UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 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 October
23, 1998 was 5,481,292.
1
ANAREN MICROWAVE, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statement (Unaudited)
Consolidated Condensed Balance Sheets 3
as of September 30, 1998 and June 30, 1998
Consolidated Condensed Statements of Earnings 4
for the Three months ended September 30, 1998
and September 30, 1997
Consolidated Condensed Statements of Cash Flows 5
for the Three months ended September 30, 1998 and
September 30, 1997
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis 8
of Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
2
Item 1. Financial Statement (Unaudited)
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
September 30, 1998 and June 30, 1998
Unaudited
Assets Sept. 30, 1998 June 30, 1998
-------------- -------------
Current assets:
Cash and cash equivalents $ 10,638,055 $ 11,248,925
Marketable debt securities 14,301,274 13,842,397
Receivables, less allowance of $13,000 7,679,189 7,277,584
Inventories 9,627,307 10,355,025
Prepaid expenses 174,357 138,649
Deferred income taxes, current 108,801 108,801
------------ ------------
Total current assets 42,528,983 42,971,381
Property, plant and equipment 32,761,624 32,336,705
Less accumulated depreciation
and amortization (24,788,945) (24,446,433)
------------ ------------
Net property, plant
and equipment 7,972,679 7,890,272
Deferred income taxes, long-term 41,169 41,169
------------ ------------
$ 50,542,831 $ 50,902,822
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt $ -- $ --
Accounts payable 1,513,310 2,221,397
Income taxes payable 838,894 317,260
Accrued expenses 1,086,724 1,277,193
Customer advance payments 53,208 190,681
------------ ------------
Total current liabilities 3,492,136 4,006,531
Postretirement benefit obligation 1,246,421 1,246,421
Long-term debt, less current installments -- --
Other liabilities 180,000 144,000
------------ ------------
Total liabilities 4,918,557 5,396,952
------------ ------------
Stockholders' equity:
Common stock of $.01 par value. Authorized
12,000,000 shares; issued 6,471,566
shares at September 30, 1998 and
6,455,366 shares at June 30, 1998 64,715 64,554
Additional paid-in capital 36,710,015 36,611,751
Retained earnings 12,164,246 10,841,642
------------ ------------
48,938,976 47,517,947
Less cost of 1,007,274 shares in treasury
at September 30, 1998 and 892,274 shares
at June 30, 1998 3,314,702 2,012,077
------------ ------------
Total stockholders' equity 45,624,274 45,505,870
------------ ------------
$ 50,542,831 $ 50,902,822
============ ============
See accompanying notes to consolidated condensed financial statements.
3
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
Three Months Ended
September 30, 1998 and 1997
Unaudited
1998 1997
---- ----
Net sales $ 10,478,787 $ 7,721,323
Costs of goods sold 6,473,591 4,853,726
------------ ------------
Gross profit 4,005,196 2,867,597
------------ ------------
Operating expenses
Marketing, including sales commissions 981,895 939,966
Research and development 575,105 188,768
General and administrative 753,534 641,305
------------ ------------
Total operating expenses 2,310,534 1,770,039
------------ ------------
Operating income 1,694,662 1,097,558
------------ ------------
Interest Expense (9,620) (24,586)
Other Income 349,562 61,627
------------ ------------
Income before income taxes 2,034,604 1,134,599
Income tax expense 712,000 375,000
------------ ------------
Net income $ 1,322,604 $ 759,599
============ ============
Net income per common and common
share equivalent:
Basic $ 0.24 $ 0.18
============ ============
Diluted $ 0.23 $ 0.17
============ ============
Shares used in computing net income per
common and common share equivalent:
Basic 5,525,347 4,173,153
============ ============
Diluted 5,679,694 4,511,651
============ ============
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, 1998 and September 30, 1997
Unaudited
1998 1997
---- ----
Cash Flows from operating activities:
Net income $ 1,322,604 $ 759,599
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 342,512 312,544
Deferred income taxes -- 94,943
Changes in operating assets and
liabilities:
Receivables (401,605) (162,847)
Inventories 727,718 (1,188,212)
Prepaid expenses (35,709) (81,151)
Other Assets -- 1,160
Accounts payable (708,087) 512,603
Income taxes payable 521,635 (212,228)
Accrued expenses (154,469) 174,995
Customer advance payments (137,473) 15,047
------------ ------------
Net cash provided by
operating activities 1,477,126 226,453
------------ ------------
Cash flows from investing activities:
Capital expenditures (424,919) (377,608)
Purchase of marketable debt securities (458,877) --
------------ ------------
Net cash used in investing
activities (883,796) (377,608)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt -- (1,708)
Proceeds from issuance of common stock 98,425 343,375
Purchase of treasury stock (1,302,625) --
------------ ------------
Net cash provided by (used in)
financing activities (1,204,200) 341,667
------------ ------------
Net increase in cash
and cash equivalents (610,870) 190,512
Cash and cash equivalents at beginning
of period 11,248,925 3,807,004
------------ ------------
Cash and cash equivalents at end
of period $ 10,638,055 $ 3,997,516
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 245 $ 8,037
============ ============
Income taxes $ 189,309 $ 492,285
============ ============
See accompanying notes to consolidated condensed financial statements.
5
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
The consolidated condensed financial statements are unaudited (except for the
balance sheet information as of June 30, 1998, which is derived from the
Company's audited consolidated financial statements) and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated condensed financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
fiscal 1998 Annual Report to Stockholders on Form 10-K. The result of operations
for the three months ended September 30, 1998 are not necessarily indicative of
the results for the entire fiscal year ending June 30, 1999, or any future
interim period.
The income tax rate of 35% utilized for interim financial statement purposes for
the three months ended September 30, 1998 is based on estimates of income and
utilization of tax credits for the entire year.
NOTE 1: Inventories
Inventories at September 30, 1998 and June 30, 1998 are summarized as
follows:
Sept. 30 June 30
-------- -------
Raw materials $ 3,768,722 $ 4,412,925
Work in process 4,202,187 4,410,112
Finished goods 1,656,398 1,731,988
----------- ------------
$ 9,627,307 $ 10,355,025
=========== ============
NOTE 2: Property, Plant and Equipment
Property, plant and equipment at September 30, 1998 and June 30, 1998
are summarized as follows:
Sept. 30 June 30
-------- -------
Land and land improvements $ 1,362,050 $ 1,362,050
Buildings and improvements 5,254,515 5,242,499
Machinery and equipment 26,145,059 25,732,156
------------ ------------
$ 32,761,624 $ 32,336,705
============ ============
6
NOTE 3: Net Income Per Share
Net income per share is computed based on the weighted average number
of common shares and common stock options (using the treasury stock
method) outstanding in accordance with the requirements of FASB
Statement No. 128 "Earnings Per Share."
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
------------------
Sept. 30 Sept. 30
Numerator: 1998 1997
---- ----
Net income available to
common stockholders $1,322,604 $ 759,599
========== ==========
Denominator:
Denominator for basic net income per share:
Weighted average shares outstanding 5,525,347 4,173,153
========== ==========
Denominator for diluted net income per share:
Weighted average shares outstanding 5,525,347 4,173,153
Common stock options 154,347 338,498
---------- ----------
Weighted average shares
and conversions 5,679,694 4,511,651
========== ==========
Options to purchase 225,500 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.
NOTE 4: Research and Development Costs
Research and development costs are charged to expense as incurred. The
Company receives fees under a technology development contract and such
fees are recorded as a reduction of research and development costs as
work is performed pursuant to the related contract and as defined
milestones are attained. Net research and development expense for the
three months ended September 30, 1998 and 1997 are summarized as
follows:
1998 1997
---- ----
Gross research and development expenses $604,362 $306,601
Technology development contract fees (29,257) (117,833)
-------- --------
Research and development expense $575,105 $188,768
======== ========
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's discussion and analysis reviews the Company's operating results for
the three months ended September 30, 1998 and 1997 and its financial condition
at September 30, 1998. This review should be read in conjunction with the
accompanying consolidated condensed financial statements. Statements contained
in management's discussion and analysis, other than historical facts, are
forward-looking statements that are qualified by the cautionary statements at
the end of this discussion.
Year 2000 Status
The Company has conducted a full review of its computer systems to identify the
programs and systems that could be affected by the "year 2000 problem" and has
developed and is continuing to develop an implementation plan to resolve the
problem. The "year 2000 problem" is the result of computer programs being
written using two digits instead of four to define the applicable year. Programs
with this problem may recognize a date using "00" as the year 1900 instead of
the year 2000, resulting in system failures or miscalculations.
Presently, the Company expects to install a major revision to its manufacturing
software at the end of December, 1998, and begin testing for Year 2000
compliance at that time. Although no assurance can be given, the Company
presently believes that with additional modifications to existing software and
conversion to new software, the "year 2000 problem" will not pose significant
operational problems for the Company's computer systems and that the cost of
system modifications and conversions will not have a material impact on the
Company's operating results.
Overview
The consolidated condensed financial statements present the financial condition
of the Company as of September 30, 1998 and June 30, 1998 and the consolidated
results of operations and cash flows of the Company for the three months ended
September 30, 1998 and 1997.
Operations for the first quarter of fiscal 1999 were highlighted by continuing
escalation of commercial Wireless sales, a resurgence of Defense Electronics and
Satellite Communications sales and a significant improvement in net income over
the first quarter of fiscal 1998.
Net Sales for the first quarter ended September 30, 1998 were $10,479,000, up
36%, from net sales of $7,721,000 for the same quarter in the previous year. The
Company recorded earnings of $1,323,000 for the first quarter of fiscal 1999, a
74% increase over earnings of $760,000 for the first quarter of fiscal 1998.
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
------------------
Sept. 30 Sept. 30
1998 1997
---- ----
Net sales 100.0% 100.0%
Cost of sales 61.8% 62.9%
----- -----
Gross profit 38.2% 37.1%
----- -----
Operating expenses
Marketing 9.3% 12.2%
Research and development 5.5% 2.4%
General and administrative 7.2% 8.3%
----- -----
Total operating expenses 22.0% 22.9%
----- -----
Operating income 16.2% 14.2%
Other income (expense) 3.2% 0.5%
----- -----
Income before income taxes 19.4% 14.7%
Income tax expense 6.8% 4.9%
----- -----
Net income 12.6% 9.8%
===== =====
8
The following table summarizes the Company's net sales by various product lines
for the periods indicated. Amounts are in thousands.
Three Months Ended
------------------
Sept. 30 Sept. 30
1998 1997
---- ----
Wireless $ 4,353 $3,599
Satellite Communications 2,578 1,496
Defense Electronics 3,548 2,626
------- ------
$10,479 $7,721
======= ======
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997.
Net Sales. Net sales increased 36% to $10.5 million for the first three months
of fiscal 1999 from $7.7 million for the first three months of the previous
fiscal year. Sales of Wireless products, which consist of surface mount and
custom components used in building wireless base station equipment, rose 21%,
from $3.6 million for the three months ended September 30, 1997 to $4.4 million
for the three months ended September 30, 1998. This increase reflects the
continuing strong demand in the worldwide market for base station equipment.
Sales of Satellite Communications products consist of custom multi-layer
components such as butler matrices and beamforming networks for commercial and
military communications. Satellite Communications sales rose 72%, to $2.6
million, in the first quarter of fiscal 1999, compared to $1.5 million in the
first quarter of fiscal 1998. This increase was the result of a depressed level
of shipments in this business area in the first quarter of the previous fiscal
year. This lower level of shipments was a result of the Company having just
completed the initial production run on the Iridium program and having
experienced delays in shipments of approximately $900,000 of satellite products
from the first quarter to the second quarter of fiscal 1998 for satellite
programs for Harris Corp. and Hughes Space and Communications International,
Inc. The Company expects Satellite Communications sales to approximate first
quarter 1999 sales for the remaining three quarters of the current year.
Sales of Defense Electronics products consist of Digital Frequency
Discriminators ("DFDs"), Digital RF Memories ("DRFMs"), ESM Receivers and
Microwave Integrated Circuit Components ("MICs"). Defense Electronic sales
increased 35% to $3.5 million for the three months ended September 30, 1998 from
$2.6 million for the three months ended September 30, 1997. This increase was a
result of the Company entering full production for DRFMs for foreign sales of
the Airborne Self-Protection Jammer ("ASPJ") program which was just entering
initial factory production in the first quarter of last fiscal year.
Gross Profit. Cost of sales consists primarily of engineering design costs,
material, fabrication costs, assembly costs and test costs. Gross profit
increased 39.6% to $4.0 million for the three months ended September 30, 1998
from $2.9 million for the three months ended September 30, 1997. Gross margin
was 38.2% of net sales for the three months ended September 30, 1998 compared to
37.1% of net sales for the three months ended September 30, 1997. The increase
in gross margin was due to economies of scale achieved due to higher volume in
all three business groups.
Marketing. Marketing expenses consist mainly of employee related expenses,
commissions paid to sales representatives, trade show expenses, advertising
expenses and travel expenses.
9
Marketing expenses increased 4.5% to $982,000 (9.3% of net sales) for the three
months ended September 30, 1998 from $940,000 (12.2% of net sales) for the three
months ended September 30, 1997. The increase resulted from expansion of the
Company's outside sales force during the last half of the previous fiscal year
to support the Company's expanding commercial markets.
Research and Development. Research and development expenses consist of material
and salaries and related overhead costs of employees engaged in ongoing
research, design and development activities associated with new products and
technology development. Gross research and development costs are reduced by
expense reimbursements received under a Technology Reinvestment Program through
Raytheon, for the Advance Research Project Agency of the United States
Government. Net research and development expenses increased 204.0% to $575,000
(5.5% of net sales) for the three months ended September 30, 1998, from $189,000
(2.4% of net sales) for the three months ended September 30, 1997. Research
development expenses expanded to support the increased development of wireless
infrastructure and Satellite Communications products.
General and Administrative. General and administrative expenses increased 17.6%
to $754,000 (7.2% of net sales) for the three months ended September 30, 1998
compared to $641,000 (8.3% of net sales) for the three months ended September
30, 1997. General and administrative expense rose due to increased staffing
levels, higher professional fees and increased compensation levels for existing
personnel.
Interest Expense. Interest expense represents interest incurred on the Company's
line of credit and any outstanding letters of credit. Interest expense decreased
60.8% to $10,000 (0.1% of net sales) for the three months ended September 30,
1998, from $25,000 (0.3% of net sales) for the three months ended September 30,
1997. This decrease was a result of the Company's repayment of its term loan in
December 1997.
Other Income. Other income is primarily interest income received on invested
cash balances. Other income increased 465% to $350,000 (3.3% of net sales) for
three months ended September 30, 1998, from $62,000 (0.3% of net sales) for the
three months ended September 30, 1997, due to a higher level of investable cash
balances in the current year resulting from the public offering completed by the
Company in the second quarter of the previous fiscal year.
Income Taxes. Income tax expense for the three months ended September 30, 1998
was $712,000 (6.8% of net sales), an effective tax rate of 35%. This compares to
$375,000 (4.9% of net sales) for the three months ended September 30, 1997, an
effective tax rate of 33%. The rise in the effective tax rate from the first
quarter of fiscal 1998 to the first quarter of fiscal 1999 was the result of the
utilization of the Company's remaining tax credits in fiscal 1998.
Liquidity and Capital Resources
The Company has financed its operations for the three months ended September 30,
1998 primarily from cash flow from operations. Net cash provided by operations
for the three months ended September 30, 1998 and the three months ended
September 30, 1997 were $1,477,000 and $227,000, respectively. The positive cash
flow from operation in both the first three months of fiscal 1999 and 1998 was
due primarily to the profit attained in both years. The relatively higher level
of cash provided by operations in the first three months ended September 30,
1998, compared to the first three months of the prior fiscal year, resulted,
primarily, from the higher level of income in the current first quarter and the
decrease in inventory levels in the current first quarter compared to the
increasing inventory levels in the first quarter of the prior year.
10
Net cash used in investing activities consists of funds which were used to
purchase short-term marketable securities and capital equipment. Capital
equipment expenditures in the three months ended September 30, 1998 and the
three months ended September 30, 1997 were $425,000 and $378,000, respectively.
These capital investments consisted primarily of equipment needed to further
automate production for the Company's new Wireless and Satellite Communications
products, as well as test and production equipment for the production run of the
ASPJ program in the Defense Group.
Cash used in financing activities amounted to $1,204,000 for the three months
ended September 30, 1998 and consisted primarily of funds used to repurchase
common stock of the Company. During the fourth quarter of fiscal 1998, the Board
of Directors authorized the repurchase of up to 500,000 shares of the Company at
prevailing market prices. Through September 30, 1998 the Company had repurchased
115,000 shares and expended $1,303,000. Cash provided by financing activities
for the first quarter of the previous fiscal year was $342,000 and consisted
primarily of cash generated by the exercise of stock options.
During the remainder of fiscal 1999, the Company's major cash requirements will
be for additions to capital equipment. Capital equipment additions for the
current year have been budgeted at $2,200,000 and through the first three months
of fiscal 1999 approximately $425,000 has been expended, all of which was funded
by cash generated from operations. Capital equipment additions for the remainder
of fiscal 1999 will continue to be funded through cash generated by operations
as projected operating cash flows are expected to be more than adequate to meet
these financing needs.
During December, 1997 the Company renegotiated its credit facility with its
bank, increasing the size of the facility and obtaining more favorable terms.
The new credit facility is an unsecured $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 September 30, 1998.
The Company believes that its cash requirements for the foreseeable future will
be satisfied by currently invested cash balances, expected cash flows from
operations and funds available under its credit facilities.
Recently issued Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard No. 128, Earnings
Per Share (statement 128), beginning with the second quarter of fiscal 1998.
Statement 128 specifies the computation, presentation and disclosure
requirements for earnings per share. Adoption of Statement 128 did not have a
material effect on the Company's operating results.
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income (Statement 130), was issued in 1997. Statement 130 establishes standards
for the reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements and is effective for all fiscal
years beginning after December 15, 1997. Adoption of Statement 130 will be
required in fiscal 1999 and will require interim disclosures beginning in fiscal
2000. Adoption of Statement 130 is not expected to have a material effect on the
Company's financial statement disclosures.
11
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.
Statement of Financial Accounting Standards No. 132, Employers' Disclosures
about Pension and Other Postretirement Benefits (Statement 132), was issued in
1998. Statement 132 establishes combined formats for the presentation of pension
and other postretirement benefit disclosures and is effective for all fiscal
years beginning after December 15, 1997. Adoption of Statement 132 will be
required in fiscal 1999 and is not expected to have a material effect on the
Company's financial statement disclosures.
Forward-Looking Cautionary Statement
In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this 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 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.
12
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, 1998.
Item 6(b) Reports on Form 8K
The registrant was not required to file an 8-K during the current fiscal period.
13
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: January 25, 1999 /s/ Lawrence A. Sala
--------------------------------------
President & Chief Executive Officer
Date: January 25, 1999 /s/ Joseph E. Porcello
--------------------------------------
Vice President of Finance & Controller
14