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, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to________________________
Commission file number 0-6620
ANAREN MICROWAVE, INC.
(Exact name of Registrant as specified in its Charter)
New York 16-0928561
(State of incorporation) (I.R.S Employer Identification No.)
6635 Kirkville Road 13057
East Syracuse, New York (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: 315-432-8909
N/A
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by Check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of Registrant's Common Stock outstanding on November
10, 1995 was 4,059,742.
ANAREN MICROWAVE, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statement (Unaudited)
Consolidated Condensed Balance Sheets 3
September 30, 1995 and July 1, 1995
Consolidated Condensed Statements of Earnings 4
Three months ended September 30, 1995 and
October 1, 1994
Consolidated Condensed Statements of Cash Flows -- 5
Three months ended September 30, 1995 and
October 1, 1994
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis 10
of Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
2
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
September 30, 1995 and July 1, 1995
Unaudited
Assets Sept. 30, 1995 July 1, 1995
-------------- ------------
Current assets:
Cash and cash equivalents $ 2,546,167 $ 2,139,795
Receivables, less allowance of $13,000 5,321,830 6,112,540
Refundable Income Taxes 330,000 330,000
Inventories 6,966,092 6,853,755
Prepaid expenses 301,609 235,047
------------ ------------
Total current assets 15,465,698 15,671,137
Property, plant and equipment 28,671,078 28,425,703
Less accumulated depreciation
and amortization (21,229,417) (20,809,496)
------------ ------------
Net property, plant and equipment 7,441,661 7,616,207
Other assets, net 69,270 77,762
------------ ------------
$ 22,976,629 $ 23,365,106
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ 715,360 $ 712,264
Accounts payable 559,053 705,101
Accrued expenses 313,465 408,060
Provision for losses on contracts 151,915 588,031
------------ ------------
Total current liabilities 1,739,793 2,413,456
Postretirement Benefit Obligation 1,075,834 1,075,834
Long-term debt, less current installments 908,557 1,051,881
------------ ------------
Total liabilities 3,724,184 4,541,171
Stockholders' equity:
Common stock of $.01 par value. Authorized
12,000,000 shares; issued 4,952,016 shares
at September 30, 1995 and 4,850,016 shares
at July 1, 1995 49,520 48,500
Additional paid-in capital 15,419,064 15,057,521
Retained earnings 5,795,938 5,729,991
------------ ------------
21,264,522 20,836,012
Less cost of 892,274 shares in treasury
at September 30, 1995 and July 1, 1995 2,012,077 2,012,077
------------ ------------
Total stockholders' equity 19,252,445 18,823,935
------------ ------------
$ 22,976,629 $ 23,365,106
============ ============
See accompanying notes to consolidated condensed financial statements.
3
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
Unaudited
For the Quarter Ended:
Sept. 30, 1995 Oct. 1, 1994
(Current Year) (Preceding Year)
------------ --------------
Net Sales $ 4,449,465 $ 4,154,419
Costs and expenses
Costs of sales 2,808,833 2,929,509
Marketing, including sales commissions 667,207 723,596
General and administrative 508,283 479,729
Research and development 384,788 133,851
----------- -----------
Total costs and expenses 4,369,111 4,266,685
----------- -----------
Operating earnings (loss) 80,354 (112,266)
Other income 28,439 46,526
Interest expense (42,846) (57,657)
----------- -----------
Earnings (loss) before income taxes 65,947 (123,397)
Income tax expense (benefit) -- --
----------- -----------
Net earnings (loss) $ 65,947 $ (123,397)
=========== ===========
Earnings (loss) per share $ .02 $ (.03)
=========== ===========
Dividends per share $ -- $ --
=========== ===========
See accompanying notes to consolidated financial statements.
4
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Three Months Ended:
September 30, 1995 and October 1 1994
1995 1994
----------- -----------
Cash Flows From Operating Activities:
Net income/(loss) $ 65,947 $ (123,397)
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization of
property, plant and equipment 419,921 441,404
Provision for losses on contracts (436,116) (64,297)
Amortization of intangibles 8,492 63,070
Changes in:
Receivables 790,710 1,969,593
Refundable income taxes -- 31,746
Inventories (112,337) (649,959)
Prepaid expenses (66,562) (26,151)
Accounts payable (146,048) 110,226
Accrued expenses (94,595) (42,850)
----------- -----------
Net cash provided by
operating activities 492,412 1,709,385
Cash Flows From Investing Activities:
Capital expenditures (245,375) (33,139)
----------- -----------
Net cash provided (used in)
investing activities (245,375) (33,139)
Cash Flows From Financing Activities:
Principal payments on long-term debt (138,768) (118,720)
Net borrowings under revolving line
of credit and overdrafts (1,460) (356,992)
Proceeds from issuance of common stock 362,563 --
Purchases of treasury stock -- (1,459,278)
----------- -----------
Net cash provided by (used in)
financing activities 222,335 (1,934,990)
Net increase (decrease) in cash
and cash equivalents 406,372 (258,744)
Cash and cash equivalents at beginning of period 2,139,795 3,556,517
----------- -----------
Cash and cash equivalents at end of period $ 2,546,167 $ 3,297,773
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 23,473 34,936
=========== ===========
Income taxes $ 0 $ 30,013
=========== ===========
See accompanying notes to consolidated condensed financial statements.
5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying financial statements and notes should be read in conjunction
with the consolidated financial statements and related notes contained in the
Company's annual report for the year ended July 1, 1995.
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as of
September 30, 1995, and the results of operations and cash flows for the three
months ended September 30, 1995 and October 1, 1994
The income tax rate for interim statement purposes is based on estimates of
income and tax credits for the entire year.
NOTE 1: Inventories
Inventories at September 30, 1995 and July 1, 1995 are summarized as
follows:
September 30 July 1
------------ ----------
Raw Materials $2,826,533 $2,804,720
Work in process 3,395,954 3,266,194
Finished Goods 743,605 782,841
---------- ----------
$6,966,092 $6,853,755
========== ==========
NOTE 2: Property, Plant and Equipment
Property, plant and equipment at September 30, 1995 and July 1, 1995
are shown in the following summary:
September 30 July 1
------------ -----------
Land and Land improvements $ 1,362,050 $ 1,362,050
Buildings and improvements 5,094,722 5,094,722
Machinery and equipment 22,214,306 21,968,931
----------- -----------
$28,671,078 $28,425,703
=========== ===========
6
NOTE 3: Long-Term Debt
Long-term debt at September 30, 1995 and July 1, 1995 is comprised of
the following:
September 30 July 1
------------ ----------
75% of prime rate Industrial
Development Revenue Bonds, due
in semi-annual installments
through May 1, 2000 $1,133,334 $1,133,334
Capitalized lease obligations 490,583 630,811
Revolving Line of Credit -- --
---------- ----------
$1,623,917 $1,764,145
Less Current Installments 715,360 712,264
---------- ----------
$ 908,557 $1,051,881
========== ==========
NOTE 4: Per Share Data
Per share data are based on a weighted average of 3,998,080 common
shares issued and outstanding.
NOTE 5: Income Taxes
Effective June 27, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" on a prospective basis. The cumulative effect of the
initial adoption of Statement 109 was insignificant. Under the asset
and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates.
Pursuant to the deferred method under APB Opinion 11, which was
applied in fiscal 1993 and prior years, deferred income taxes are
recognized for income and expense items that are reported in different
years for financial reporting purposes and income tax purposes using
the tax rate applicable in the year of the calculation. Under the
deferred method, deferred taxes are not adjusted for subsequent
changes in tax rates.
7
Deferring tax assets and liabilities at September 30, 1995 and July 1,
1995 are summarized as follows:
September 30 July 1
------------ -----------
Gross deferred tax assets $ 2,418,445 $ 2,440,867
Less valuation allowance (1,730,425) (1,752,847)
----------- -----------
Net deferred tax assets 688,020 688,020
Gross deferred tax liabilities (688,020) (688,020)
----------- -----------
Net deferred taxes $ 0 $ 0
The valuation allowance for the deferred tax assets as of September
30, 1995 and July 1, 1995 was $1,730,425 and $1,752,847, respectively.
The net change in the total valuation allowance for the quarter ended
September 30, 1995 was a decrease of $22,422. 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 September 30, 1995.
NOTE 6: Postretirement Benefits
The Company provides medical coverage for current and future eligible
retirees of Anaren Microwave, Inc. plus their eligible dependents.
Employees generally become eligible for retiree medical coverage by
retiring from the Company on immediate pension after attaining at
least age 55 with 15 years of service. (Current active employees at
June 27, 1993 are eligible by retiring after attaining at least age 55
with 10 years of service.) Existing retirees at June 27, 1993 pay
approximately $30 per month for health care coverage and the Company
is responsible for paying the remaining costs. For this group, any
increase in health care coverage costs for retired employees will be
shared by the Company and retirees on a fifty-fifty basis, while any
increase in coverage costs for retiree dependents will be totally paid
by the retirees. For eligible new retirees (employees retiring after
June 26, 1993), the Company will contribute a fixed dollar amount
towards the cost of the medical plan. Any future cost increases for
the retiree medical program for these participants retiring after June
26, 1993 will be charged to the retiree.
The Company adopted Statement of Financial Accounting Standards No.
106, Employers Accounting for Postretirement Benefits Other Than
Pensions (FAS 106), effective June 27, 1993. FAS 106 changed the
practice of accounting for the costs of health insurance coverage for
retired employees on a pay-as-you-go (cash) basis by requiring an
accrual for the expected future benefit expense during the period of
employment. The Company elected to immediately recognize the
Accumulated Postretirement Benefit Obligation ("APBO")
of $994,727 in the
8
quarter ended September 25, 1993. Net periodic postretirement benefit
expense for fiscal 1996 is expected to be approximately $101,000,
consisting of service costs of $27,000 and interest costs of $74,000.
The components of the accumulated postretirement benefit obligation
included in the Company's balance sheet at September 30, 1995 and July
1, 1995 are as follows:
September 30 July 1
------------ ----------
Retirees $ 474,517 $ 474,517
Fully eligible active employees 259,458 259,458
Other active participants 275,714 275,714
Unrecognized net gain 66,145 66,145
---------- ----------
Accrued Postretirement Benefit Cost $1,075,834 $1,075,834
========== ==========
The discount rate used in determining the APBO was 7.5%. For
measurement purposes in determining the amount of the APBO for
retirees retired prior to June 27, 1993, a 14% annual rate of increase
in the health care cost trend rate was assumed initially decreasing 1%
per year through 1996, then decreasing 0.5% per year from 1997 through
2005 and thereafter remaining at 5%. Because the Company contributes a
fixed dollar amount to the plan for the "active" employee group, the
medical trend rate does not affect the calculation of the APBO or net
periodic expense for this group of plan participants.
NOTE 7: 52/53 Weeks Fiscal Year
Beginning with fiscal year 1996, the Company switched to a twelve
month fiscal year from the previous 52/53 week fiscal year. Fiscal
1996 will end on June 30, 1996.
9
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Results of operations for the first quarter of fiscal 1996 reflected a small
increase in both revenues and earnings due to the rising sales of new commercial
products. Net sales for the first quarter ended September 30, 1995 were
$4,449,465, up 7%, from net sales of $4,154,419 for the same period in the
previous year, and the Company recorded net earnings of $65,947 compared to a
loss of $123,397 recorded during the first quarter of fiscal 1995.
To better serve its emerging commercial markets, the Company reorganized, during
the first quarter of fiscal 1996, into three internal business units. These
business units are Electronic Warfare, Radar and Telecommunications and
Wireless. This action was taken to optimize responsiveness to customers needs
and to provide extended fiscal accountability downward throughout the
organization. Each business unit is composed of an independent engineering,
marketing and sales teams whose purpose is to develop, market and deliver
product to its customers.
During the first quarter ended September 30, 1995 sales in the Wireless and
Radar and Telecommunications groups rose $255,000 and $850,000, respectively,
compared to the first quarter of the previous year, while sales in the
electronic warfare group fell $810,000, resulting in an overall sales increase
of approximately $295,000.
Sales of Wireless products, which consist of components for use in building
cellular base station equipment, rose from less than $20,000 in first quarter of
fiscal 1995 to over $275,000 in the first quarter of the current fiscal year.
These sales consisted mainly of surface mount couplers sold on tape and reel for
pick and place high volume production applications and pilot production runs of
custom components for base station equipment manufacturers.
Currently the Company expects to ship approximately $500,000 to $1,000,000 of
surface mount couplers during fiscal 1996 based on projected customer demand and
current prices, which range from $1.30 to $3.00 per coupler. Additionally, the
Company expects significant production opportunities in the second half of
fiscal 1996 for custom base station equipment components for which pilot
production runs have been completed and vendor qualification requirements have
been met. Firm backlog for Wireless products was approximately $320,000 at
September 30, 1995 all of which is expected to ship in fiscal 1996.
Shipments of Radar and Telecommunication products, which consist of military
phase array radars and customized commercial multilayer components such as
Butler matrices and beamforming networks for commercial satellites, increased
$850,000 to $970,000 in the first quarter of fiscal 1996 compared to
approximately $120,000 in the first quarter of fiscal 1995. This increase is
attributable to shipments during the current first quarter of approximately
$800,000 under the Army Ground Based Radar program which the Company is
currently producing for Raytheon Company under a $3,750,000 contract. Shipments
under this contract were severely limited during the half of fiscal 1995 due to
difficulties in meeting the customer's technical specifications and
manufacturing process problems. These problems were resolved in the second half
of fiscal 1995 and the Company expects to finish shipping this contract in the
second quarter of the current fiscal year.
10
The remaining first quarter shipments in this product area amounted to
approximately $170,000, and represented preproduction units for the Iridium
program. This program, under which the Company is building the satellite antenna
beamforming networks for Raytheon Company, represents approximately $5,800,000
in firm backlog at September 30, 1995 and is expected to ship at the rate of
approximately $1,000,000 a quarter over the next 18 months, beginning in
October, 1995.
Sales of Electronic Warfare products fell $811,000, to $3,200,000 in the first
quarter of fiscal 1996, compared to the same quarter in fiscal 1995. Shipments
in this business area, which include Digital Frequency Discriminators (DFD's) ,
Digital RF Memories (DRFM's), ESM Receivers, Military Simulators and Microwave
Integrated Circuit components (MIC's), has been steadily declining over the past
three fiscal years due to the decline in the overall worldwide defense market.
The drop in sales in the first quarter of fiscal 1996 was spread over all of the
above mentioned product areas, except for MIC's, due to the completion of a
number of large DFD and DRFM programs in the latter part of fiscal 1994 and
early fiscal 1995, and a drop off in new orders for ESM receivers in fiscal
1995. Firm backlog in this business unit was approximately $6,400,000 at the
beginning of the current fiscal year, down $4,800,000 from the beginning of
fiscal 1995. Presently, the Company expects Electronic Warfare product sales to
stabilize at approximately $2,500,000 to $3,000,000 per quarter over the
remainder of fiscal 1996. Firm backlog in this product area at September 30,
1995 was approximately $3,800,000, of which all but $535,000 is expected to ship
during the remainder of fiscal 1996.
Net earnings for the first quarter ended September 30, 1995 were $65,947
compared to a loss of $123,397 for the first quarter of fiscal 1995. This
improvement in earnings was a result of the 7% increase in sales revenue, a
significant improvement in gross margins and a small decrease in marketing
expense during the period as compared to the same period in the previous fiscal
year.
Gross margin on sales for the first quarter of fiscal 1996 was 37% compared to
29% for the first quarter of fiscal 1995. This significant improvement was the
result of the higher sales volume attained in the current quarter which allowed
for better absorption of fixed overhead costs and personnel reductions made in
the second quarter of the previous fiscal year which were specifically targeted
at reducing manufacturing overhead and engineering costs. Additionally, during
the current first quarter, approximately $436,000 of costs incurred in building
products for shipment during this period were charged against the allowance for
contract losses established in fiscal 1994 and 1995. These expenses represent
cost overruns incurred on products shipped in the first quarter which had
previously been identified and provided for when the allowance was established.
The Company expects that gross margins will approximate current levels through
the remainder of fiscal 1996.
Research and development expense was $385,000 for the first three months of
fiscal 1996, up 187% from $134,000 for the same period in fiscal 1995. This
increase represents a significant rise in the prototype development efforts for
the Company's new Wireless commercial product line. Current development efforts
are being targeted on adapting existing Company technologies to produce new
component products which fit a specific customer's requirements in the wireless
cellular base station market. Future research and development expenditures are
expected to fluctuate based on sales levels and identified market opportunities.
Marketing expense fell 8% in the first three months of fiscal 1996 compared to
the first three months of the previous fiscal year. This decrease was due mainly
to the reassignment of marketing personnel to other functions within the Company
due to the business group
11
realignment undertaken in the first quarter of the current year. Marketing
expense is expected to rise during the remainder of fiscal 1996 as the Company
adds personnel and expenses in order to meet the demands of the wireless
marketplace.
General and Administrative expenses rose 6% in the first quarter of fiscal 1996
compared to the same period in fiscal 1995. This increase represents normal
quarter to quarter fluctuation in expenditures.
Current levels of general and administrative spending reflect the same level or
lower of that experienced by the Company in fiscal 1995. General and
administrative expense is expected to remain at current levels or decline during
the remainder of the current fiscal year.
Interest expense and other income fell 26% and 38%, respectively, in the first
quarter of fiscal 1996 compared to the same quarter in fiscal 1995. The decline
in interest expense reflects the continuing reduction in long-term debt over the
past year, while the drop in other income mirrored a like reduction in cash
balance available for investment in the current quarter as compared to last
year.
Consolidated income tax expense was $0 in the first quarter of fiscal 1996
versus an expected tax expense of approximately $22,422 based on 34% of before
income taxes. The difference between the actual tax benefit recognized in the
financial statements and the expected tax benefit calculated on the loss
incurred was due to a decrease in the deferred tax asset valuation allowance
required by the new tax accounting rules (FAS No. 109) adopted by the Company at
the beginning of fiscal 1994. Under the new tax accounting rules the Company
must assess the realizability of deferred tax assets, considering whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income in the period in which those
temporary differences become deductible. Management of the Company has
considered the scheduled reversal of deferred tax liabilities and projected
future taxable income in making the assessment of the realizability of the
deferred tax asset balances at September 30, 1995. Based upon the level of
historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, the Company believes it is
more likely than not that it will realize the benefit of these deductible
differences, net of the existing valuation allowances at September 30, 1995.
Liquidity and Capital Resources
During the first quarter of fiscal 1996, the Company continued to maintain a
strong and highly liquid financial position. As of September 30, 1995, the
Company's cash position had increased $406,000 compared to the end of fiscal
1995 due to a $790,000 decrease in accounts receivable and $363,000 in
additional capital received by the Company due to the exercise of stock options
by directors and employees. During this same period, net working capital rose
$468,000 due to reductions in accounts payable, accrued expenses and the
provision for losses on contracts.
Long-term liabilities declined $144,000 during the first quarter due to payments
on various capitalized lease obligations relating to production equipment and no
new long-term debt was taken on as the Company's cash balances were more than
adequate to fund both long and short-term cash needs.
During the remainder of fiscal 1995, the Company's major cash requirements will
be for additions to capital equipment and repayment of long-term debt. Capital
equipment
12
additions for the current year have been budgeted at $1,000,000 and through the
first quarter of fiscal 1996, approximately $245,000 has been expended all of
which was funded by cash generated from operations. Capital equipment additions
for the remainder of fiscal 1996 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 fiscal 1994, the Company modified its existing loan agreement with its
principal bank in order to obtain better terms and covenants. The modified
agreement provided for a $3.5 million line of credit which was fully secured by
the assets of the Company. This credit facility had no annual fees and interest
on any outstanding loan balance was charged at prime + 3/4% per annum. Under the
terms of the modified agreement the Company was required to maintain a $0 loan
balance for at least thirty days consecutively each fiscal year and meet certain
covenants relating to earnings, retained earnings and capital equipment
acquisitions. This credit facility expired on March 31, 1995.
Presently, the Company is negotiating a new credit facility with its bank. Were
this credit facility not available, the Company believes that its cash
requirements for the foreseeable future will be satisfied by currently invested
cash balances, expected cash flow from operations and progress payments from
customers.
13
Item 6. Exhibits and Reports on Form 8-K
Item 6(a) Exhibits
Exhibit No. 27 Financial Data Schedule for the three month period ended
September 30, 1995
Item 6(b) Reports on Form 8K
The registrant was not required to file an 8-K during the current fiscal period.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned thereunto duly authorized.
Anaren Microwave, Inc.
(Registrant)
Date: November 10, 1995 Hugh A. Hair
Chairman & Chief Executive Officer
Date: November 10, 1995 Joseph E. Porcello
Vice President of Finance & Controller
15
Exhibit Index
Number Description
- - ------ -----------
27 Financial Data Schedule for the three month period ended September 30, 1995.
16