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 March 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 May 5,
1998 was 5,561,092.
1
ANAREN MICROWAVE, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statement (Unaudited)
Consolidated Condensed Balance Sheets 3
March 31, 1998 and June 30, 1997
Consolidated Condensed Statements of Earnings 4
Three months ended March 31, 1998 and
March 31, 1997
Consolidated Condensed Statements of Earnings 5
Nine months ended March 31, 1998 and
March 31, 1997
Consolidated Condensed Statements of Cash Flows - 6
Nine months ended March 31, 1998 and
March 31, 1997
Notes to Consolidated Condensed Financial 7
Statements - March 31, 1998
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 16
2
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
March 31, 1998 and June 30, 1997
Unaudited
Assets Mar. 31, 1998 June 30, 1997
------ ------------- -------------
Current assets:
Cash and cash equivalents $ 8,685,176 $ 3,807,004
Short-term investments 15,602,199 --
Receivables, less allowance
of $13,000 6,464,067 6,717,106
Inventories 10,099,435 7,736,007
Prepaid expenses 249,818 197,152
Deferred income taxes, current 85,781 532,054
------------ ------------
Total current assets 41,186,476 18,989,323
Property, plant and equipment 31,614,859 30,080,173
Less accumulated depreciation
and amortization (24,091,417) (23,110,872)
------------ ------------
Net property, plant
and equipment 7,523,442 6,969,301
Other assets, net -- 13,919
------------ ------------
$ 48,709,918 $ 25,972,543
============ ============
Liabilities and Stockholders'
Equity
Current liabilities:
Current installments of
long-term debt $ -- $ 228,723
Accounts payable 1,776,465 1,500,863
Income taxes payable 89,290 493,553
Accrued expenses 1,148,549 719,416
Customer advance payments 435,303 1,003,539
------------ ------------
Total current
liabilities 3,449,607 3,946,094
Postretirement benefit obligation 1,181,276 1,181,276
Long-term debt, less current
installments -- 453,335
Deferred income taxes 85,781 64,508
------------ ------------
Total liabilities 4,716,664 5,645,213
------------ ------------
Stockholders' equity:
Common stock of $.01 par value
Authorized 12,000,000 shares;
issued 6,451,366 shares
at March 31, 1998 and
5,012,116 shares
at June 30, 1997 64,514 50,121
Additional paid-in capital 36,347,041 15,584,262
Retained earnings 9,593,776 6,705,024
------------ ------------
46,005,331 22,339,407
Less cost of 892,274 shares
in treasury at March 31, 1998
and June 30, 1997 (2,012,077) (2,012,077)
------------ ------------
Total stockholders'
equity 43,993,254 20,327,330
------------ ------------
$ 48,709,918 $ 25,972,543
============ ============
See accompanying notes to consolidated condensed financial statements.
3
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
Unaudited
For the Three Months Ended:
Mar. 31, 1998 Mar. 31, 1997
(Current Year (Preceding Year)
------------- ----------------
Net sales $ 9,951,100 $ 6,059,502
Costs of goods sold 6,291,273 3,995,195
----------- -----------
Gross profit 3,659,827 2,064,307
----------- -----------
Operating expenses
Marketing, including sales
commissions 1,017,164 895,667
Research and development 368,042 149,548
General and administrative 748,984 562,119
----------- -----------
Total operating expenses 2,134,190 1,607,334
----------- -----------
Operating income 1,525,637 456,973
----------- -----------
Other income 340,294 27,701
Interest expense (13,642) (19,941)
----------- -----------
Income before income taxes 1,852,289 464,733
Income tax expense 681,000 --
----------- -----------
Net income $ 1,171,289 $ 464,733
=========== ===========
Net income per common and common
share equivalent:
Basic $ 0.21 $ 0.11
=========== ===========
Fully diluted $ 0.20 $ 0.11
=========== ===========
Shares used in computing net income per
common and common share equivalent:
Basic 5,540,056 4,106,131
=========== ===========
Fully diluted 5,737,734 4,354,406
=========== ===========
Dividends per share $ -- $ --
======== ========
See accompanying notes to consolidated financial statements.
4
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
Unaudited
For the Nine Months Ended:
Mar. 31, 1998 Mar. 31, 1997
(Current Year) (Preceding Year)
-------------- ----------------
Net sales $ 27,034,203 $ 16,438,865
Costs of goods sold 17,179,970 11,048,482
------------ ------------
Gross profit 9,854,233 5,390,383
------------ ------------
Operating expenses
Marketing, including sales
commissions 2,945,019 2,326,077
Research and development 824,925 379,801
General and administrative 2,127,543 1,630,079
------------ ------------
Total operating expenses 5,897,487 4,335,957
------------ ------------
Operating income 3,956,746 1,054,426
------------ ------------
Other income 568,208 63,087
Interest expense (57,202) (72,863)
------------ ------------
Income before income taxes 4,467,752 1,044,650
Income tax expense 1,579,000 --
------------ ------------
Net income $ 2,888,752 $ 1,044,650
============ ============
Net income per common and common
share equivalent:
Basic $ 0.60 $ 0.25
============ ============
Fully diluted $ 0.57 $ 0.24
============ ============
Shares used in computing net income
per common and common share equivalent:
Basic 4,792,615 4,104,375
============ ============
Fully diluted 5,067,910 4,309,933
============ ============
Dividends per share $ -- $ --
========= =========
See accompanying notes to consolidated financial statements.
5
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Nine Months Ended:
March 31, 1998 and March 31, 1997
Unaudited
-------------------
1998 1997
---- ----
Cash Flows from operating activities:
Net income $ 2,888,752 $ 1,044,650
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization of
property, plant and equipment 980,545 940,054
Deferred income taxes 467,546 --
Amortization of intangibles 13,919 3,518
Changes in:
Receivables 253,039 (538,070)
Refundable income taxes -- 320,945
Inventories (2,363,428) (1,122,241)
Prepaid expenses (52,666) 43,504
Accounts payable 275,602 769,974
Accrued expenses 429,133 106,028
Income taxes payable (404,263) --
Customer advance payments (568,236) 902,627
Other assets -- (53,418)
------------ ------------
Net cash provided by
operating activities 1,919,943 2,417,571
------------ ------------
Cash flows from investing activities:
Capital expenditures (1,534,686) (664,917)
Purchase of short-term investments (15,602,199) --
------------ ------------
Net cash used in
investing activities (17,136,885) (664,917)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (682,058) (266,184)
Proceeds from issuance of common stock 20,777,172 22,750
------------ ------------
Net cash provided by (used in)
financing activities 20,095,114 (243,434)
------------ ------------
Net increase in cash
and cash equivalents 4,878,172 1,509,220
Cash and cash equivalents at beginning
of period 3,807,004 1,739,569
------------ ------------
Cash and cash equivalents at end of period $ 8,685,176 $ 3,248,789
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 68,436 $ 59,011
============ ============
Income taxes $ 1,515,625 $ --
============ ============
See accompanying notes to consolidated condensed financial statements.
6
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The consolidated condensed financial statements are unaudited (except for the
balance sheet information as of June 30, 1997, 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 condensed
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 1997 Annual Report to Stockholders. The result of operations
for the three months and nine months ended March 31, 1998 are not necessarily
indicative of the results for the entire fiscal year ending June 30, 1998, or
any future interim period.
The income tax rates of 35 - 37% utilized for interim financial statement
purposes for the three months and nine months ended March 31, 1998 are based on
estimates of income and utilization of tax credits for the entire year.
NOTE 1: Inventories
Inventories at March 31, 1998 and June 30, 1997 are summarized as
follows:
Mar. 31 June 30
------- -------
Raw materials $ 4,164,535 $ 3,684,807
Work in process 4,630,864 3,072,231
Finished goods 1,304,036 978,969
----------- -----------
$10,099,435 $ 7,736,007
=========== ===========
NOTE 2: Property, Plant and Equipment
Property, plant and equipment at March 31, 1998 and June 30, 1997
are summarized as follows:
Mar. 31 June 30
------- -------
Land and land improvements $ 1,362,050 $ 1,362,050
Buildings and improvements 5,199,482 5,129,221
Machinery and equipment 25,053,327 23,588,902
----------- -----------
$31,614,859 $30,080,173
=========== ===========
7
NOTE 3: Long-Term Debt
Long-term debt at March 31, 1998 and June 30, 1997 is comprised of
the following:
Mar. 31 June 30
------- -------
Term loan $ -- $680,001
Capitalized lease obligations -- 2,057
-------- --------
$ -- $682,058
Less current installments -- 228,723
-------- --------
$ -- $453,335
======== ========
NOTE 4: 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 fully
diluted earnings per share:
Three Months Ended Nine Months Ended
------------------ -----------------
Mar. 31 Mar. 31 Mar. 31 Mar. 31
Numerator: 1998 1997 1998 1997
- --------- ---- ---- ---- ----
Net income available to
common stockholders $1,171,289 $ 464,733 $2,888,752 $1,044,650
========== ========== ========== ==========
Denominator:
Denominator for basic
net income per share:
Weighted average
shares outstanding 5,540,056 4,106,131 4,792,615 4,104,375
========== ========== ========== ==========
Denominator for fully
diluted net income per share:
Weighted average
shares outstanding 5,540,056 4,106,131 4,792,615 4,104,375
Common stock options 197,678 248,275 275,295 205,558
---------- ---------- ---------- ----------
Weighted average shares
and conversions 5,737,734 4,354,406 5,067,910 4,309,933
========== ========== ========== ==========
Options to purchase 246,500 shares at market prices ranging from
$4.125 to $19.875 were outstanding during the quarter but were not
included in the computation of fully diluted earnings per share
because the options are not yet exercisable.
8
NOTE 5: Income Taxes
Deferred tax assets and liabilities at March 31, 1998 and June 30,
1997 are summarized as follows:
Mar. 31 June 30
------- -------
Gross deferred tax assets $ 1,264,279 $ 1,889,632
Less valuation allowance 420,109 583,104
----------- -----------
Net deferred tax assets 844,170 1,306,528
Gross deferred tax liabilities (844,170) (838,982)
----------- -----------
Net deferred taxes $ -- $ 467,546
Presented as:
Current deferred tax asset 85,781 532,054
Long-term deferred tax liability (85,781) (64,508)
----------- -----------
$ -- $ 467,546
=========== ===========
The valuation allowance for the deferred tax assets as of March 31,
1998 and June 30, 1997 was $420,109 and $583,104, respectively. The
net change in the total valuation allowance for the nine months
ended March 31, 1998 was a decrease of $162,995. 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 March 31, 1998.
NOTE 6: 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 nine months ended March 31, 1998 and
1997 are summarized as follows:
Mar. 31 Mar. 31
------- -------
1998 1997
---- ----
Gross research and development expenses $1,055,310 $ 632,756
Technology development contract fees 230,385 252,955
---------- ----------
Research and development expense $ 824,925 $ 379,801
========== ==========
9
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 and nine months ended March 31, 1998 and 1997 and its financial
condition at March 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.
Overview
The consolidated condensed financial statements present the financial condition
of the Company as of March 31, 1998 and June 30, 1997 and the consolidated
results of operations and cash flows of the Company for the nine months ended
March 31, 1998 and 1997.
Operations for the third quarter of fiscal 1998 were highlighted by continuing
escalation of commercial Wireless sales, a resurgence of Defense Electronics
sales and a significant improvement in net income over the third quarter of
fiscal 1997.
Net Sales for the third quarter ended March 31, 1998 were $9,951,000, up 64%,
from net sales of $6,060,000 for the same period in fiscal 1997, while net sales
for the first nine months of fiscal 1998 were $27,034,000, up 64% over sales of
$16,439,000 for the first nine months in the previous year. The Company recorded
net earnings of $1,171,000 for the third quarter of fiscal 1998, compared to net
earnings of $465,000 for the same quarter in fiscal 1997, while net earnings for
the first nine months ended March 31, 1998 amounted to $2,889,000, an increase
of 176% over net earnings of $1,045,000 for the first nine months of fiscal
1997.
Results of Operations
The following table sets forth the percentage relationships of certain items
from the Company's consolidated condensed statements as a percentage of net
sales.
Three Months Ended Nine Months Ended
------------------ -----------------
Mar. 31 Mar. 31 Mar. 31 Mar. 31
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 63.2 65.9 63.6 67.2
----- ----- ----- -----
Gross profit 36.8 34.1 36.4 32.8
----- ----- ----- -----
Operating expenses
Marketing 10.2 14.8 10.9 14.2
Research and development 3.7 2.4 3.0 2.3
General and administrative 7.6 9.3 7.9 9.9
----- ----- ----- -----
Total operating expenses 21.5 26.5 21.8 26.4
----- ----- ----- -----
Operating income 15.3 7.6 14.6 6.4
Other income (expense) 3.3 0.1 1.9 (0.1)
----- ----- ----- -----
Income before income taxes 18.6 7.7 16.5 6.3
Income tax expense 6.8 0.0 5.8 0.0
----- ----- ----- -----
Net income 11.8% 7.7% 10.7% 6.3%
===== ===== ===== =====
10
The following table summarizes the Company's net sales by various product lines
for the periods indicated. Amounts are in thousands.
Three Months Ended Nine Months Ended
------------------ -----------------
Mar. 31 Mar. 31 Mar. 31 Mar. 31
1998 1997 1998 1997
---- ---- ---- ----
Wireless $ 4,408 $ 2,123 $12,020 $ 4,551
Satellite Communications 2,324 1,913 6,137 6,127
Defense Electronics 3,219 2,024 8,877 5,761
------- ------- ------- -------
$ 9,951 $ 6,060 $27,034 $16,439
======= ======= ======= =======
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997.
Net Sales. Net sales for the three months ended March 31, 1998 were $9.9
million, up 64% from net sales of $6.1 million for the third quarter of the
previous year. This increase was led by a 108% rise in the shipment of Wireless
products, a 59% increase in sales of Defense Electronics products and a 21%
increase in shipments 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, was due to
continuing strong demand by the major wireless base station OEM's for the
company's custom products. Sales of Satellite Communications products, which
consist of custom multilayer components such as butler matrixes and beamforming
networks for commercial and military satellites, rose 21% over the third quarter
last year due to initial shipments in the quarter of beamformers to Loral Space
and Communications, Ltd. for the Globalstar program, as well as continued
shipments to Lockheed Martin Corporation on the ACeS program and a program for
Hughes Space and Communications International, Inc. Sales of Defense Electronics
products, which consist of Digital Frequency Discriminators, ("DFD's"), Digital
RF Memories (DRFM's"), ESM receivers and Microwave Integrated Circuit Components
("MIC's"), rose 59% to $3.2 million for the three months ended March 31, 1998
compared to $2.0 million for the third quarter of last year as a result of
shipments of DRFMs for foreign sales of the Airborne Self Protection Jammer
("ASPJ") system, which first entered full production during the second quarter
of fiscal 1998.
Gross Profit. Cost of sales consists primarily of engineering design costs,
material, material fabrication costs, assembly costs and test costs. Cost of
sales rose 57.5% to $6.3 million (63.2% of net sales) for the third quarter
ended March 31, 1998 from $4.0 million (65.9% of net sales) for the third
quarter of fiscal 1997. Gross profit was 36.8% of net sales for the three months
ended March 31, 1998 compared to 34.1% of net sales for the same period in
fiscal 1997. The improvement in gross profit was due to continuing economies of
scale in the Wireless and Defense Electronics groups resulting from the higher
sales volume.
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 13.5% to
$1,017,000 (10.2% of net sales) for the three months ended March 31, 1998 from
$896,000 (14.8% of net sales) for the three months ended March 31, 1997. The
increase is a result of higher commission and advertising expenses related to
increased sales volume and further development of the marketing organization to
support the Company's expanding commercial markets.
11
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 145% to $368,000
(3.7% of net sales) for the three months ended March 31, 1998 from $150,000
(2.4% of net sales) for the three months ended March 31, 1997. Research and
development expenses expanded to support the increased development opportunities
for wireless infrastructure and satellite communications products.
General and Administrative. General and administrative expenses increased 33.3%
to $749,000 (7.6% of net sales) for the three months ended March 31, 1998
compared to $562,000 (9.3% of net sales) for the three months ended March 31,
1997. General and administrative expense increased due to the hiring of
additional employees, 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 to $340,000 (3.4% of net sales) for the
three months ended March 31, 1998 from $28,000 (0.3% of net sales) for the three
months ended March 31, 1997, due to a higher level of investable cash balances
in the current year as a result of the public offering completed in November
1997.
Interest Expense. Interest expense represents interest paid on the Company's
outstanding term loan and letter of credit. Interest expenses decreased 30% to
$14,000 (0.1% of net sales) for the three months ended March 31, 1998 from
$20,000 (0.3% of net sales) for the three months ended March 31, 1997.
Income Taxes. Income tax expense for the three months ended March 31, 1998 was
$681,000 (6.8% of net sales), an effective tax rate of 36.8%. The Company
incurred no income tax for the three months ended March 31, 1997 due to the
utilization of the remainder of its available loss carryforwards and
substantially all of its available tax credits in fiscal 1997.
Nine Months Ended March 31, 1998 Compared to Nine months Ended March 31, 1997.
Net Sales. Net sales increased 64.6% to $27.0 million for the nine months ended
March 31, 1998 from $16.4 million for the first nine months of the previous
year. This increase resulted from a 164% rise in sales of wireless commercial
products and a 54% increase in shipments of Defense Electronics products during
the period compared to the first nine months of fiscal 1997. Wireless sales have
risen due to the escalating demand from the major basestation infrastructure
OEMs, while Defense Electronic sales have rebounded from fiscal 1997 levels due
to the first production shipments of DRFMs for the foreign sales of the "ASPJ"
program. During this same nine month period shipments of Satellite Communication
products were essentially flat compared to the first nine months of fiscal 1997.
Gross Profit. Gross profit for the first nine months of fiscal 1998 was $9.9
million (36.4% of net sales) up from $5.4 million (32.8% of net sales) for the
first nine months of fiscal 1997. This improvement is a result of the 64.6%
increase in sales volume which resulted in significant economies of scale in the
Company's manufacturing operations.
Marketing Expense. Marketing expense increased 26.7% to $2.9 million (10.9% of
net sales) for the first nine months of fiscal 1998 from $2.3 million (14.2% of
net sales) for the first nine
12
months of fiscal 1997. This increase is a result of the higher sales volume
which generated larger commission expense and an increase in advertising
expenditures for commercial business. Additionally, the Company is expanding its
Marketing organization to support the expanding order volume.
Research and Development. Research and development expense rose 117% to $825,000
(3.0% of net sales) in the first nine months of fiscal 1998 from $380,000 (2.3%
of net sales) for the first nine months of fiscal 1997. 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 expense increased 30.5%
to $2.1 million (7.9% of net sales) for the nine months ended March 31, 1998
from $1.6 million (9.9% for net sales) for the nine months ended March 31, 1997.
General and administrative expense has increased due to the hiring of additional
personnel and rise in professional fees attributable to the growth of the
Company.
Other income. Other income increased $505,000 to $568,000 (2.1% of net sales)
for the first nine months of fiscal 1998, from $63,000 (0.4% of net sales) for
the first nine months of fiscal 1997, due to the large increase in investable
cash resulting from the public offering completed by the Company during the
second quarter of the current fiscal year.
Interest Expense. Interest expense fell 21.9% to $57,000 (0.2% of net sales)
during the nine months ended March 31, 1998 from $73,000 (0.5% of net sales) for
the nine months ended March 31, 1997, due to the continuing decline in Company
debt balances.
Income Taxes. Income tax expense for the first nine months of fiscal 1998 was
$1,579,000 (5.8% of net sales), an effective tax rate of 35.3%. The Company had
no tax expense in the first nine months of fiscal 1997 due to the utilization of
remaining loss carry forwards and tax credits.
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 nine months ended March 31, 1998 and the
nine months ended March 31, 1997 were $1,920,000 and $2,418,000, respectively.
The positive flow from operations in both the first nine months of fiscal 1998
and 1997 was due primarily to the profit attained in both years. The relatively
lower level of cash provided by operations in the first nine months of fiscal
1998, compared to the first nine months of fiscal 1997, resulted primarily from
increases in inventory levels due to the higher production volume.
Net cash used in investing activities consists of funds from the public offering
which were used to purchase short-term investment and capital equipment
expenditures. Capital equipment additions in the nine months ended March 31,
1998 and the nine months ended March 31, 1997 were $1,535,000 and $665,000,
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 initial production
run of the ASPJ program.
13
Cash provided by financing activities for the nine months ended March 31, 1998
was, $20,095,000 and consisted of funds generated from the Company's public
stock offering and the exercise of Company incentive stock options. Of these
funds, $682,000 was used to pay-off the balance on the Company's term loan at
the end of December. Cash used in financing activities for the nine months ended
March 31, 1997 was $243,000 and consisted of, primarily, payments on the
Company's term loan and capitalized lease obligations.
During the remainder of fiscal 1998, the Company's major cash requirements will
be for additions to capital equipment and inventory growth. Capital equipment
additions for the current year have been budgeted at $1,750,000 and, through the
first nine months of fiscal 1998, approximately $1,535,000 has been expended,
all of which was funded by cash generated from operations. Capital equipment
additions for the remainder of fiscal 1998 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 $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 March 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.
Additionally, Statement of Financial Accounting Standard No. 131, Disclosures
About Segments of an Enterprise and Related Information (Statement 131) was
issued in 1997. Statement 131 establishes standards for the reporting of
information about operating segments and related disclosures about products and
services, geographic areas, and major customers. Adoption of Statement 131 will
be required in fiscal 1999 and require interim disclosures beginning in fiscal
2000. Adoption of Statement 131 is not expected to have a material effect on the
Company's financial statement disclosures.
Forward-Looking Cautionary Statement
In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this third quarter 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 statement; among the principal factors
that could cause actual results to differ materially are the following: general
market conditions, including demand
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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 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.
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Item 6. Exhibits and Reports on Form 8-K
Item 6(a) Exhibits
Exhibit No. 27 Financial Data Schedule for the nine month period ended March
31, 1998.
Item 6(b) Reports on Form 8K
The registrant was not required to file an 8-K during the current fiscal period.
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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: May 11, 1998 /s/ Lawrence A. Sala
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President & Chief Executive Officer
Date: May 11, 1998 /s/ Joseph E. Porcello
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Vice President of Finance & Controller
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