purposes of $403,000 which are available to offset future state
taxable income, if any, through 2012. The Company also has investment tax credit
carryforwards for state income tax purposes of $805,000 which are available to
reduce future state income taxes, if any, through 2006. In addition, the Company
has alternative minimum tax
F-16
<PAGE> 59
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit carryforwards of $492,000 which are available to reduce future federal
regular income taxes, if any, over an indefinite period.
Cash payments for income taxes were $30,000 in fiscal 1995, and $0 in
fiscal 1996 and 1997.
NOTE 10: RESTRUCTURING
In fiscal 1995, the Company implemented cost cutting measures 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 amounting to $360,000,
consisting of severance costs, was recognized as a result of the restructuring
program.
During the third quarter of fiscal 1996, the Company recorded a
restructuring charge of $810,000 resulting from the disposition of the net
assets of the Company's European subsidiary, Anaren Microwave, Ltd. The charge
includes provisions for the writedown of assets to net realizable value, legal
and professional fees, and costs to complete an existing electronic warfare
simulator contract in excess of expected revenues.
NOTE 11: COMMITMENTS
The Company is obligated under an operating lease for a building. Future
minimum payments under the noncancelable operating lease for the next five years
and thereafter are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JUNE 30, IN THOUSANDS
------------------------------------------------ ------------
<S> <C>
1998......................................... $ 385
1999......................................... 385
2000......................................... 385
2001......................................... 385
2002......................................... 385
Thereafter...................................... 4,489
------
6,414
Less amounts representing sublease income....... 337
------
$6,077
======
</TABLE>
Rent expense for the years ended July 1, 1995, June 30, 1996 and June 30,
1997 was $378,000, $374,000 and $385,000, respectively. Rent expense for fiscal
1996 and 1997 was offset by sublease income of $53,000 and $126,000,
respectively.
The Company maintains a letter of credit arrangement with a bank. Under the
arrangement, the bank issued a letter of credit in the amount of approximately
$600,000 as required under a contract between the Company and a customer. At
June 30, 1997, the Company was required to maintain a compensating balance of
approximately $600,000 in support of this letter of credit.
As discussed in note 1(i), the Company is currently engaged under a
technology development contract. Under this contract, the Company is committed
to provide research and development services through September 1998. Technology
development fees and related costs under the contract are anticipated to
aggregate approximately $500,000 and $107,000 in fiscal 1998 and 1999,
respectively.
NOTE 12: CONCENTRATIONS
In 1995, sales to two customers (approximately $4.6 million and $3.0
million, respectively) exceeded 10% of consolidated net sales. In 1996, sales to
two customers (approximately $4.4 million and $1.7 million,
F-17
<PAGE> 60
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively) exceeded 10% of consolidated net sales. In 1997, sales to two
customers (approximately $3.4 million and $2.7 million, respectively) exceeded
10% of consolidated net sales.
The Company and others, which are engaged in supplying defense-related
equipment to the United States Government (the Government), are subject to
certain business risks peculiar to the defense industry. Sales to the Government
may be affected by changes in procurement policies, budget considerations,
changing concepts of national defense, political developments abroad and other
factors. Sales to the Government accounted for approximately 48%, 20% and 16% of
consolidated net sales in fiscal 1995, 1996 and 1997, respectively. While
management believes there is a high probability of continuation of the Company's
current defense-related programs, it continues to reduce its dependence on sales
to the Government through development of its commercial electronic business.
NOTE 13: FOREIGN OPERATIONS
The following table shows financial information about the Company's foreign
operations:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
YEAR ENDED ---------------------
JULY 1, 1995 1996 1997
------------ ------- -------
THREE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales:
United States................. $ 14,929 $15,901 $24,227 $7,721
European subsidiary........... 3,067 1,181 -- --
------- ------- ------- -------
Consolidated............... $ 17,996 $17,082 $24,227 $7,721
======= ======= ======= =======
Operating income (loss):
United States................. $ (1,426) $ 392 $ 2,035 $1,098
European subsidiary*.......... (327) (1,497) -- --
------- ------- ------- -------
Consolidated.......... $ (1,753) $(1,105) $ 2,035 $1,098
======= ======= ======= =======
</TABLE>
- ---------------
* Includes the net loss on dissolution of the net assets of $810,000 in fiscal
1996 (see note 10).
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
YEAR ENDED ---------------------
JULY 1, 1995 1996 1997
------------ ------- -------
THREE MONTHS ENDED
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C>
Identifiable assets:
United States................. $ 20,941 $20,675 $25,973 $ 27,521
European subsidiary........... 2,424 1,119 -- --
------- ------- ------- -------
Consolidated.......... $ 23,365 $21,794 $25,973 $ 27,521
======= ======= ======= =======
</TABLE>
Sales to customers located outside the United States amounted to $9.5
million in 1995, $6.1 million in 1996 and $4.7 million in 1997.
F-18
<PAGE> 61
============================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 5
Use of Proceeds............................ 12
Dividend Policy............................ 12
Price Range of Common Stock................ 12
Capitalization............................. 13
Selected Consolidated Financial Data....... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 15
Business................................... 23
Management................................. 34
Description of Capital Stock............... 36
Principal and Selling Stockholders......... 37
Shares Eligible for Future Sale............ 38
Underwriting............................... 39
Legal Matters.............................. 40
Experts.................................... 40
Incorporation of Certain Information by
Reference................................ 40
Available Information...................... 41
Index to Financial Statements.............. F-1
</TABLE>
============================================================
============================================================
1,650,000 SHARES
[ANAREN MICROWAVE, INC. LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
OPPENHEIMER & CO., INC.
NEEDHAM & COMPANY, INC.
PACIFIC GROWTH EQUITIES, INC.
, 1997
============================================================
<PAGE> 62
PART II:
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions, are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............. $ 13,800.00
National Association of Securities Dealers Filing Fee........... 5,054.00
Legal Fees*..................................................... 120,000.00
Accounting Fees*................................................ 135,000.00
Transfer Agent and Registrar*................................... 10,000.00
Printing, Postage and Handling Expenses*........................ 130,000.00
Miscellaneous Expenses*......................................... 186,146.00
Total................................................. 600,000.00
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the New York Business Corporation Law ("NYBCL"), a corporation may
indemnify its directors and officers made, or threatened to be made, a party to
any action or proceeding, except for stockholder derivative suits, if such
director or officer acted in good faith, for a purpose which he or she
reasonably believed to be in or, in the case of service to another corporation
or enterprise, not opposed to, the best interests of the corporation, and, in
criminal proceedings, had no reasonable cause to believe his or her conduct was
unlawful. In the case of stockholder derivative suits, the corporation may
indemnify a director or officer if he or she acted in good faith for a purpose
which he or she reasonably believed to be in or, in the case of service to
another corporation or enterprise, not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of (i) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (ii) any claim, issue or matter as to which such person has been adjudged
to be liable to the corporation, unless and only to the extent that the court in
which the action was brought, or, if no action was brought, any court of
competent jurisdiction, determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the court
deems proper.
Any person who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the NYBCL, any indemnification under the NYBCL pursuant to
the above paragraph may be made only if authorized in the specific case and
after a finding that the director or officer met the requisite standard of
conduct by (i) the disinterested directors if a quorum is available, (ii) the
board upon the written opinion of independent legal counsel or (iii) the
stockholders.
The indemnification described above under the NYBCL is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or bylaws or when
authorized by (i) such certificate of incorporation or bylaws; (ii) a resolution
of stockholders, (iii) a resolution of directors or (iv) an agreement providing
for such indemnification, provided that no indemnification may be made to or on
behalf of any director or officer if a judgment or other final adjudication
adverse to the director or officer establishes that his or her acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that he or she
personally gained in fact a financial profit or other advantage to which he or
she was not legally entitled.
The foregoing statement is qualified in its entirety by reference to
Sections 715, 717, 721 through 725 of the NYBCL.
II-1
<PAGE> 63
The Bylaws of the Company provide that the Company shall indemnify any
officer or director who is made or is threatened to be made a party to an action
by or in right of the Company to procure a judgment in its favor by reason of
the fact that he, his testator or intestate, is or was a director or officer of
the Company or is or was serving at the request of the Company as a director or
officer of any other corporation of any type or kind, domestic or foreign, or
any partnership, joint venture, trust, employee benefit plan or other enterprise
against amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred by him, in connection with the defense
or settlement of such action, or in connection with an appeal therein, if such
director or officer acted in good faith for a purpose which he reasonably
expected to be in or, in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to the best interests of the Company, except that no indemnification
shall be made in respect to (1) a threatened action, or a pending action which
is settled or otherwise disposed of, or (2) any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Company; unless
and only to the extent that the court in which the action was brought, or if no
action was brought, any court of competent jurisdiction, determines upon
application that, in view of the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for such portion of the settlement amount
and expenses as the court deems proper.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement*
5.1 Opinion of Bond, Schoeneck & King, LLP*
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Bond, Schoeneck & King, LLP (included in Exhibit 5.1)*
24.1 Power of Attorney (included at page II - 4 of the Registration Statement).
</TABLE>
- ---------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-2
<PAGE> 64
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in East Syracuse, New York on this 29th day of October, 1997.
ANAREN MICROWAVE, INC.
By: /s/ LAWRENCE A. SALA
------------------------------------
Lawrence A. Sala
President and CEO
We, the undersigned officers and directors of Anaren Microwave, Inc.,
hereby severally constitute and appoint Lawrence A. Sala and Joseph E. Porcello,
and each of them singly, our true and lawful attorneys with full power to them,
and each of them singly, to sign for us and in our names in the capacities
indicated below, the Registration Statement on Form S-3 filed herewith and any
and all pre-effective and post-effective amendments to said Registration
Statement, including any registration statement relating to this Registration
Statement under Rule 462, and generally to do all such things in our names and
behalf in our capacities as officers and directors to enable Anaren Microwave,
Inc. to comply with the provisions of the Securities Act of 1933, as amended,
and the requirements of the Securities and Exchange Commission, hereby ratifying
and confirming our signatures as they may be signed by our said attorneys, or
any of them, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------ -----------------
<C> <S> <C>
/s/ LAWRENCE A. SALA Director, President and October 23, 1997
- --------------------------------------------- CEO (Principal
Lawrence A. Sala Executive Officer)
/s/ HUGH A. HAIR Chairman of the Board October 23, 1997
- ---------------------------------------------
Hugh A. Hair
/s/ CARL W. GERST, JR. Treasurer and Director October 23, 1997
- ---------------------------------------------
Carl W. Gerst, Jr.
/s/ JOSEPH E. PORCELLO Vice President of October 22, 1997
- --------------------------------------------- Finance
Joseph E. Porcello (Principal Financial
Officer and Principal
Accounting Officer)
/s/ HERBERT I. CORKIN Director October 22, 1997
- ---------------------------------------------
Herbert I. Corkin
/s/ DALE F. ECK Director October 22, 1997
- ---------------------------------------------
Dale F. Eck
/s/ ABRAHAM MANBER Director October 22, 1997
- ---------------------------------------------
Abraham Manber
</TABLE>
II-4
<PAGE> 66
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------ -------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*
5.1 Opinion of Bond, Schoeneck & King, LLP*
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Bond, Schoeneck & King, LLP (included in Exhibit 5.1)*
24.1 Power of Attorney (included at page II - 4 of the Registration Statement)
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT ACCOUNTANT'S CONSENT
The Board of Directors
Anaren Microwave, Inc.
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and "Experts"
in the prospectus.
KPMG PEAT MARWICK LLP
Syracuse, New York
October 23, 1997
