UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file number 0-6620
ANAREN MICROWAVE, INC.
(Exact name of Registrant as specified in its Charter)
New York 16-0928561
(State of incorporation) (I.R.S Employer Identification No.)
6635 Kirkville Road 13057
East Syracuse, New York (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: 315-432-8909
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by Check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
The number of shares of Registrant's Common Stock outstanding on February
5, 1999 was 5,526,292.
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ANAREN MICROWAVE, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets 3
as of December 31, 1998 and June 30, 1998
Consolidated Condensed Statements of Earnings 4
for the Three Months ended December 31, 1998
and December 31, 1997
Consolidated Condensed Statements of Earnings 5
for the Six Months ended December 31, 1998
and December 31, 1997
Consolidated Condensed Statements of Cash Flows 6
for the six months ended December 31, 1998 and
December 31, 1997
Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis 9
of Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of matters to a 16
vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K 17
2
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ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
December 31, 1998 and June 30, 1998
Unaudited
Assets Dec. 31, 1998 June 30, 1998
------------- -------------
Current assets:
Cash and cash equivalents $ 10,727,056 $ 11,248,925
Marketable debt securities 16,544,879 13,842,397
Receivables, less allowance of $13,000 7,583,455 7,277,584
Inventories 8,930,006 10,355,025
Prepaid expenses 198,877 138,649
Deferred income taxes 110,148 108,801
------------ ------------
Total current assets 44,094,421 42,971,381
------------ ------------
Property, plant and equipment 32,995,355 32,336,705
Less accumulated depreciation and amortization (25,143,478) (24,446,433)
------------ ------------
Net property, plant and equipment 7,851,877 7,890,272
------------ ------------
Deferred income taxes 104,584 41,169
------------ ------------
$ 52,050,882 $ 50,902,822
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,377,991 $ 2,221,397
Income taxes payable 200,714 317,260
Accrued expenses 1,129,097 1,277,193
Customer advance payments 717,021 190,681
------------ ------------
Total current liabilities 3,424,823 4,006,531
Postretirement benefit obligation 1,246,421 1,246,421
Other liabilities 216,000 144,000
------------ ------------
Total liabilities 4,887,244 5,396,952
------------ ------------
Stockholders' equity:
Common stock of $.01 par value. Authorized
25,000,000 shares; issued 6,518,166 shares
at December 31, 1998 and 6,455,366 shares
at June 30, 1998 65,182 64,554
Additional paid-in capital 36,984,848 36,611,751
Retained earnings 13,594,591 10,841,642
------------ ------------
50,644,621 47,517,947
Less cost of 1,020,274 shares in treasury
at December 31, 1998 and 892,274 shares
at June 30, 1998 3,480,983 2,012,077
------------ ------------
Total stockholders' equity 47,163,638 45,505,870
------------ ------------
$ 52,050,882 $ 50,902,822
============ ============
See accompanying notes to consolidated condensed financial statements.
3
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ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
For the Three Months Ended
Dec. 31, 1998 Dec. 31, 1997
-------------- ----------------
(Current Year) (Preceding Year)
-------------- ----------------
Net sales $ 11,056,604 $ 9,361,780
Cost of sales 6,550,512 6,034,971
------------ ------------
Gross profit 4,506,092 3,326,809
------------ ------------
Operating expenses
Marketing 1,014,065 987,889
Research and development 784,628 268,115
General and administrative 810,610 737,254
------------ ------------
Total operating expenses 2,609,303 1,993,258
------------ ------------
Operating income 1,896,789 1,333,551
------------ ------------
Other income 314,176 166,287
Interest expense (9,620) (18,974)
------------ ------------
Income before income taxes 2,201,345 1,480,864
Income tax expense 771,000 523,000
------------ ------------
Net income $ 1,430,345 $ 957,864
============ ============
Net income per common and common
share equivalent:
Basic $ 0.26 $ 0.20
============ ============
Diluted $ 0.25 $ 0.19
============ ============
Shares used in computing net income per
common and common share equivalent:
Basic 5,496,170 4,680,885
============ ============
Diluted 5,725,872 4,970,595
============ ============
Dividends per share $ -- $ --
============ ============
See accompanying notes to consolidated condensed financial statements.
4
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ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
For the Six Months Ended
Dec. 31, 1998 Dec. 31, 1997
-------------- ----------------
(Current Year) (Preceding Year)
-------------- ----------------
Net sales $ 21,535,391 $ 17,083,103
Cost of sales 13,024,103 10,888,697
------------ ------------
Gross profit 8,511,288 6,194,406
------------ ------------
Operating expenses
Marketing 1,995,960 1,927,855
Research and development 1,359,733 456,883
General and administrative 1,564,144 1,378,559
------------ ------------
Total operating expenses 4,919,837 3,763,297
------------ ------------
Operating income 3,591,451 2,431,109
------------ ------------
Other income 663,738 227,914
Interest expense (19,240) (43,560)
------------ ------------
Income before income taxes 4,235,949 2,615,463
Income tax expense 1,483,000 898,000
------------ ------------
Net income $ 2,752,949 $ 1,717,463
============ ============
Net income per common and common
share equivalent:
Basic $ 0.50 $ 0.39
============ ============
Diluted $ 0.48 $ 0.36
============ ============
Shares used in computing net income per
common and common share equivalent:
Basic 5,510,759 4,427,019
============ ============
Diluted 5,736,848 4,741,123
============ ============
Dividends per share $ -- $ --
============ ============
See accompanying notes to consolidated condensed financial statements.
5
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ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Six Months Ended
December 31, 1998 and 1997
Unaudited
---------------------------
1998 1997
------------ ------------
Cash flows from operating activities:
Net income $ 2,752,949 $ 1,717,463
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 697,045 639,525
Deferred income taxes (64,762) 94,943
Amortization of intangibles -- 2,320
Changes in operating assets and liabilities:
Receivables (305,871) (592,952)
Inventories 1,425,019 (2,150,536)
Prepaid expenses (60,228) 2,909
Accounts payable (843,406) 582,120
Income taxes payable (116,546) (356,445)
Accrued expenses (148,096) 551,419
Customer advance payments 526,340 (99,339)
Other liabilities 72,000 --
------------ ------------
Net cash provided by
operating activities 3,934,444 391,427
------------ ------------
Cash flows from investing activities:
Capital expenditures (658,650) (970,165)
Purchase of marketable debt securities (2,702,482) (7,574,967)
------------ ------------
Net cash used in investing
activities (3,361,132) (8,545,132)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt -- (682,058)
Purchase of treasury stock (1,468,906) --
Proceeds from issuance of common stock 373,725 20,225,650
------------ ------------
Net cash provided by (used in)
financing activities (1,095,181) 19,543,592
------------ ------------
Net increase (decrease) in cash
and cash equivalents (521,869) 11,389,887
Cash and cash equivalents at
beginning of period 11,248,925 3,807,004
------------ ------------
Cash and cash equivalents at
end of period $ 10,727,056 $ 15,196,891
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 490 $ 54,494
============ ============
Income taxes $ 1,567,285 $ 1,142,285
============ ============
See accompanying notes to consolidated condensed financial statements.
6
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The consolidated condensed financial statements are unaudited (except for the
balance sheet information as of June 30, 1998, which is derived from the
Company's audited consolidated financial statements) and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
fiscal 1998 Annual Report to Stockholders on Form 10-K. The results of
operations for the six months ended December 31, 1998 are not necessarily
indicative of the results for the entire fiscal year ending June 30, 1999, or
any future interim period.
The income tax rate of 35% utilized for interim financial statement purposes for
the three months and six months ended December 31, 1998 is based on estimates of
income and utilization of tax credits for the entire year.
NOTE 1: Inventories
Inventories at December 31, 1998 and June 30, 1998 are summarized as
follows:
Dec. 31 June 30
------- -------
Raw materials $ 3,648,508 $ 4,212,925
Work in process 3,642,997 4,410,112
Finished goods 1,638,501 1,731,988
----------- -----------
$ 8,930,006 $10,355,025
=========== ===========
NOTE 2: Property, Plant and Equipment
Property, plant and equipment at December 31, 1998 and June
30, 1998 are summarized as follows:
Dec. 31 June 30
------- -------
Land and land improvements $ 1,362,050 $ 1,362,050
Buildings and improvements 5,255,539 5,242,499
Machinery and equipmen 26,377,766 25,732,156
----------- -------------
$32,995,355 $32,336,705
=========== ===========
7
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NOTE 3: Net Income Per Share
Net income per share is computed based on the weighted average
number of common shares and common stock options (using the treasury
stock method) outstanding in accordance with the requirements of
FASB Statement No. 128 "Earnings Per Share."
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Six Months Ended
-------------------- -------------------
Dec. 31 Dec. 31 Dec. 31 Dec. 31
Numerator: 1998 1997 1998 1997
---- ---- ---- ----
Net income available to
common stockholders $1,430,345 $ 957,864 $2,752,949 $1,717,463
========== ========== ========== ==========
Denominator:
Denominator for basic net
income per common share:
Weighted average
shares outstanding 5,496,170 4,680,885 5,510,759 4,427,019
========== ========== ========== ==========
Denominator for diluted net
income per common share:
Weighted average shares
outstanding 5,496,170 4,680,885 5,510,759 4,427,019
Common stock options 229,702 289,710 226,089 314,104
---------- ---------- ---------- ----------
Weighted average shares
and conversions 5,725,872 4,970,595 5,736,848 4,741,123
========== ========== ========== ==========
NOTE 4: 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. Net research and
development expense for the six months ended December 31, 1998 and
1997 are summarized as follows: Dec. 31 Dec. 31 1998 1997
Dec. 31 Dec. 31
1998 1997
---- ----
Gross research and
development expenses $1,410,080 $638,193
Technology development
contract fees 50,347 181,310
---------- --------
Research and development
expense $1,359,733 $456,883
========== ========
8
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Item 2: Management's Discussion and Analysis of Financial and Results of
Operations
Management's discussion and analysis reviews the Company's operating results for
the three months and the six months ended December 31, 1998 and 1997, and its
financial condition at December 31, 1998. This review should be read in
conjunction with the accompanying consolidated condensed financial statements.
Statements contained in management's discussion and analysis, other than
historical facts, are forward-looking statements that are qualified by the
cautionary statements at the end of this discussion.
Year 2000 Status
The Company has conducted a full review of its computer systems to identify the
programs and systems that could be affected by the "Year 2000 problem" and has
developed and is continuing to develop an implementation plan to resolve the
problem. The "Year 2000 problem" is the result of computer programs being
written using two digits instead of four to define the applicable year. Programs
with this problem may recognize a date using "00" as the year 1900 instead of
the year 2000, resulting in system failures or miscalculations.
The Company installed a major revision to its manufacturing software at the end
of December, 1998 and began testing for Year 2000 compliance at that time.
Although no assurance can be given, the Company presently believes that with
additional modifications to existing software and conversion to new software,
the "Year 2000 problem" will not pose significant operational problems for the
Company's computer systems and that the cost of system modifications and
conversions will not have a material impact on the Company's operating results.
Overview
The consolidated condensed financial statements present the financial condition
of the Company as of December 31, 1998 and June 30, 1998 and the consolidated
results of operations and cash flows of the Company for the three months and the
six months ended December 31, 1998 and 1997.
Operations for the second quarter and first six months of fiscal 1999 were
highlighted by continuing escalation of commercial Wireless sales, a resurgence
of both Defense Electronics and Satellite Communications shipments and a
significant improvement in net income over the second quarter and first half of
fiscal 1998.
Net Sales for the second quarter ended December 31, 1998 were $11,056,000, up
18% from net sales of $9,362,000 for the same period in fiscal 1998, while net
sales for the first six months of fiscal 1999 were $21,535,000, up 26% over
sales of $17,083,000 for the first six months in the previous year. The Company
recorded earnings of $1,430,000 for the second quarter of fiscal 1999, compared
to net earnings of $958,000 for the same quarter in fiscal 1998, while earnings
for the first six months ended December 31, 1998 amounted to $2,753,000, an
increase of 60% over earnings of $1,717,000 for the first half of fiscal 1998.
9
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Results of Operations
The following table sets forth the percentage relationships of certain items
from the Company's consolidated condensed statements of earnings as a percentage
of net sales.
Three Months Ended Six Months Ended
------------------ ----------------
Dec. 31 Dec. 31 Dec 31 Dec. 31
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 59.2% 64.5% 60.5% 63.7%
----- ----- ----- -----
Gross profit 40.8% 35.5% 39.5% 36.3%
----- ----- ----- -----
Operating expenses
Marketing 9.2% 10.5% 9.3% 11.3%
Research and development 7.1% 2.9% 6.3% 2.7%
General and administrative 7.3% 7.9% 7.2% 8.1%
----- ----- ----- -----
Total operating expenses 23.6% 21.3% 22.8% 22.1%
----- ----- ----- -----
Operating income 17.2% 14.2% 16.7% 14.2%
Other income 2.8% 1.8% 3.1% 1.3%
Interest expense (0.1%) (0.2%) (0.1%) (0.2%)
----- ----- ----- -----
Income before income taxes 19.9% 15.8% 19.7% 15.3%
Income tax expense 7.0% 5.6% 6.9% 5.3%
----- ----- ----- -----
Net income 12.9% 10.2% 12.8% 10.0%
===== ===== ===== =====
The following table summarizes the Company's net sales by various product lines
for the periods indicated. Amounts are in thousands.
Three Months Ended Six Months Ended
------------------ ----------------
Dec. 31 Dec. 31 Dec. 31 Dec. 31
1998 1997 1998 1997
---- ---- ---- ----
Wireless $4,751 $ 4,013 $ 9,104 $ 7,612
Satellite Communications 2,660 2,317 5,238 3,813
Defense Electronics 3,645 3,032 7,193 5,658
------- ------- ------- -------
$11,056 $ 9,362 $21,535 $17,083
======= ======= ======= =======
Three Months Ended December 31, 1998 Compared to Three Months Ended December 31,
1997.
Net Sales. Net sales increased $1.7 million, or 18%, to $11.1 million for the
three months ended December 31, 1998, compared to $9.4 million for the second
quarter of the previous year. This increase was led by an 18% rise in sales of
Wireless products, a 20% increase in sales of defense products and a 15% rise in
sales of satellite communications products. The increase in sales of Wireless
products, which consist of catalog surface mount and custom components for use
in building wireless base station equipment, reflects both the continuing strong
demand by the major wireless basestation OEM's and the Company's success in
achieving higher dollar content for its latest products within the basestation.
Sales of Defense Electronics products, which consist of Digital Frequency
Discriminators ("DFD's"), Digital RF Memories ("DRFM's") and Microwave
Integrated Circuit Components ("MIC's"), rose 20% to $3.6 million for the three
months ended December 31, 1998 compared to $3.0 million for the second quarter
of the previous year. This
10
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increase continues to reflect full production levels for DRFM's and DFD's for
foreign sales of the Airborne Self-Protection Jammer ("ASPJ") program and
preproduction shipments on the next generation IDECM jammer program for the U.S.
Navy.
Sales of Satellite Communications products, which consist of custom multi-layer
components such as butler matrices and beamforming networks for commercial and
military communication satellites, rose 15% to $2.7 million in the current
second quarter of fiscal 1999, compared to $2.3 million in the second quarter of
fiscal 1998. This increase was a result of the depressed levels of shipments in
this group in the first half of fiscal 1998, resulting from the Company having
just completed the production phase of the Iridium program at the end of fiscal
1997. The Company expects that the Satellite Communications group shipments will
remain at current levels for the remainder of fiscal 1999.
Gross Profit. Cost of sales consists primarily of engineering design costs,
material, material fabrication costs, assembly costs and test costs. Cost of
sales rose 10.0% to $6.6 million (59.2% of net sales) for the second quarter
ended December 31, 1998 from $6.0 million (64.5% of net sales) for the second
quarter of fiscal 1997. Gross profit was 40.8% of net sales for the three months
ended December 31, 1998 compared to 35.5% of net sales for the same period in
fiscal 1998. The improvement in gross profit was due to improvements in yields
for Wireless products, as well as continuing economies of scale due to higher
production levels in all three business groups.
Marketing. Marketing expenses consist mainly of employee related expenses,
commissions paid to sales representatives, trade show expenses, advertising
expenses and related travel expenses. Marketing expenses increased 2.6% to
$1,014,000 (9.2% of net sales) for the three months ended December 31, 1998 from
$988,000 (10.5% of net sales) for the three months ended December 31, 1997. The
increase is a result of 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 193% to $785,000
(7.1% of net sales) for the three months ended December 31, 1998 from $268,000
(2.9% of net sales) for the three months ended December 31, 1997. Research and
development expenses expanded to support the increased development of wireless
infrastructure and Satellite Communications products now being demanded by the
current marketplace.
General and Administrative. General and administrative expenses increased 10% to
$811,000 (7.3% of net sales) for the three months ended December 31, 1998
compared to $737,000 (7.9% of net sales) for the three months ended December 31,
1997. General and administrative expense increased due to increased staffing
levels, higher professional fees and increased compensation levels for existing
personnel.
Other Income. Other income is primarily interest income received on invested
cash balances. Other income increased 89.2% to $314,000 (2.8% of net sales) for
the three months ended December 31, 1998 from $166,000 ( 1.8% of net sales) for
the three months ended December 31, 1997, due to a higher level of investable
cash balances in the current year as a result of the secondary public offering
completed in November 1997.
11
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Interest Expense. Interest expense represents commitment fees and interest paid
on the Company's line of credit and letters of credit. Interest expense
decreased 47.4% to $10,000 (0.09% of net sales) for the three months ended
December 31, 1998 from $19,000 (0.2% of net sales) for the three months ended
December 31,1997.
Income Taxes. Income tax expense for the three months ended December 31, 1998
was $771,000 (7.0% of sales) , an effective tax rate of approximately 35%, while
income tax expense for the three months ended December 31, 1997 was $523,000
(5.6% of net sales), an effective tax rate of approximately 35%.
Six Months Ended December 31, 1998 Compared to Six Months Ended December 31,
1997
Net Sales. Net sales increased 26% to $21.5 million for the six months ended
December 31, 1998 from $17.1 million for the first half of the previous year.
This increase resulted from a 20% rise in sales of Wireless products, a 37% rise
in shipments of Satellite Communications products and a 27% increase in sales of
Defense Electronics products. Wireless product sales continue to rise due mainly
to increasing and continuing demand from the major basestation OEM's. The
increase in Satellite Communications shipments during the first half of fiscal
1999 resulted largely from a depressed level of shipments in this business area
during the first half of fiscal 1998 due to the Company having just completed
the initial production run of the Iridium program at the end of fiscal 1997. The
Company expects that Satellite Communications shipments in the second half of
fiscal 1999 will remain at current levels. Sales of Defense Electronics products
rose 27% to $7.2 million in the current first six months as a result of the
Company being in full production for DRFM's for foreign sales of the "ASPJ"
program in fiscal 1999. This program was just entering initial factory
production in the first half of fiscal 1998.
Gross Profit. Gross profit for the first six months of fiscal 1999 was $8.5
million (39.5% of net sales) up from $6.2 million (36.3% of net sales) for the
first six months of fiscal 1998. This improvement is a result of the 26%
increase in sales volume which resulted in significant economies of scale in the
manufacturing operations and improvements in product yields in the Wireless
group.
Marketing. Marketing expense increased 3.5% to 2.0 million (9.3% of net
sales) for the first six months of fiscal 1999 from $1.9 million (11.3% of net
sales) for the first six months of fiscal 1998. This increase is a result of the
Company expanding its marketing organization to support the increasing order
volume.
Research and Development. Research and development expense rose 198% to
$1,360,000 (6.3% of net sales) in the first half of fiscal 1999 from $457,000
(2.7% of net sales) for the first half of fiscal 1998. Research and development
expenditures are expanding to support further development of wireless
infrastructure products and expanding satellite communications opportunities.
General and Administrative. General and administrative expenses increased 13.4%
to $1.6 million (7.2% of net sales) for the six months ended December 31, 1998
from $1.4 million (8.1% of net sales) for the six months ended December 31,
1997. General and administrative expenses have increased due to the hiring of
additional personnel and a rise in professional fees due to the growth of the
Company.
Other income. Other income increased 191% to $664,000 (3.1% of net sales) for
the first six months of fiscal 1999 from $228,000 (1.3% of net sales) for the
first six months of fiscal 1998,
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due to the large increase in investable cash resulting from the secondary public
offering completed by the Company during the second quarter of fiscal 1998.
Interest Expense. Interest expense fell 56.8% to $19,000 (0.1% of net sales)
during the six months ended December 31, 1998 from $44,000 (0.3% of net sales)
for the six months ended December 31, 1997, due to the payoff of the Company's
term loan in December 1997.
Income Taxes. Income tax expense for the six months ended December 31, 1998 was
$1,483,000 (6.9% of net sales), an effective tax rate of 35%. This compares to
$898,000 (5.3% of net sales) for the six months ended December 31, 1997, an
effective tax rate of 34.3%.
Liquidity and Capital Resources
During the second quarter ended December 31, 1997, the Company completed a
secondary public offering of common stock. This offering resulted in the sale of
1,165,450 new shares and provided net proceeds to the Company after underwriters
fees and offering expenses of $19,750,000.
Net cash provided by operations for the six months ended December 31, 1998 and
the six months ended December 31, 1997 were $3,934,000 and $391,000,
respectively. The positive flow from operations in both the first six months of
fiscal 1999 and 1998 was due primarily to the profit attained in both periods.
The relatively lower level of cash provided by operations in the first six
months of fiscal 1998, compared to the first six months of fiscal 1999, resulted
primarily from increases in inventory levels in the prior year to support the
higher initial production levels.
Net cash used in investing activities consists of funds which were used to
purchase short-term marketable securities and capital equipment. Capital
equipment expenditures in the six months ended December 31, 1998 and the six
months ended December 31, 1997 were $659,000 and $970,000 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 test and production equipment for the production run of the ASPJ
program in the Defense Group.
Cash used in financing activities amounted to $1,095,000 for the six months
ended December 31, 1998 and consisted primarily of funds used to repurchase
common stock of the Company. During the fourth quarter of fiscal 1998, the Board
of Directors authorized the repurchase of up to 500,000 shares of the Company's
common stock at prevailing market prices. Through December 31, 1998, the Company
had repurchased 128,000 shares and expended $1,469,000. Cash provided by
financing activities for the first half of the previous fiscal year was
$19,544,000 and consisted primarily of cash generated by the secondary public
offering of common stock.
During the remainder of fiscal 1999, the Company's major cash requirements will
be for additions to capital equipment. Capital equipment additions for the
current year have been budgeted at $2,200,000 and through the first six months
of fiscal 1999 approximately $659,000 has been expended, all of which was funded
by cash generated from operations. The Company anticipates that Capital
equipment additions for the remainder of fiscal 1999 will continue to be funded
through cash generated by operations as projected operating cash flows are
expected to be more than adequate to meet these financing needs.
During December 1997, the Company renegotiated its credit facility with its
bank, increasing the size of the facility and obtaining more favorable terms.
The new credit facility is an unsecured
13
<PAGE>
$10,000,000 working capital revolving line of credit bearing interest at prime
and maturing December 31, 2000. The terms of the credit facility require
maintenance of 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 at December 31, 1998.
The Company believes that its cash requirements for the foreseeable future will
be satisfied by currently invested cash balances, expected cash flows from
operations and funds available under its credit facilities.
Recently Issued Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard No. 128, Earnings
Per Share (statement 128), beginning with the second quarter of fiscal 1998.
Statement 128 specifies the computation, presentation and disclosure
requirements for earnings per share. Adoption of Statement 128 did not have a
material effect on the Company's operating results.
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (Statement 130), was issued in 1997. Statement 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements and is effective for all fiscal
years beginning after December 15, 1997. Adoption of Statement 130 will be
required in fiscal 1999 and will require interim disclosures beginning in fiscal
2000. Adoption of Statement 130 is not expected to have a material effect on the
Company's financial statement disclosures.
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 will 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.
Statement of Financial Accounting Standards No. 132, Employers' Disclosures
about Pension and Other Postretirement Benefits (Statement 132), was issued in
1998. Statement 132 establishes combined formats for the presentation of pension
and other postretirement benefit disclosures and is effective for all fiscal
years beginning after December 15, 1997. Adoption of Statement 132 will be
required in fiscal 1999 and is not expected to have a material effect on the
Company's financial statement disclosures.
Forward-Looking Cautionary Statement
In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this report includes comments by the
Company's management about future performance. Because these statements are
forward-looking statements pursuant to the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995, management's forecasts involve risks
and uncertainties, and actual results could differ materially from those
predicted in the forward-looking statements. Among the principal factors that
could cause actual results to differ materially are the following: general
market conditions, including demand for the Company's products, manufacturing
capacity and the ability to "ramp" to meet anticipated demand, fluctuations in
yield, availability of third-party supplier parts at
14
<PAGE>
reasonable prices, availability of financial resources to fund anticipated
growth, ability to maintain sole supplier positions with certain defense
sectors, successful adaptation of existing Company technologies to produce new
products that meet specific customer requirements, price pressures, the level of
worldwide spending on military defense products, growth of wireless telephone
and satellite communications systems, acceptance of new products, customer order
cancellations or rescheduling and actual orders compared to annual blanket
contracts from wireless customers.
Management believes the Company has the products, human resources, facilities,
and financial resources to continue its growth, but future revenues, margins,
and profits are all influenced by a number of risk factors, including but not
limited to those discussed above.
15
<PAGE>
Item 4. Submission of Matters to a vote of Security Holders
The Company's annual shareholders' meeting was held on November 19,
1998, at which time the election of Directors was conducted. The
following named individuals were nominated and elected Directors of
the Company until the next annual meeting and until their successors
are elected and qualified.
Votes Votes
for withheld
----- --------
Hugh A. Hair 5,286,565 15,189
Carl W. Gerst, Jr. 5,286,629 15,125
Abraham Manber 5,286,539 15,215
Lawrence A. Sala 5,287,165 14,589
Herbert I. Corkin 5,287,229 14,525
Dale F. Eck 5,287,165 14,589
David Wilemon 5,287,229 14,525
The following proposals were approved at the Company's Annual
Meeting:
Votes Votes Votes
For Against Abstained
--- ------- ---------
1. Approval of amendment to 2,977,286 156,574 36,400
the Company's Incentive
Stock Option Plan.
2. Approval of amendment to 3,009,035 127,225 34,000
the Company's Nonstatutory
Stock Option Plan.
3. Approval of amendment to 5,186,920 72,673 28,100
the Company's Certificate
of Incorporation to authorize
additional shares.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
Item 6(a) Exhibits
Exhibit No. 10.7 Anaren Microwave, Inc. Incentive Stock Option Plan, as
amended, incorporated herein by reference to Appendix A
to the registrant's proxy statement for its 1998 annual
shareholders' meeting, as filed with the Commission on
September 25, 1998 (Commission File No. 0-6620).
Exhibit No. 10.9 Anaren Microwave, Inc. 1989 Non-statutory Stock Option
Plan, as amended, incorporated herein by reference to
Appendix B to the registrant's proxy statement for its
1998 annual shareholders' meeting, as filed with the
Commission on September 25, 1998 (Commission File No.
0-6620).
Exhibit No. 27 Financial Data Schedule for the six month period ended
December 31, 1998.
Item 6(b) Reports on Form 8K
The registrant was not required to file an 8-K during
the current fiscal period.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Anaren Microwave, Inc.
(Registrant)
Date: February 8, 1999 S/Lawrence A. Sala
--------------------------------------
President & Chief Executive Officer
Date: February 8, 1999 S/Joseph E. Porcello
--------------------------------------
Vice President of Finance & Controller
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements for Anaren Microwave, Inc. filed with Form 10-Q for the six
months ended December 31, 1998 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 10,727,056
<SECURITIES> 16,544,879
<RECEIVABLES> 7,583,455
<ALLOWANCES> 13,000
<INVENTORY> 8,930,006
<CURRENT-ASSETS> 44,094,421
<PP&E> 32,995,355
<DEPRECIATION> (25,143,478)
<TOTAL-ASSETS> 52,050,882
<CURRENT-LIABILITIES> 3,424,823
<BONDS> 0
0
0
<COMMON> 65,182
<OTHER-SE> 47,098,456
<TOTAL-LIABILITY-AND-EQUITY> 52,050,882
<SALES> 21,535,391
<TOTAL-REVENUES> 21,535,391
<CGS> 13,024,103
<TOTAL-COSTS> 17,943,940
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,240
<INCOME-PRETAX> 4,235,949
<INCOME-TAX> 1,483,000
<INCOME-CONTINUING> 2,752,949
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<EXTRAORDINARY> 0
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<NET-INCOME> 2,752,949
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.48
</TABLE>
