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 September 30, 2000
__ 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 November
3, 2000 was 11,049,410.
1
<PAGE>
ANAREN MICROWAVE, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
------------------------------ --------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of 3
September 30, 2000(unaudited) and June 30, 2000
Consolidated Condensed Statements of Earnings 4
for the Three Months ended September 30,
2000 and 1999(unaudited)
Consolidated Condensed Statements of Cash Flows 5
for the Three Months Ended September 30,
2000 and 1999 (unaudited)
Notes to Consolidated Condensed Financial 6
Statements
Item 2. Management's Discussion and Analysis 11
of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
---------------------------
Item 4. Exhibits and Reports on Form 8-K 17
2
<PAGE>
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
September 30, 2000 and June 30, 2000
Unaudited
<TABLE>
<CAPTION>
Unaudited
Assets Sept. 30, 2000 June 30, 2000
------ -------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,304,735 $ 6,179,202
Marketable debt securities 69,927,093 79,926,644
Receivables, less allowance of $55,000 12,187,828 10,992,693
Inventories (note 2) 15,588,314 12,385,125
Accrued interest receivable 1,970,457 2,121,050
Other current assets 2,599,129 2,157,362
------------- -------------
Total current assets 110,577,556 113,762,076
------------- -------------
Marketable debt securities 46,359,572 53,874,918
Property, plant and equipment, net (note 3) 15,635,815 13,336,593
Goodwill, net of accumulated amortization
of $491,369 at September 30, 2000
and $173,796 at June 30, 2000 24,179,820 7,647,108
Deferred income taxes, long term 628,897 571,862
Patent, net of accumulated amortization
of $89,838 at September 30, 2000
and $71,871 at June 30, 2000 485,127 503,094
------------- -------------
$ 197,866,787 $ 189,695,651
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 5,162,038 $ 3,830,807
Accrued expenses (note 4) 2,875,373 2,244,241
Income taxes payable 409,309 623,431
Customer advance payments 31,957 601,957
Other current liabilities (note 5) 192,318 190,814
------------- -------------
Total current liabilities 8,670,995 7,491,250
Postretirement benefit obligation 1,325,365 1,324,978
Other liabilities 1,283,726 1,307,788
------------- -------------
Total liabilities 11,280,086 10,124,016
------------- -------------
Stockholders' equity:
Common stock of $.01 par value. Authorized
25,000,000 shares; issued 12,562,059 shares
at September 30, 2000 and 12,482,181 shares
at June 30, 2000 125,621 124,822
Additional paid-in capital 159,433,866 156,221,989
Unearned compensation (902,408) (723,712)
Retained earnings 31,410,605 27,429,519
------------- -------------
190,067,684 183,052,618
Less cost of 1,530,411 treasury shares 3,480,983 3,480,983
------------- -------------
Total stockholders' equity 186,586,701 179,571,635
------------- -------------
$ 197,866,787 $ 189,695,651
============= =============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
Three Months Ended
September 30, 2000 and 1999
Unaudited
<TABLE>
<CAPTION>
Sept. 30, 2000 Sept. 30, 1999
-------------- --------------
<S> <C> <C>
Net sales $ 22,223,974 $ 12,464,363
Cost of sales 13,397,703 7,513,058
------------ ------------
Gross profit 8,826,271 4,951,305
------------ ------------
Operating expenses:
Marketing 1,574,422 1,121,685
Research and development 1,118,526 702,238
General and administrative 1,857,138 863,875
------------ ------------
Total operating expenses 4,550,086 2,687,798
------------ ------------
Operating income 4,276,185 2,263,507
------------ ------------
Other income 1,868,668 436,603
Interest expense (40,767) (9,375)
------------ ------------
Income before income taxes 6,104,086 2,690,735
Income tax expense 2,123,000 942,000
------------ ------------
Net income $ 3,981,086 $ 1,748,735
============ ============
Net income per common and common share equivalent:
Basic $ .36 $ 0.21
============ ============
Diluted $ .34 $ 0.20
============ ============
Shares used in computing net income per common and common share equivalent:
Basic 10,964,069 8,311,439
============ ============
Diluted 11,813,144 8,750,381
============ ============
Dividends per share $ -- $ --
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
4
<PAGE>
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Three Months Ended
September 30, 2000 and 1999
Unaudited
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flows from Operating Activities
Net income $ 3,981,086 $ 1,748,735
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 567,937 411,136
Amortization of intangibles 335,540 --
Deferred income taxes (87,030) (12,078)
Unearned compensation 74,404 --
Tax benefit from exercise of stock options 2,173,882 --
Changes in operating assets and liabilities,
net of acquisition:
Receivables 358,191 (1,615,191)
Inventories (959,461) (150,855)
Accrued interest receivable 150,593 --
Other current assets (369,287) 382,547
Accounts payable (1,200,153) (29,894)
Accrued expenses 446,743 (490,476)
Income taxes payable (214,122) 487,030
Customer advance payments (570,000) 461,966
Other liabilities (22,558) --
Postretirement benefit obligation 387 28,355
----------- ------------
Net cash provided by operating activities 4,666,152 1,221,275
----------- ------------
Cash flows from investing activities:
Capital expenditures (2,597,769) (598,762)
Net sale (purchase) of marketable debt securities 17,514,897 (8,084,430)
Purchase of Ocean Microwave, Inc. assets (17,835,577) --
----------- ------------
Net cash used in investing activities (2,918,449) (8,683,192)
----------- ------------
Cash flows from financing activities:
Payment on notes payable (407,864) --
Stock options exercised 785,694 104,144
----------- ------------
Net cash provided by
financing activities 377,830 104,144
----------- ------------
Net increase (decrease) in cash
and cash equivalents 2,125,533 (7,357,773)
Cash and cash equivalents at beginning of period 6,179,202 13,481,576
----------- ------------
Cash and cash equivalents at end of period $ 8,304,735 $ 6,123,803
=========== ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 39,383 $ 9,375
=========== ============
Income taxes $ 500,000 $ 28,258
=========== ============
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The consolidated condensed financial statements are unaudited (except for the
balance sheet information as of June 30, 2000, 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
Annual Report on Form 10-K for the fiscal year ended June 30, 2000. The results
of operations for the three months ended September 30, 2000 are not necessarily
indicative of the results for the entire fiscal year ending June 30, 2001, or
any future interim period.
The income tax rate of 35% utilized for interim financial statement purposes for
the three months ended September 30, 2000 and 1999 is based on estimates of
income and utilization of tax credits for the entire year.
NOTE 1: Acquisitions
RF Power Components, Inc.
On February 29, 2000, the Company acquired all of the outstanding stock of RF
Power Components, Inc. ("RF Power"). RF Power is based in Bohemia, New York, and
is primarily engaged in the manufacture of electronic products, including power
resistors, attenuators and couplers. The transaction was accounted for using the
purchase method of accounting for business combinations and, accordingly, the
results of operations of RF Power have been included in the Company's
consolidated financial statements since the date of acquisition.
Ocean Microwave Corporation
On July 31, 2000, the Company acquired substantially all the net assets of Ocean
Microwave Corporation ("Ocean"). Ocean is based in Neptune, New Jersey, and is
primarily engaged in the design and manufacture of isolator and circulator
components. The acquired Ocean business is conducted from the Company's newly
formed subsidiary, Anaren Power Products, Inc. ("APPI"). The transaction is
being accounted for using the purchase method of accounting for business
combinations and, accordingly, the results of operations of APPI have been
included in the Company's consolidated financial statements since the date of
acquisition.
The purchase price, subject to adjustment, was $17,835,577, including direct
acquisition costs, which was allocated to the net assets acquired and
liabilities assumed based upon estimated fair market values with the excess
consideration over such fair values recorded as goodwill to be amortized on a
straight-line basis over 15 years. The preliminary allocation of the purchase
price to the assets acquired and liabilities assumed, subject to an independent
appraisal are as follows:
Accounts receivable $ 1,553,326
Inventories 2,243,728
Plant and equipment 269,390
Other assets 42,485
Accounts payable and accrued expenses (2,715,773)
Notes payable (407,864)
Goodwill 16,850,285
-----------
$17,835,577
===========
6
<PAGE>
The following unaudited pro forma financial information presents the combined
results of operations of the Company, RF Power, and Ocean as if the acquisitions
had taken place as of July 1, 1999. The pro forma information includes certain
adjustments, including the amortization of goodwill, reduction of interest
income, and certain other adjustments, together with the related income tax
effects. The pro forma financial information does not necessarily reflect the
results of operations that would have occurred had the Company, RF Power, and
Ocean constituted a single entity during such periods.
Three Months Ended September 30
-------------------------------
2000 1999
---- ----
Net sales $23,163,222 $17,350,362
Net income 3,701,435 1,684,521
Earnings per share:
Basic .34 .20
Diluted .31 .19
NOTE 2: Inventories
Inventories at September 30, 2000 and June 30, 2000 are summarized
as follows:
Sept. 30 June 30
-------- -------
Component parts $ 8,630,517 $ 6,538,207
Work in process 4,584,462 3,757,139
Finished goods 2,373,335 2,089,779
------------ ------------
$ 15,588,314 $ 12,385,125
============ ============
NOTE 3: Property, Plant and Equipment
Property, plant and equipment at September 30, 2000 and June 30, 2000
are summarized as follows:
Sept. 30 June 30
-------- -------
Land and land improvements $ 1,362,050 $ 1,362,050
Buildings and improvements 7,626,794 6,986,155
Machinery and equipment 35,694,582 32,635,865
------------ ------------
$ 44,683,426 $ 40,984,070
------------ ------------
Less accumulated depreciation
and amortization 29,047,611 27,647,477
------------ ------------
$ 15,635,815 $ 13,336,593
============ ============
7
<PAGE>
NOTE 4: Accrued Expenses
Accrued expenses at September 30, 2000 and June 30, 2000 consist of
the following:
Sept. 30 June 30
-------- -------
Compensation $ 811,963 $ 1,272,376
Commissions 738,774 510,855
Other 1,324,636 461,010
----------- ------------
$ 2,875,373 $ 2,244,241
=========== ============
NOTE 5: Other Liabilities
Other liabilities at September 30, 2000 and June 30, 2000 consist of
the following:
Sept. 30 June 30
-------- -------
Postemployment liability $ 904,187 $ 920,602
Deferred compensation 571,857 578,000
----------- ----------
1,476,044 1,498,602
Less current portion 192,318 190,814
----------- ----------
$ 1,283,726 $1,307,788
=========== ==========
NOTE 6: Restricted Stock Issue
During the first quarter ended September 30, 2000, the
Company issued 3,488 shares of restricted common stock under
a restricted stock grant agreement for one employee. These
shares have been included in the share count calculation for
diluted earnings per share for the three months ended
September 30, 2000 as required by FASB Statement No. 128
"Earnings per Share."
NOTE 7: 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."
8
<PAGE>
The following table sets forth the computation of basic and fully diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
--------------------
Sept. 30 Sept. 30
Numerator: 2000 1999
---- ----
<S> <C> <C>
Net income available to
Common stockholders $ 3,981,086 $1,748,735
=========== ==========
Denominator:
Denominator for basic net income per share:
Weighted average shares outstanding 10,964,069 8,311,439
========== ==========
Denominator for diluted net income
Per share:
Weighted average shares outstanding 10,964,069 8,311,439
Common stock options
and restricted stock 849,075 438,942
---------- ----------
Weighted average shares and conversions 11,813,144 8,750,381
========== ==========
</TABLE>
NOTE 8: Segment Information
The Company operates predominately in the wireless communications, satellite
communications and space and defense electronics markets. The Company's two
reportable segments are the wireless group and the space and defense group, and
have been determined based upon the nature of the products and services offered,
customer base, technology, availability of discrete internal financial
information, homogeneity of products, delivery channel, and are consistent with
the way the Company organizes and evaluates financial information internally for
making operating decisions and assessing performance.
The wireless segment designs, manufactures and markets commercial products used
mainly by the wireless communications market. Products produced in this business
segment include highly integrated microwave signal distribution components and
subsystems, as well as a product line of standard surface mount microwave signal
splitting and combining components, trade name Xingera, that are used in
terrestrial wireless communications base-station amplifiers.
The space and defense segment of the business designs, manufactures and markets
specialized products for those companies in the radar and satellite
communications markets. Products produced in this business segment include
passive beamforming networks for communications satellite multi-beam antennas,
digital frequency discriminators and other radar type discriminators, as well as
a wide range of standard component products for defense electronics, such as
mixers, couplers, power dividers and correlators.
The following table reflects the operating results of the segments consistent
with the Company's internal financial reporting process. The following results
are used in part, by management, both in evaluating the performance of, and in
allocating resources to, each of the segments.
9
<PAGE>
<TABLE>
<CAPTION>
Space & Corporate and
Wireless Defense Unallocated Consolidated
-------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales:
Three months ended
September 30, 2000 $16,795,724 $ 5,428,250 --- $22,223,974
September 30, 1999 6,703,875 5,760,488 --- 12,464,363
Operating income:
Three months ended
September 30, 2000 3,036,294 1,239,891 --- 4,276,185
September 30, 1999 1,312,841 950,666 --- 2,263,507
Identifiable assets:*
September 30, 2000 44,738,749 7,702,340 145,425,698 197,866,787
June 30, 2000 24,841,192 6,741,828 158,112,631 189,695,651
Depreciation and amortization:**
Three months ended
September 30, 2000 697,270 206,207 --- 903,477
September 30, 1999 208,137 202,999 --- 411,136
</TABLE>
o Segment assets primarily include receivables, inventories, goodwill
and patent. The Company does not segregate other assets on a products
and services basis for internal management reporting and, therefore,
such information is not presented. Assets included in corporate and
unallocated principally are cash and cash equivalents, marketable debt
securities, other receivables, prepaid expenses, deferred income
taxes, refundable income taxes and property, plant and equipment.
o Depreciation expense is allocated departmentally based on an estimate
of capital equipment employed by each department. Depreciation expense
is then further allocated within the department as it relates to the
specific business segment impacted by the consumption of the capital
resources utilized. Due to the similarity of the property, plant and
equipment utilized, the Company does not specifically identify these
assets by individual business segment for internal reporting purposes.
Amortization of goodwill arising from business combinations, and
patent amortization, is allocated to the segments based on the sales
segment classification of the acquired or applicable operation.
NOTE 9: Stock Split
On November 2, 2000, the Company's board of directors authorized a 2 for 1 stock
split in the form of a stock dividend to shareholders of record on November 17,
2000. Share and per share amounts have not been restated to reflect the split
which will occur subsequent to the filing of this Quarterly report on form 10-Q.
NOTE 10: Subsequent Event
On November 2, 2000, the Company's shareholders approved an amendment to the
Company's Certificate of Incorporation to increase the total number of
authorized shares of Common Stock from 25,000,000 to 200,000,000.
10
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis set forth below reviews the
Company's operating results for the three months ended September 30, 2000 and
its financial condition at September 30, 2000. 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.
Overview
The consolidated condensed financial statements present the financial condition
of the Company as of September 30, 2000 and June 30, 2000, and the consolidated
results of operations and cash flows of the Company for the three months ended
September 30, 2000 and 1999.
On July 31, 2000, the Company acquired substantially all the net assets of
Ocean. Ocean is based in Neptune, New Jersey, and is primarily engaged in the
design and manufacture of isolator and circulator components. The acquired
business of Ocean is conducted from the Company's newly formed subsidiary, APPI.
The purchase price, including direct acquisition costs, consisted of cash of
$17.8 million. The acquisition was accounted for under the purchase method of
accounting for business combinations.
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
Sept. 30, Sept. 30,
2000 1999
---- ----
Net sales 100.0% 100.0%
Cost of sales 60.3% 60.3%
------ ------
Gross profit 39.7% 39.7%
------ ------
Operating expenses:
Marketing 7.1% 9.0%
Research and development 5.0% 5.6%
General and administrative 8.4% 6.9%
------ ------
Total operating expenses 20.5% 21.5%
------ ------
Operating income 19.2% 18.2%
Other income 8.4% 3.5%
Interest expense (0.2%) (0.1%)
------ ------
Income before income taxes 27.4% 21.6%
Income tax expense 9.5% 7.6%
------ ------
Net income 17.9% 14.0%
====== ======
11
<PAGE>
The following table summarizes the Company's net sales by operating segments for
the periods indicated. Amounts are in thousands.
Three Months Ended
Sept. 30 Sept. 30
2000 1999
---- ----
Wireless $16,796 $ 6,704
Space and Defense 5,428 5,760
------- -------
$22,224 $12,464
======= =======
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999.
Net Sales. Net sales increased $9.8 million, or 78%, to $22.2 million for the
three months ended September 30, 2000, compared to $12.5 million for the first
quarter of the previous year. This increase was led by a 151% increase in
Wireless sales, which more than offset a 6% drop in sales of Space and Defense
products.
The increase in sales of Wireless products, which consist of standard and
surface mount catalog components and custom subassemblies for use in building
Wireless basestation equipment, continues to reflect both the ongoing strong
demand by the major basestation Original Equipment Manufacturers ("OEMs"), as
well as the Company's success in achieving higher dollar content per basestation
for its latest backplane products. Both shipments of custom basestation
backplanes to OEMs and shipments of Xinger(R) and other surface mount products
to amplifier manufacturers rose significantly in the second quarter in response
to this demand. The quarter over quarter increase in Wireless sales also
reflects the inclusion of two and three months sales of APPI and RF Power,
respectively, and which accounted for approximately $6.3 million of the
quarterly sales increase.
Sales of Space and Defense products consist of custom multi-layer components and
assemblies for communications satellites and defense radar countermeasure
subsystems for the military. Sales in the Space and Defense Group fell $332,000,
or 6%, for the three months ended September 30, 2000 compared to the first
quarter of the prior fiscal year. This decline resulted from the ongoing
slow-down in the satellite voice communications market due to the lack of
success of the Iridium program and other space based voice systems, which has
caused delays and cancellations of many potential systems over the past eighteen
months. Quarterly sales in this business area are expected to remain in the $5.0
- 6.0 million range through the remainder of fiscal 2001.
Gross Profit. Gross profit for the first quarter of fiscal 2001 was $8.8 million
(39.7% of net sales) up from $5.0 million (39.7% of net sales) for the first
quarter of fiscal 2000. Gross profit increased significantly due to the absolute
increase in sales in the current first quarter, compared to the first quarter of
fiscal 2000. The increase in sales volume did not result in further improvement
in gross margin as a percent of sales, quarter over quarter, as the gross
margins at the Company's new subsidiaries are not yet as profitable as its main
operations in East Syracuse, New York. The Company expects gross margins to
remain at current levels in quarter two and then to improve in the second half
of fiscal 2001. Cost of sales consists primarily of engineering design costs,
material, material fabrication costs, assembly costs and test costs.
12
<PAGE>
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 40% to $1.6
million (7.1% of net sales) for the first quarter of fiscal 2001 from $1.1
million (9.0% of net sales) for the first quarter of fiscal 2000. This increase
was a result of the continuing expansion of the Company's marketing and sales
organization to support increased order volume and the inclusion of two months
expense for APPI and three months expense for RF Power.
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. Research and development expenses increased 59% to $1.1
million (5.0% of net sales) in the first quarter of fiscal 2001 from $702,000
million (5.6% of net sales) for the first quarter of fiscal 2000. Research and
development expenditures are expanding to support further development of
wireless infrastructure products and 3G broadband fixed wireless product
opportunities. The formation of APPI did not have a material impact on the
Company's research and development expense in the first quarter of fiscal 2001.
General and Administrative. General and administrative expenses increased 115%
to $1.9 million (8.4% of net sales) for the first quarter of fiscal 2001 from
$864,000 (6.9% of net sales) for the first quarter of fiscal 2000. General and
administrative expenses have increased due to the hiring of additional personnel
to support the Company's corporate acquisition activity and in part to a rise in
professional fees due to the Company's growth.
Additionally, the first quarter of fiscal 2001 includes two months general and
administrative expense for APPI and three months general and administrative
expense for RF Power.
Other Income. Other income is primarily interest income received on invested
cash balances. Other income increased 328% to $1.9 million (8.4% of net sales)
for the first quarter of fiscal 2001 from $437,000 (3.5% of net sales) for the
first quarter of fiscal 2000 due to the $112 million net proceeds raised through
the Company's follow-on offering completed in April, 2000.
Interest Expense. Interest expense represents commitment fees and interest paid
on certain deferred obligations. Interest expense for the first quarter of
fiscal 2001 was $41,000 (0.2% of net sales) compared to $9,000 (0.1% of net
sales) for the first quarter of fiscal 2000. The increase in interest expense
was caused by the addition of interest bearing obligations of RF Power.
Income Taxes. Income tax expense for the first quarter of fiscal 2001 was $2.1
million (9.5% of net sales), representing an effective tax rate of 35%. This
compared to $942,000 (7.6% of net sales) for the first quarter of fiscal 2000,
also representing an effective tax rate of 35%.
Liquidity and Capital Resources
Net cash provided by operations for the three months ended September 30, 2000
and the three months ended September 30, 1999 were $4.7 million and $1.2
million, respectively. The positive flow from operations in both the first three
months of fiscal 2001 and 2000 was due primarily to the profit attained in both
periods.
Net cash used in investing activities consists of funds used to purchase capital
equipment and funds used to purchase the assets of Ocean in July, 2000. Capital
equipment and building renovation related expenditures amounted to $2.6 million
and $599,000 for the three months
13
<PAGE>
ended September 30, 2000 and 1999, respectively. These capital investments
consisted of building renovations and equipment purchases to further expand the
Company's wireless production capabilities. Additionally, in the first quarter
of fiscal 2001, the Company expended $17.8 million in cash to purchase the
assets of Ocean through the Company's new subsidiary, APPI. Funds for this
transaction were obtained from the sale of short-term marketable securities in
the amount of $17.5 million. Cash used in investing activities in addition to
capital expenditures in the first quarter of fiscal 2000 (the prior year) were
$8.1 million and consisted of funds used to buy marketable securities.
Net cash provided by financing activities for the three months ended September
30, 2000 and 1999 was $378,000 and $104,000, respectively, and in both years
consisted primarily of funds generated by the exercise of stock options. In the
first quarter of fiscal 2001, funds used in financing activities amounted to
$408,000 and consisted of funds used to pay off the notes payable of Ocean,
which were assumed as part of the asset purchase.
During the remainder of fiscal 2001 the Company's main cash requirements will be
for additions to capital equipment and the funding of a 56,000 square foot
addition to the Company's main plant in East Syracuse, New York. Capital
equipment additions for fiscal 2001 have been budgeted at approximately $6.5
million and consist mainly of production equipment for the Company's expanding
wireless production operation and a new mainframe computer and software to run
the Company's manufacturing system. The new building addition project has been
budgeted at $12.0 million, consisting of $7.5 million for building costs and
$4.5 million for furnishings and equipment for the new facility.
In addition to the Company's cash and marketable debt securities, the Company
has a credit facility providing an unsecured $10 million working capital
revolving line of credit bearing interest at prime and maturing December 31,
2003. The terms of the credit facility require maintenance of minimum tangible
net worth, ratio of cash flows to maturities, and leverage ratio as defined in
the loan agreement. The Company believes that it was in compliance with all
restrictions and covenants at September 30, 2000. At September 30, 2000, $0 was
outstanding under the credit facility.
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.
Year 2000 Status
The Company has conducted a full review of its programs and systems that could
be affected by the "year 2000 problem" ("Y2K"). The Company undertook projects
to update and replace all known noncompliant internal information systems and
processes to ensure that the Y2K situation would not have an adverse impact on
the Company's internal operations.
As of the date of this of this filing, the Company has not incurred any
significant business interruptions as a result of the Y2K problem. However,
while the Company has not become aware of any such occurrence, Y2K problems may
surface throughout calendar year 2000. Therefore, there is no assurance that the
Company will not be negatively impacted by the Y2K problem in the future. The
Company will continue to monitor this situation and attempt to expeditiously
address any issues that may arise.
Based on its readiness efforts, the Company currently does not reasonably
foresee any material year 2000 issues, and therefore the costs associated with
potential year 2000 issues that may arise
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during the remainder of calendar year 2000 are not expected to have a material
adverse effect on either the financial condition or results of operations of the
Company.
Recent Accounting Pronouncements
On June 30, 1998, the financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133), which establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. Upon implementation, the SFAS 133 did not have a significant
effect on the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), which provides guidance in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101, as amended, will require implementation by the Company in the fourth
quarter of fiscal 2001. The Company has reviewed SAB 101 and believes that the
Bulletin will not have a significant effect on its financial statements.
In March 2000, the FASB issued its Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation - an interpretation of APB
Opinion No. 25" (FIN 44). FIN 44 applies prospectively to new awards, exchanges
of awards in a business combination, modifications to outstanding awards, and
changes in grantee status that occur on or after July 1, 2000, except for the
provisions related to repricings and the definition of an employee which apply
to awards issued after December 15, 1998. The Company does not expect the
implementation of these guidelines to have a material impact on its consolidated
financial position, liquidity, or results of operations.
Forward-Looking Cautionary Statement
In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this Quarterly Report on Form 10-Q
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
factors that could cause actual results to differ materially are the following:
loss of one or more of a limited number of OEMs as customers; the inability to
attract and retain qualified engineers and other key employees to maintain and
grow the Company's business; the unavailability of component parts and services
from a limited number of suppliers; changes in customer order patterns;
cancellations of existing contracts or orders; difficulties in successfully
integrating the businesses of RF Power and Ocean; inability to effectively
manage possible future growth; failure to successfully execute the manufacturing
ramp; potential interruption of operations resulting from the relocation of APPI
to a larger manufacturing location in New Jersey; the failure of wireless
customers' annual procurement forecasts to result in future sales; and
litigation involving antitrust intellectual property, product warranty, and
other issues.
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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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following discusses the Company's possible exposure to market risk related
to changes in interest rates, equity prices and foreign currency exchange rates.
This discussion contains forward-looking statements that are subject to risks
and uncertainties. Actual results could vary materially as a result of a number
of factors, including those discussed above.
As of September 30, 2000, the Company had cash, cash equivalents and marketable
debt securities of $124.6 million, of which approximately $116.3 million
consisted of highly liquid investments in marketable debt securities. These
investments at the date of purchase normally have maturities between one and 18
months, are exposed to interest rate risk and will decrease in value if market
interest rates increase. A hypothetical increase or decrease in market interest
rate of 10% from September 30, 2000 rates would cause the market price of these
securities to decline by an insignificant amount. Due to the relatively short
maturities of the securities and its ability to hold those investments to
maturity, the Company does not believe that an immediate increase in interest
rates would have a significant effect on its financial condition or results of
operations. Over time however, declines in interest rates will reduce the
Company's interest income.
The Company does not currently own any material equity investments. Therefore,
the Company does not currently have any direct equity price risk.
All of the Company's sales to foreign customers are denominated in United States
dollars and, accordingly, the Company is not currently exposed to foreign
currency exchange risk.
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Item 6. Exhibits and Reports on Form 8-K
Item 6(a) Exhibits
3.1 Certificate of Incorporation (1)
3.2 Restated Bylaws (2)
Exhibit No. 27 Financial Data Schedule
Item 6(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on
August 15, 2000 related to its acquisition of
substantially all of the net assets of Ocean Microwave,
Inc.
----------------
(1) (A) Restated Certificate of Incorporation of the Company, filed
on August 11, 1967, is incorporated herein by reference to Exhibit 3(a) to
the Company's Registration Statement on Form S-1 (Registration No.
2-42704), (B) Amendment, filed December 19, 1980, is incorporated herein
by reference to Exhibit 4.1 (ii) to the Company's Registration Statement
on Form S-2 (Registration No. 2-86025); (C) Amendment, filed March 18,
1985, is incorporated herein by reference to Exhibit 3.1 to the Company's
Annual Report on Form 10-K (Commission File No. 0-6620) for the fiscal
year ended June 30, 1987; (D) Amendment, filed December 14, 1987, is
incorporated herein by reference to Exhibit 4(a)(iv) to the Company's
Registration Statement on Form S-8 (Registration No. 33-19618); (E)
Amendment, filed April 8, 1999, is incorporated herein by reference to
Exhibit 3.1 to the Company's Annual Report on Form 10-K (Commission File
No. 0-6620) for the fiscal year ended June 30, 1999; and (F) Amendment,
filed February 8, 2000, is incorporated herein by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-3 (Registration No.
333-31460) filed on March 2, 2000.
(2) Incorporated herein by reference to Exhibit 4.2 to the Company's
Registration Statement on Form S-3 (Registration No. 333-31460)
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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: November 9, 2000 S/Lawrence A. Sala
--------------------------------------------
President & Chief Executive Officer
Date: November 9, 2000 S/Joseph E. Porcello
--------------------------------------------
Vice President of Finance
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