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, 1999
--------------
__ 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
East Syracuse, New York 13057
----------------------- -----
(Address of principal (Zip Code)
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,
1999 was 5,534,092.
1
ANAREN MICROWAVE, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
------------------------------ --------
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of 3
March 31, 1999 and June 30, 1998
Consolidated Condensed Statements of Earnings 4
for the Three Months ended March 31, 1999 and
March 31, 1998
Consolidated Condensed Statements of Earnings 5
for the Nine Months ended March 31, 1999 and
March 31, 1998
Consolidated Condensed Statements of Cash Flows - 6
for the Nine months ended March 31, 1999 and
March 31, 1998
Notes to Consolidated Condensed Financial 7
Statements
Item 2. Management's Discussion and Analysis 9
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, 1999 and June 30, 1998
Unaudited
Assets Mar. 31, 1999 June 30, 1998
------ ------------- -------------
Current assets:
Cash and cash equivalents $ 11,361,448 $ 11,248,925
Marketable debt securities 18,597,237 13,842,397
Receivables, less allowance of $13,000 7,085,301 7,277,584
Inventories 8,920,813 10,355,025
Prepaid expenses 199,661 138,649
Deferred income taxes 175,221 108,801
------------ ------------
Total current assets 46,339,681 42,971,381
Property, plant and equipment 33,418,697 32,336,705
Less accumulated depreciation and amortization (25,505,085) (24,446,433)
------------ ------------
Net property, plant and equipment 7,913,612 7,890,272
Deferred income taxes 174,768 41,169
------------ ------------
$ 54,428,061 $ 50,902,822
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,908,527 $ 2,221,397
Income taxes payable 179,517 317,260
Accrued expenses 1,408,084 1,277,193
Customer advance payments 552,726 190,681
------------ ------------
Total current liabilities 4,048,854 4,006,531
Postretirement benefit obligation 1,306,421 1,246,421
Other liabilities 252,000 144,000
------------ ------------
Total liabilities 5,607,275 5,396,952
------------ ------------
Stockholders' equity:
Common stock of $.01 par value. Authorized
25,000,000 shares; issued 6,547,166 shares
at March 31, 1999 and 6,455,366 shares
at June 30, 1998 65,472 64,554
Additional paid-in capital 37,073,196 36,611,751
Retained earnings 15,163,101 10,841,642
------------ ------------
52,301,769 47,517,947
Less cost of 1,020,274 shares in treasury
at March 31, 1999 and 892,274 shares
at June 30, 1998 3,480,983 2,012,077
------------ ------------
Total stockholders' equity 48,820,786 45,505,870
------------ ------------
$ 54,428,061 $ 50,902,822
============ ============
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, 1999 Mar. 31, 1998
(Current Year) (Preceding Year)
-------------- ----------------
Net sales $ 11,832,624 $ 9,951,100
Cost of sales 7,156,615 6,291,273
------------ ------------
Gross profit 4,676,009 3,659,827
------------ ------------
Operating expenses
Marketing 1,057,413 1,017,164
Research and development 722,278 368,042
General and administrative 826,848 748,984
------------ ------------
Total operating expenses 2,606,539 2,134,190
------------ ------------
Operating income 2,069,470 1,525,637
------------ ------------
Other income 353,658 340,294
Interest expense (9,618) (13,642)
------------ ------------
Income before income taxes 2,413,510 1,852,289
Income tax expense 845,000 681,000
------------ ------------
Net income $ 1,568,510 $ 1,171,289
============ ============
Net income per common and common
equivalent share:
Basic $ 0.28 $ 0.21
============ ============
Diluted $ 0.27 $ 0.20
============ ============
Shares used in computing net income per common
and common equivalent share:
Basic 5,528,745 5,540,056
============ ============
Diluted 5,815,954 5,737,734
============ ============
Dividends per share $ -- $ --
============ ============
See accompanying notes to consolidated condensed financial statements.
4
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
Consolidated Condensed Statements of Earnings
(Unaudited)
For the Nine Months Ended:
Mar. 31, 1999 Mar. 31, 1998
(Current Year) (Preceding Year)
-------------- ----------------
Net sales $ 33,368,015 $ 27,034,203
Cost of sales 20,180,718 17,179,970
------------ ------------
Gross profit 13,187,297 9,854,233
------------ ------------
Operating expenses
Marketing 3,053,373 2,945,019
Research and development 2,082,011 824,925
General and administrative 2,390,992 2,127,543
------------ ------------
Total operating expenses 7,526,376 5,897,487
------------ ------------
Operating income 5,660,921 3,956,746
------------ ------------
Other income 1,017,396 568,208
Interest expense (28,858) (57,202)
------------ ------------
Income before income taxes 6,649,459 4,467,752
Income tax expense 2,328,000 1,579,000
------------ ------------
Net income $ 4,321,459 $ 2,888,752
============ ============
Net income per common and common
equivalent share:
Basic $ 0.78 $ 0.60
============ ============
Diluted $ 0.75 $ 0.57
============ ============
Shares used in computing net income per common
and common equivalent share:
Basic 5,516,667 4,792,615
============ ============
Diluted 5,763,129 5,067,910
============ ============
Dividends per share $ -- $ --
============ ============
See accompanying notes to consolidated condensed financial statements.
5
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Nine Months Ended:
March 31, 1999 and 1998
Unaudited
---------
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 4,321,459 $ 2,888,752
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization of
plant and equipment 1,058,652 980,545
Deferred income taxes (200,019) 467,546
Amortization of intangibles -- 13,919
Changes in operating assets and liabilities:
Receivables 192,283 253,039
Inventories 1,434,212 (2,363,428)
Prepaid expenses (61,012) (52,666)
Accounts payable (312,870) 275,602
Accrued expenses 130,891 429,133
Income taxes payable (137,743) (404,263)
Customer advance payments 362,045 (568,236)
Postretirement benefit obligation 60,000 --
Other liabilities 108,000 --
------------ ------------
Net cash provided by
operating activities 6,955,898 1,919,943
------------ ------------
Cash flows from investing activities:
Capital expenditures (1,081,992) (1,534,686)
Purchase of marketable debt securities (4,754,840) (15,602,199)
------------ ------------
Net cash used in investing activities (5,836,832) (17,136,885)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt -- (682,058)
Purchase of treasury stock (1,468,906) --
Proceeds from issuance of common stock 462,363 20,777,172
------------ ------------
Net cash provided by (used in)
financing activities (1,006,543) 20,095,114
------------ ------------
Net increase in cash
and cash equivalents 112,523 4,878,172
Cash and cash equivalents at beginning of period 11,248,925 3,807,004
------------ ------------
Cash and cash equivalents at end of period $ 11,361,448 $ 8,685,176
============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash Paid During the Period For:
Interest $ 28,858 $ 68,436
============ ============
Income taxes $ 2,665,762 $ 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, 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. The results of operations for the
nine months ended March 31, 1999 are not necessarily indicative of the results
for the entire fiscal year ending June 30, 1999, or any future interim period.
The income tax rates of 35% utilized for interim financial statement purposes
for the three months and nine months ended March 31, 1999 are based on estimates
of income and utilization of tax credits for the entire year.
NOTE 1: Inventories
-----------
Inventories at March 31, 1999 and June 30, 1998 are
summarized as follows:
Mar. 31 June 30
------- -------
Raw materials $ 3,356,182 $ 4,212,925
Work in process 3,692,415 4,410,112
Finished goods 1,872,216 1,731,988
------------ ------------
$ 8,920,813 $ 10,355,025
============ ============
NOTE 2: Property, Plant and Equipment
-----------------------------
Property, plant and equipment at March 31, 1999 and June 30,
1998 are summarized as follows:
Mar. 31 June 30
------- -------
Land and land improvements $ 1,362,050 $ 1,362,050
Buildings and improvements 5,255,539 5,242,499
Machinery and equipment 26,801,108 25,732,156
----------- -----------
$33,418,697 $32,336,705
=========== ===========
7
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 SFAS Statement No. 128 "Earnings
Per Share."
The following table sets forth the computation of basic and
diluted earnings per share:
Three Months Ended Nine Months Ended
----------------------- -----------------------------
Mar. 31 Mar. 31 Mar. 31 Mar. 31
Numerator: 1999 1998 1999 1998
- --------- ---- ---- ---- ----
Net income available to
common stockholders $1,568,510 $1,171,289 $4,321,459 $2,888,752
========== ========== ========== ==========
Denominator:
- ------------
Denominator for basic net income per share:
Weighted average shares outstanding 5,528,745 5,540,056 5,516,667 4,792,615
========== ========== ========== ==========
Denominator for diluted net income per share:
Weighted average shares outstanding 5,528,745 5,540,056 5,516,667 4,792,615
Common stock options 287,209 197,678 246,462 275,295
---------- ---------- ---------- ----------
Weighted average shares
and conversions 5,815,954 5,737,734 5,763,129 5,067,910
========== ========== ========== ==========
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 nine months ended March 31, 1999 and 1998
are summarized as follows:
Mar.31, 1999 Mar. 31 1998
------------ ------- ----
Gross research and development expenses $2,150,845 $1,055,310
Technology development contract fees 68,834 230,385
Research and development expense ---------- ----------
$2,082,011 $ 824,925
========== ==========
8
Item 2: Management's Discussion and Analysis of Financial and Results
of Operations
Management's discussion and analysis reviews the Company's operating results for
the three and nine months ended March 31, 1999 and 1998 and its financial
condition at March 31, 1999. 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 statement at the
end of this discussion.
Overview
- --------
The consolidated condensed financial statements present the financial condition
of the Company as of March 31, 1999 and June 30, 1998 and the consolidated
results of operations and cash flows of the Company for the three and nine
months ended March 31, 1999 and 1998.
During the quarter ended March 31, 1999, the Satellite Communications and
Defense Electronics business groups were combined to more efficiently utilize
engineering and manufacturing resources. Increased commonality in the types of
products and manufacturing processes required by the groups, coupled with a
marked increase in new orders and development activity in the satellite segment
were the basis for the change. The new combined entity, the "Space and Defense
Group" will continue to focus on both the Defense Electronics and Satellite
Communications markets.
Operations for the third quarter and first nine months of fiscal 1999 were
highlighted by continuing escalation of commercial Wireless sales, a resurgence
of both defense electronics and satellite communications shipments within the
Space and Defense group, and a significant improvement in net income over the
third quarter and the first nine months of fiscal 1998.
Net Sales for the third quarter ended March 31, 1999 were $11,833,000, up 19%
from net sales of $9,951,000 for the same period in fiscal 1998, while net sales
for the first nine months of fiscal 1999 were $33,368,000 up 23.4% over sales of
$27,034,000 for the first nine months in the previous year. The Company recorded
net earnings of $1,569,000 for the third quarter in fiscal 1999, compared to net
earnings of $1,171,000 for the same quarter in fiscal 1998, while earnings for
the first nine months ended March 31, 1999 amounted to $4,321,000, an increase
of 50% over earnings of $2,889,000 for the first nine months of fiscal 1998.
9
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 Nine Months Ended
------------------ ----------------
Mar. 31 Mar. 31 Mar. 31 Mar. 31
1999 1998 1999 1998
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 60.5 63.2 60.5 63.6
----- ----- ----- -----
Gross profit 39.5 36.8 39.5 36.4
----- ----- ----- -----
Operating expenses
Marketing 8.9 10.2 9.2 10.9
Research and development 6.1 3.7 6.2 3.0
General and administrative 7.0 7.6 7.2 7.9
----- ----- ----- -----
Total operating expenses 22.0 21.5 22.6 21.8
----- ----- ----- -----
Operating income 17.5 15.3 17.0 14.6
Other income 3.0 3.4 3.0 2.1
Interest expense (0.1) (0.1) (0.1) (0.2)
----- ----- ----- -----
Income before income taxes 20.4 18.6 19.9 16.5
Income tax expense 7.1 6.8 7.0 5.8
----- ----- ----- -----
Net income 13.3% 11.8% 12.9% 10.7%
===== ===== ===== =====
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
1999 1998 1999 1998
---- ---- ---- ----
Wireless $ 5,419 $ 4,408 $14,523 $12,020
Space and Defense 6,414 5,543 18,845 15,014
------- ------- ------- -------
$11,833 $ 9,951 $33,368 $27,034
======= ======= ======= =======
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998.
- --------------------------------------------------------------------------------
Net Sales. Net sales increased $1.8 million, or 19%, to $11.8 million for the
three months ended March 31, 1999, compared to $10.0 million for the third
quarter of the previous year. This increase was led by a 23% rise in the sales
of Wireless products and a 16% increase in the sales of Space and Defense group
products.
The increase in sales of Wireless products, which consist of catalog surface
mount and custom components for use in building wireless basestation equipment,
reflects both the continuing strong demand by the major wireless basestation
OEM's and the Company's success in achieving higher dollar content for its
latest products within the basestation infrastructure.
10
Sales of Space and Defense products (formerly Satellite Communications and
Defense Electronics products) consists of custom multi-layer components such as
butler matrices and beamforming networks for commercial and military
communication satellites, Digital Frequency Discriminators ("DFDs") Digital RF
memories ("DRFMs") and Microwave Integrated Circuit Components ("MICs"). Sales
in this product area rose $871,000 or 16% for the three months ended March 31,
1999 compared to the third quarter of the previous year. This increase continues
to reflect full production levels for DRFMs and DFDs for foreign sales of the
Airborne Self-Protection Jammer ("ASPJ") program as well as continued production
on numerous small commercial satellite programs. Shipments in this product area
are expected to remain at current levels for the remainder of fiscal 1999.
Gross Profit. Cost of sales consists primarily of engineering design costs,
material, material fabrication costs, assembly costs and test costs. Cost of
sales rose 13.8% to $7.2 million (60.5% of net sales) for the third quarter
ended March 31, 1999 from $6.3 million (63.2% of net sales) for the third
quarter of fiscal 1998. Gross profit was 39.5% of net sales for the three months
ended March 31, 1999 compared to 36.8% of net sales for the same period in
fiscal 1998. The improvement in gross profit was due to improvements in yields
for Wireless products, as well as continuing economies of scale due to higher
production levels in both business groups.
Marketing. Marketing expenses consist mainly of employee related expenses,
commissions paid to sales representatives, trade show expenses, advertising
expenses and related travel expenses. Marketing expenses increased 4.0% to
$1,057,000 (8.9% of net sales) for the three months ended March 31, 1999 from
$1,017,000 (10.2% of net sales) for the three months ended March 31, 1998. The
increase is a result of further development of the marketing organization to
support the Company's expanding commercial markets.
Research and Development. Research and development expenses consist of material
and salaries and related overhead costs of employees engaged in ongoing
research, design and development activities associated with new products and
technology development. Gross research and development costs are reduced by
expense reimbursements received under a Technology Reinvestment Program through
Raytheon, for the Advance Research Project Agency of the United States
Government. Net research and development expenses increased 96% to $722,278
(6.1% of net sales) for the three months ended March 31, 1999 from $368,042
(3.7% of net sales) for the three months ended March 31, 1998. Research and
development expenses expanded to support the increased development of the
Wireless infrastructure and Space and Defense products now being demanded by the
current marketplace.
General and Administrative. General and administrative expenses increased 10% to
$827,000 (7.0% of net sales) for the three months ended March 31, 1999 compared
to $749,000 (7.6% of net sales) for the three months ended March 31, 1998.
General and administrative expense increased due to increased staffing levels,
higher professional fees and increased compensation levels for existing
personnel.
Other income. Other income is primarily interest income received on invested
cash balances. Other income increased 3.9% to $354,000 (3.0% of net sales) for
the three months ended March 31, 1999 from $340,000 (3.4% of net sales) for the
three months ended March 31, 1998, due to a higher level of investable cash
balances in the current year as a result of the sizable increase in cash flow
from operations for the first nine months of fiscal 1999.
Interest Expense. Interest expense represents commitment fees and interest paid
on the Company's line of credit and letters of credit. Interest expense
decreased 29% to $10,000 (0.1%
11
of net sales) for the three months ended March 31, 1999 from $14,000 (0.1% of
net sales) for the three months ended March 31, 1998.
Income Taxes. Income tax expense for the three months ended March 31, 1999 was
$845,000 (7.1% of sales), an effective tax rate of approximately 35%, while
income tax expense for the three months ended March 31, 1998 was $681,000 (6.8%
of net sales), an effective tax rate of approximately 35%.
Nine Months Ended March 31, 1999 Compared to Nine Months Ended March 31, 1998.
- ------------------------------------------------------------------------------
Net Sales. Net sales increased 23% to $33.4 million for the nine months ended
March 31, 1999 from $27.0 million for the first nine months of the previous
year. This increase resulted from a 21% rise in sales of Wireless products and a
25% increase in shipments of Space and Defense products. Wireless product sales
continue to increase due mainly to rising and continuing demand by the major
basestation OEM's for both the Company's surface mount and custom components.
Space and Defense product sales rose 25% to $18.8 million in the current first
nine months as a result of the Company being in full production for DRFMs for
foreign sales of the ASPJ program in fiscal 1999. This program was just entering
initial factory production in the first half of the previous fiscal year.
Additionally, space and defense shipments have been bolstered by billings on a
number of small component contracts for Hughes Space and Communications and
initial NRE sales for ACeS II for Lockheed Martin.
Gross Profit. Gross profit for the first nine months of fiscal 1999 was $13.2
million (39.5% of net sales) up from $9.9 million (36.4% of net sales) for the
first nine months of fiscal 1998. This improvement is a result of the 19%
increase in sales volume which resulted in significant economies of scale in the
manufacturing operations and improvements in product yields in the Wireless
group.
Marketing. Marketing expense increased 3.7% to $3.1 million (9.2% of net sales)
for the first nine months of fiscal 1999 from $2.9 million (10.9% of net sales)
for the first nine months of fiscal 1998. This increase is a result of the
Company expanding its marketing organization to support the increasing order
volume.
Research and Development. Research and development expense rose 152% to
$2,082,000 (6.2% of net sales) in the first nine months of fiscal 1999 from
$825,000 (3.0% of net sales) for the first nine months of fiscal 1998. Research
and development expenditures are expanding to support further development of
wireless infrastructure products and expanding satellite communication switch
matrices opportunities.
General and Administrative. General and administrative expenses increased 12.4%
to $2.4 million (7.2% of net sales) for the nine months ended March 31, 1999
from $2.1 million (7.9% of net sales) for the nine months ended March 31, 1998.
General and administrative expenses have increased due to the hiring of
additional personnel and a rise in professional fees due to the growth of the
Company.
Other income. Other income increased 80% to $1,017,000 (3.0% of net sales) for
the first nine months of fiscal 1999 from $568,000 (2.1% of net sales) for the
first nine months of fiscal 1998 due to the large increase in investable cash
resulting from the large positive operating cash flow in the first nine months
of the current year.
12
Interest Expense. Interest expense fell 49.6% to $29,000 (0.1% of net sales)
during the nine months ended March 31, 1999 from $57,000 (0.2% of net sales) for
the nine months ended March 31, 1998, due to the payoff of the Company's term
loan in December 1997.
Income Taxes. Income tax expense for the nine months ended March 31, 1999 was
$2.3 million (7.0% of net sales), an effective tax rate of 35%. This compares to
$1.6 million (5.8% of net sales) for the nine months ended March 31, 1998, an
effective tax rate of 35.3%.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operations for the nine months ended March 31, 1999 and the
nine months ended March 31, 1998 were $7.0 million and $1.9 million,
respectively. The positive flow from operations in both the first nine months of
fiscal 1999 and 1998 was due primarily to the profit attained in both periods.
The relatively lower level of cash provided by operations in the first nine
months of fiscal 1998, compared to the first nine months of fiscal 1999,
resulted primarily from increases in inventory levels in the prior year to
support the higher initial production levels.
Net cash used in investing activities consists of funds which were used to
purchase short-term marketable securities and capital equipment. Capital
equipment expenditures in the nine months ended March 31, 1999 and the nine
months ended March 31, 1998 were $1.1 million and $1.5 million, respectively.
These capital investments consisted primarily of equipment needed to further
automate production for the Company's new Wireless and Space products, as well
as test and manufacturing equipment for the production run of the ASPJ program
in the Defense group.
Cash used in financing activities amounted to $1.0 million for the nine months
ended March 31, 1999 and consisted primarily of funds used to repurchase common
stock of the Company. During the fourth quarter of fiscal 1998, the Board of
Directors authorized the repurchase of up to 500,000 shares of the Company's
common stock at prevailing market prices. Through March 31, 1999, the Company
had repurchased 128,000 shares and expended $1,469,000. Cash provided by
financing activities for the first half of the previous fiscal year was $20.1
million and consisted primarily of cash generated by the secondary public
offering of common stock.
During the remainder of fiscal 1999, the Company's major cash requirements will
be for additions to capital equipment. Capital equipment additions for the
current year have been budgeted at $2.2 million and through the first nine
months of fiscal 1999 approximately $1.1 million has been expended, all of which
was funded by cash generated from operations. The Company anticipates that
capital equipment additions for the remainder of fiscal 1999 will continue to be
funded through cash generated by operations as projected operating cash flows
are expected to be more than adequate to meet these financing needs.
During December 1997, the Company renegotiated its credit facility with its
bank, increasing the size of the facility and obtaining more favorable terms.
The new credit facility is an unsecured $10,000,000 working capital revolving
line of credit bearing interest at prime and maturing December 31, 2001. 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, 1999.
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.
13
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 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.
Year 2000 Status
- ----------------
The Company has conducted a full review of its computer systems to identify the
programs and systems that could be affected by the "year 2000 problem" and has
developed and is continuing to develop an implementation plan to resolve the
problem. The "year 2000 problem" is the result of computer programs being
written using two digits instead of four to define the applicable year. Programs
with this problem may recognize a date using "00" as the year 1900 instead of
the year 2000, resulting in system failures or miscalculations.
The Company installed a major revision to its manufacturing software at the end
of December, 1998 and has thoroughly tested the system for compliance with only
minor problems encountered to date. This system includes all the Company's
operating software from order entry through production planning and inventory
control (MRP) and including all financial (accounts payable, invoicing,
receivable, purchasing and general ledger) systems.
Presently, the Company is in the process of reviewing its PC based systems and
network for compliance problems and has determined the applicable software
upgrades that are required. We are now awaiting PC and network operating system
upgrades from Microsoft which are certified Y2K compatible. Additionally, the
Company's Y2K committee has performed a room by room evaluation of all equipment
in the Company's facility and has determined which equipment requires a software
upgrade to be compliant, and has completed a survey of all critical Company
vendors for compliance status. Required software upgrades have been ordered and,
where deemed necessary, additional vendor resources are being evaluated for
future use.
Although no assurances 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.
14
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.
15
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, 1999.
Item 6(b) Reports on Form 8K
------------------
The registrant was not required to file an 8-K during
the current fiscal period.
16
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 5, 1999 /S/Lawrence A. Sala
-----------------------------------
President & Chief Executive Officer
Date: May 5, 1999 /S/Joseph E. Porcello
--------------------------------------
Vice President of Finance & Controller
17