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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 8, 2000
REGISTRATION NO. 333-31460
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ANAREN MICROWAVE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 16-0928561
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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6635 KIRKVILLE ROAD
EAST SYRACUSE, NEW YORK 13057
(315) 432-8909
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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LAWRENCE A. SALA, PRESIDENT AND CHIEF EXECUTIVE OFFICER
6635 KIRKVILLE ROAD
EAST SYRACUSE, NEW YORK 13057
(315) 432-8909
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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IT IS REQUESTED THAT COPIES OF NOTICES AND COMMUNICATIONS BE SENT TO:
DAVID M. FERRARA, ESQ. WILLIAM R. KOLB, ESQ.
BOND, SCHOENECK & KING, LLP JOHN D. HANCOCK, ESQ.
ONE LINCOLN CENTER FOLEY, HOAG & ELIOT LLP
SYRACUSE, NEW YORK 13202 ONE POST OFFICE SQUARE
(315) 422-0121 BOSTON, MASSACHUSETTS 02109
(617) 832-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.
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The information in this prospectus is not complete and may be changed
without notice. Anaren Microwave may not sell these securities until the
registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these securities,
and Anaren Microwave is not soliciting offers to buy these securities, in
any state where the offer or sale of these securities is not permitted.
Prospectus (Not Complete)
Issued March 8, 2000
1,600,000 SHARES
[ANAREN LOGO]
COMMON STOCK
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Anaren Microwave, Inc. is offering 1,323,000 shares of our common stock,
and the selling shareholders are offering 277,000 shares of our common stock, in
a firmly underwritten offering. We will not receive any of the proceeds from the
sale of shares by the selling shareholders.
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Our common stock is traded on the Nasdaq National Market under the symbol
"ANEN." The last reported sale price of our common stock on the Nasdaq National
Market on March 7, 2000 was $99.25 per share.
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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
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Per Share Total
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Offering Price.............................................. $ $
Discounts and Commissions to Underwriters................... $ $
Offering Proceeds to Anaren Microwave, Inc.................. $ $
Offering Proceeds to the Selling Shareholders............... $ $
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Anaren Microwave, Inc. has granted the underwriters the right to purchase
up to an additional 240,000 shares of common stock to cover any over-allotments.
The underwriters can exercise this right at any time within thirty days after
the offering. The underwriters expect to deliver the shares of common stock to
investors on , 2000.
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
NEEDHAM & COMPANY, INC.
PACIFIC GROWTH EQUITIES, INC.
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, 2000
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INSIDE FRONT COVER -- EDGAR DESCRIPTION
The word "Anaren..." appears at the top left corner of the page.
Our logo and tag line (Anaren -- What'll we think of next?) is in the
center of the page. The logo is connected by spokes to five photos of our
products.
The first photo starting top left corner, and moving clockwise, is our
antenna beam former which is used in satellite communication systems. The second
photo is our Xinger(R) coupler components used in wireless base/station
amplifiers. The third photo is our wireless backplane assembly which is used
with amplifiers in wireless base stations. The fourth photo is our Adrenaline
assembly used in splitting and combining signals in Motorola power amplifiers.
The fifth photo is our wireless signal distribution assembly also used in
wireless base stations.
The phrase ". . .Developing Complex Solutions in Compact Packages" appears
at the bottom of the page.
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TABLE OF CONTENTS
PAGE
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Prospectus Summary.......................................... 4
Risk Factors................................................ 7
Forward-Looking Statements.................................. 15
Use of Proceeds............................................. 16
Price Range of Our Common Stock............................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Selected Consolidated Financial Data........................ 19
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Business.................................................... 28
Management.................................................. 41
Principal and Selling Shareholders.......................... 44
Underwriting................................................ 46
Legal Matters............................................... 48
Experts..................................................... 48
Where You Can Find More Information......................... 48
Incorporation of Certain Documents by Reference............. 48
Index to Consolidated Financial Statements.................. F-1
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You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with information that is
different. We are offering to sell, and seeking offers to buy, shares of common
stock only in jurisdictions where offers and sales are permitted. This
prospectus may only be used where it is legal to sell these securities. The
information in this document may only be accurate on the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of our equity shares.
"Xinger" is our registered trademark in the United States. "Anaren", the
Anaren logo, "AdrenaLine" and "What'll we think of next?" are our trademarks.
This prospectus also contains trademarks or servicemarks of other entities.
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before making an investment decision. This prospectus contains
forward-looking statements which involve risks and uncertainties. Our results
could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth in "Risk
Factors" and elsewhere in this prospectus. Except as otherwise indicated, all
information in this prospectus assumes no exercise of the underwriters'
over-allotment option and does not give effect to the recently announced
three-for-two split of our common stock that is expected to occur after this
offering. References to "we," "us," "our" and "Anaren" mean Anaren Microwave,
Inc. and all entities owned by it.
ANAREN MICROWAVE, INC.
We design, develop, manufacture and sell highly integrated microwave
components, assemblies and subsystems for the wireless communications, satellite
communications and defense electronics markets. Our distinctive microwave
modeling capabilities and integration technology allow us to replace numerous
components with integrated assemblies that deliver optimal microwave signal
performance. We use our proprietary Multi-Layer Stripline technology to produce
compact, lightweight and cost-effective products. These products are primarily
used in base stations for wireless communications systems and in satellites. Our
technology supports the most widely used mobile digital and analog wireless
protocols, systems and standards available today. In addition, we are developing
and producing products and technologies to support the latest generation of
wireless communications systems, including mobile and fixed broadband
communications.
Our wireless and satellite customers include leading global equipment
manufacturers, such as:
- Ericsson
- Lucent Technologies
- Motorola
- Nortel Networks
- Powerwave Technologies
- Hughes
- ITT Aerospace/Communications
- Lockheed Martin
- Loral Space & Communications
Global demand for integrated voice, data and video communications services
is growing rapidly. For many users, wireless communications offer advantages
over wire-based networks, such as lower capital equipment costs, reduced
installation costs and more rapid deployment. To keep up with the growing demand
for mobile wireless communications, service providers are increasing the
capacity of their networks by adding more base stations. Service providers are
also seeking to generate revenues by deploying emerging wireless technologies,
such as fixed broadband wireless communications systems. As demand for
high-speed Internet access grows, satellite and mobile wireless service
providers are entering the market for broadband services.
Our technology addresses the increasing demands of the wireless
communications markets for high-quality products manufactured in volume with
continuous improvements in performance and cost. We also provide satellite
manufacturers with enabling technologies that increase the capacity and
flexibility of their satellite communications systems. Our solution includes:
- Offering a broad array of standard and customized microwave products;
- Providing advanced capabilities in microwave design and manufacturing of
system-level solutions;
- Using our microwave technology, design libraries and manufacturing
know-how to develop products rapidly; and
- Maintaining strong collaborative engineering relationships with our
customers to develop customer-specific solutions.
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Our strategy is to continue to use our proprietary Multi-Layer Stripline
technology, extensive microwave design libraries and turnkey design, development
and manufacturing capabilities to further expand our penetration in the wireless
and satellite communications markets. Key components of our strategy include:
- Pursuing new wireless markets;
- Increasing our product content per customer base station;
- Strengthening and expanding our customer relationships;
- Enhancing our microwave technology leadership in wireless communications;
and
- Expanding our business through strategic acquisitions.
We were incorporated in New York in 1967. Our executive offices are located
at 6635 Kirkville Road, East Syracuse, New York 13057, and our phone number is
(315) 432-8909. Our web site is located at www.anaren.com. The information on
our web site is not a part of this prospectus.
RECENT DEVELOPMENTS
On February 29, 2000, we acquired all of the outstanding capital stock of
RF Power Components, Inc. RF Power Components, based in Long Island, New York,
had approximately 90 employees as of February 29, 2000, and is primarily engaged
in the manufacture of electronic products, including power resistors,
attenuators and couplers. The purchase price for RF Power Components was $7.5
million in cash and 23,517 shares of our common stock. We will account for this
acquisition as a purchase transaction.
THE OFFERING
Common stock offered by Anaren Microwave................ 1,323,000 shares
Common stock offered by the selling shareholders........ 277,000 shares
Common stock to be outstanding after this offering...... 6,997,209 shares
Use of proceeds......................................... For general corporate purposes and potential
acquisitions. See "Use of Proceeds." We will
not receive any proceeds from the sale of
common stock by the selling shareholders.
Nasdaq National Market symbol........................... ANEN
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of February 29, 2000
and does not include the following:
- 744,700 shares of common stock issuable upon exercise of outstanding
stock options with a weighted average exercise price of approximately
$22.00 per share; and
- 278,700 shares of common stock reserved for future issuance under our
stock option plans.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables summarize our consolidated financial data.
Consolidated balance sheet data is presented on an actual basis and as adjusted
to reflect the sale of the 1,323,000 shares of common stock offered by us in
this offering at an assumed public offering price of $99.25 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
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1997 1998 1999 1998 1999
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(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales................................ $24,227 $37,449 $45,739 $21,535 $25,735
Gross profit............................. 7,984 13,878 18,028 8,511 10,292
Operating income......................... 2,035 5,626 7,796 3,591 4,733
Net income............................... $ 2,055 $ 4,137 $ 6,950 $ 2,753 $ 3,673
Net income per common and common
equivalent share:
Basic.................................. $ 0.50 $ 0.83 $ 1.26 $ 0.50 $ 0.66
Diluted................................ $ 0.47 $ 0.79 $ 1.20 $ 0.48 $ 0.62
Shares used in computing net income per
common and common equivalent share:
Basic.................................. 4,106 4,984 5,522 5,511 5,554
Diluted................................ 4,332 5,237 5,770 5,737 5,889
DECEMBER 31, 1999
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AS
ACTUAL ADJUSTED
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(UNAUDITED)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $28,952 $152,980
Working capital............................................. 42,220 166,248
Total assets................................................ 62,569 186,597
Long-term debt, less current installments................... -- --
Total stockholders' equity.................................. 56,398 180,426
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RISK FACTORS
You should carefully consider the risks described below before investing in
our common stock. If any of the following risks actually occur, our business
could be harmed. This could cause the price of our stock to decline, and you may
lose part or all of your investment. This prospectus contains forward-looking
statements that involve risks and uncertainties, including statements about our
future plans, objectives, intentions and expectations. Many factors, including
those described below, could cause actual results to differ materially from
those discussed in any forward-looking statements.
RISKS RELATED TO OUR BUSINESS
WE RELY ON A LIMITED NUMBER OF ORIGINAL EQUIPMENT MANUFACTURERS AS CUSTOMERS AND
THE LOSS OF ONE OR MORE OF THEM COULD HARM OUR BUSINESS.
We depend upon a small number of customers for a majority of our revenues.
During the first six months of fiscal 2000, we had two customers that each
accounted for more than 10% of our net sales. During this period, approximately
19% of our net sales were to Motorola and approximately 13% were to Lockheed
Martin.
We anticipate that we will continue to sell products to a relatively small
group of customers. Delays in manufacturing or supply procurement or other
factors could potentially cause cancellation, reduction or delay in orders by a
significant customer or in shipments to a significant customer. In addition, we
design a substantial portion of our products to address the specific needs of
individual customers. Our future success depends significantly on the decision
of our current customers to continue to purchase products from us, as well as
the decision of prospective customers to develop and market wireless
communications systems that incorporate our products.
Our future success will also depend in part upon the financial condition
and success of our customers. Our customers' orders are affected by factors such
as:
- new product introductions;
- manufacturing strategy;
- product life cycles;
- changes in inventory levels;
- regulatory approvals;
- contract awards; and
- general economic conditions.
If we were to lose a major customer, or if a major customer were to
decrease or delay its orders, our business, financial condition and operating
results could be materially harmed.
WE MUST ATTRACT AND RETAIN QUALIFIED ENGINEERS AND OTHER KEY EMPLOYEES TO
MAINTAIN AND GROW OUR BUSINESS.
Our success will depend in part on our ability to attract and retain
qualified engineering, management, manufacturing, quality assurance, marketing
and support personnel. Competition for qualified engineers is particularly
intense, and we may not be successful in attracting and retaining these and
other personnel. If we are unable to successfully hire, train and retain a
sufficient number of qualified engineers with the skills necessary to develop
products for the wireless and satellite communications markets, we may be unable
to adequately manage and complete our existing projects or obtain new projects.
In addition, we maintain key person life insurance on Lawrence A. Sala, our
President and Chief Executive Officer. The loss of Mr. Sala's services could
materially harm our business, financial condition and operating results.
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WE DEPEND ON A SMALL NUMBER OF SUPPLIERS FOR MANY OF OUR COMPONENT PARTS AND
SERVICES.
We rely on our suppliers, or in some cases a limited group of suppliers, to
provide us with services and materials necessary for the manufacture of our
products. While we believe that substitute sources of supply at reasonably
similar costs are available for these and other products purchased, our reliance
on a limited group of suppliers involves several risks, including:
- potential inability to timely obtain critical materials or services;
- potential increase in raw materials costs or production costs;
- potential delays in delivery of raw materials or finished products; and
- reduced control over reliability and quality of components or assemblies,
as outsourcing continues.
We do not have binding contractual commitments or other controls over our
suppliers and, therefore, cannot always rely upon the guaranteed availability of
the materials necessary for the manufacture of our products. Recently we have
experienced difficulty obtaining electronic components for our products due to
increased demand throughout the electronics industry for these components. If we
are required to seek alternative contract manufacturers or suppliers because we
are unable to obtain timely deliveries of acceptable quality from existing
manufacturers or suppliers, we could be forced to delay delivery of our products
to our customers. In addition, if our suppliers and contract manufacturers
increase their prices, we could suffer losses because we may be unable to
recover these cost increases under fixed-price production commitments to our
customers.
WE MAY NOT EFFECTIVELY MANAGE POSSIBLE FUTURE GROWTH.
The growth in size and complexity of our business and the expansion of our
product lines and customer base have placed significant demands on our
management and operations, and we expect that these demands will continue in the
future. We are in the process of renovating our plant in East Syracuse, New York
to increase our manufacturing capabilities. The pace of our expansion, in
combination with the complexity of the technology involved in the manufacture of
our products, demands an unusually high level of managerial effectiveness in
anticipating, planning, coordinating and meeting our operational needs and the
needs of our customers. Our systems, procedures or controls may not be adequate
to support our operations. Our management may not be able to achieve the rapid
expansion necessary to exploit potential market opportunities for our products.
Our ability to compete effectively and to manage future growth will depend on
our ability to improve our manufacturing capabilities to meet the high-volume,
low-cost demands for the wireless market, and will also require us to continue
to implement and improve operational and financial systems on a timely basis. We
do not know whether we will be able to manage our future growth, and the failure
to do so could materially harm our business, financial condition and operating
results.
WE MAY HAVE DIFFICULTY INTEGRATING THE BUSINESS OF RF POWER COMPONENTS.
We recently completed the acquisition of RF Power Components, a
manufacturer of electronic products based in Long Island, New York. This is our
first acquisition of another business. Integrating RF Power Components may be a
complex and time-consuming process. Before our acquisition of RF Power
Components, we each operated independently. We may experience difficulties in
integrating RF Power Components and our business. These difficulties may
include:
- diversion of management resources from the business of the combined
company;
- geographical separation of the facilities;
- perceived adverse changes in customer service standards, business focus
or product offerings available to customers;
- perceived uncertainty in career opportunities, benefits and the long-term
value of stock options available to employees;
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- costs and delays in implementing common systems and procedures; and
- potential inefficiencies in delivering products to the customers of the
combined company.
Many of these factors are outside our control. Any of these difficulties
could increase our operating costs, harm our financial performance or cause the
loss of customers or employees. In addition, we may have inherited material
undisclosed liabilities from the acquired business.
WE MAY PURSUE ACQUISITIONS AND INVESTMENTS THAT COULD ADVERSELY AFFECT OUR
BUSINESS.
In the future we may continue to make acquisitions of and investments in
businesses, products and technologies that could complement or expand our
business. If we identify an acquisition candidate, we may not be able to
successfully negotiate or finance the acquisition or integrate the acquired
businesses, products or technologies into our existing business and products. To
complete future acquisitions, we may issue equity securities, incur debt, assume
contingent liabilities or have amortization expenses and write-downs of acquired
assets, which could cause our earnings per share to decline.
WE RELY PRINCIPALLY ON A SINGLE FACILITY AND OUR OPERATIONS COULD BE INTERRUPTED
BY EVENTS BEYOND OUR CONTROL.
Our primary operations, including engineering, manufacturing, management
information systems, customer service, distribution and general administration,
are housed in a single facility in East Syracuse, New York. Any material
disruption in our operations at the East Syracuse facility due to fire, natural
disaster or otherwise, could materially harm our business, financial condition
and operating results.
OUR QUARTERLY OPERATING RESULTS ARE DIFFICULT TO PREDICT AND MAY FAIL TO MEET OR
EXCEED THE EXPECTATIONS OF SECURITIES ANALYSTS OR INVESTORS, CAUSING OUR STOCK
PRICE TO FALL.
Our quarterly results of operations may fluctuate significantly. Many
factors affect our results of operations for any particular fiscal quarter.
These factors include:
- the timing, cancellation or rescheduling of orders and shipments from our
customers;
- the pricing and mix of products that we sell;
- our introduction of new products;
- the introduction of new competitors or competitive products;
- our ability to obtain components and subassemblies from contract
manufacturers and suppliers;
- variations in our ability to efficiently manufacture our products; and
- fluctuations in our manufacturing yields caused by seasonal and other
factors.
As a result of these fluctuations, our performance in any one fiscal
quarter may not necessarily accurately reflect the outcome of our future
performance.
OUR BUSINESS COULD BE HARMED IF WE FAIL TO PROTECT OUR INTELLECTUAL PROPERTY.
Our success depends in part on our ability to protect our intellectual
property. We rely primarily on a combination of trade secret, know-how,
copyright and trademark laws and employee and third-party nondisclosure
agreements. We also limit access to proprietary information within our company
and by outside parties. The steps we have taken to protect our intellectual
property may not prevent misappropriation of our technology. Our competitors may
develop technologies that are similar or superior to our technology, duplicate
our technology or design around patents that we own. Litigation may be necessary
to enforce our intellectual property rights or to determine the validity and
scope of the proprietary rights of others. Even if successful, litigation could
be costly and could divert important management resources. If our intellectual
property is not adequately protected, our business, financial condition and
operating results could be materially harmed.
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FUTURE CLAIMS BY OTHERS THAT WE HAVE VIOLATED THEIR INTELLECTUAL PROPERTY RIGHTS
COULD PREVENT THE SALE OF OUR PRODUCTS AND REQUIRE US TO PAY DAMAGES.
Third parties may claim that our products infringe upon their intellectual
property rights. Defending against third-party infringement claims could be
costly and divert important management resources. Furthermore, if these claims
are successful, we may have to pay substantial royalties or damages, remove the
infringing products from the marketplace or expend substantial amounts in order
to modify the products so that they no longer infringe on the third party's
rights.
WE MAY EXPERIENCE COST OVERRUNS AND ORDER CANCELLATIONS UNDER FIXED-PRICE
CONTRACTS, AND MAY NOT REALIZE ANY BENEFIT FROM RESEARCH AND DEVELOPMENT EFFORTS
UNDER THESE CONTRACTS.
Our customers establish demanding specifications for product performance,
reliability and cost. The majority of our contracts with prime contractors to
United States and foreign governmental departments or their agencies, as well as
satellite communications and wireless infrastructure equipment customers, are
fixed-price contracts, some of which require delivery over periods of time in
excess of one year. With this type of contract, we must agree to deliver
products at an agreed upon price, except for costs incurred as a result of
change orders issued by the customer. Some of these contracts contain provisions
for price escalation due to inflation incurred between the contract date and
product delivery date, and some are subject to various statutes, regulations and
provisions governing defense contracts. Most of these contracts contain
termination clauses, which allow the customer to terminate the contract for
convenience upon proper notice and payment of predetermined charges. We face the
risk of experiencing cost overruns or order cancellation if our products cost
more to produce due to design or manufacturing inefficiencies, increased
material, component or labor costs, or other unanticipated expenses, or if our
products are returned for failing to meet our customers' expectations or for an
upgrade, in which case we may incur additional costs to replace the returned
products or to perform the upgrade. In addition, we often make significant
investments in design and engineering of new products for customers without any
commitment by the customer for the future purchase of the products. If we fail
to receive initial or follow-on orders for these products and are unable to
apply our research and development efforts in other contexts, we will receive no
benefit for funds expended in these efforts.
OUR BACKLOG MAY NOT RESULT IN FUTURE SALES.
Backlog for the wireless group primarily represents firm orders for surface
mount products and signed purchase orders for custom components due to ship
within the next four to six weeks. Orders in the space and defense group backlog
are covered by signed contracts or purchase orders. Backlog is not necessarily
indicative of future sales. In addition, our customers may cancel or defer
orders without significant penalty. Cancellations of pending purchase orders or
termination or reduction of purchase orders in progress could materially harm
our business, financial condition and operating results. We do not believe that
our backlog as of any particular date is representative of actual sales for any
succeeding period, and we do not know whether our current order backlog will
necessarily lead to sales in any future period.
OUR WIRELESS CUSTOMERS' ANNUAL PROCUREMENT FORECASTS MAY NOT RESULT IN FUTURE
SALES.
Our major wireless communications customers provide us with procurement
forecasts on an annual basis, which we use to set the price for our products to
be sold to them during the year. These forecasts are subject to weekly
adjustments by our customers. We negotiate the prices of our products based in
part upon the volume provided in the annual forecasts, and we are generally
unable to increase our prices in response to any decrease in the volume actually
purchased by the customers as compared to the forecasted amount. Accordingly, if
these customers purchase less than the forecasted amount of products, our
operating margins could suffer. In addition, we may be required to carry these
unsold products in our inventory for an extended period of time. We purchase raw
materials from our suppliers in anticipation of the forecasted order. If our
customers purchase fewer products than we expect, we may be unable to use all of
the raw materials we purchased.
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OUR BUSINESS MAY BE HARMED IF WE FAIL TO COMPLY WITH ENVIRONMENTAL LAWS OR
REGULATIONS.
We are subject to a variety of local, state and federal governmental
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic or other hazardous substances used to
manufacture our products. If we fail to comply with these regulations,
substantial fines could be imposed on us, and we could be required to suspend
production, alter manufacturing processes or cease operations.
News reports have asserted that power levels associated with hand held
cellular telephones and infrastructure equipment may pose health risks. If it
were determined or perceived that electromagnetic waves carried through wireless
communications equipment create a health risk, the market for our wireless
customers' products could be severely reduced, which could in turn materially
harm our business, financial condition and operating results. Moreover, if
wireless communications systems or other systems or devices that rely on or
incorporate our products are determined or alleged to create a health risk, we
could be named as a defendant, and held liable, in product liability lawsuits
which could materially harm our business, financial condition and operating
results.
UNDISCOVERED YEAR 2000-RELATED COMPUTER PROBLEMS COULD DISRUPT OUR OPERATIONS.
We may face claims for undiscovered year 2000 errors in our products or for
year 2000 issues arising from third-party products that we integrate into our
products or with which our systems and products exchange data. If our suppliers,
vendors or distributors fail to timely and completely correct their own year
2000 software, firmware and hardware problems, or if any of them convert to a
system that is incompatible with our systems, our ability to deliver our
products could be disrupted.
RISKS RELATED TO OUR INDUSTRY
WE DEPEND ON THE FUTURE DEVELOPMENT OF THE WIRELESS AND SATELLITE COMMUNICATIONS
MARKETS, WHICH IS DIFFICULT TO PREDICT.
We believe that our future growth depends in part on the success of the
wireless and satellite communications markets. A number of the markets for our
products in the wireless and satellite communications area have only recently
begun to develop. It is difficult to predict the rate at which these markets
will grow, if at all. Existing or potential wireless and satellite
communications applications for our products may fail to develop or may erode
for many different reasons, including:
- the inability of wireless and satellite communications services to handle
growing demands for faster transmission of increasing amounts of data for
broadband applications;
- poor cost-effectiveness and poor performance of wireless and satellite
communications services compared to other forms of broadband access;
- insufficient consumer demand for wireless products or services; and
- real or perceived security and health risks associated with wireless
communications.
If the markets for our products in wireless and satellite communications
fail to grow, or grow more slowly than anticipated, our business, financial
condition and operating results could be harmed.
THE MARKETS WHICH WE SERVE ARE VERY COMPETITIVE, AND IF WE DO NOT COMPETE
EFFECTIVELY IN OUR MARKETS, WE WILL LOSE SALES AND HAVE LOWER MARGINS.
The markets for our products are extremely competitive and are
characterized by rapid technological change, new product development and
evolving industry standards. In addition, price competition is intense and
significant price erosion generally occurs over the life of a product. We face
competition from component manufacturers which have integration capabilities,
including KDI, M/A-Com, a division of Tyco International, Merrimac Industries
and Mini-Circuits. However, we believe that our primary competition is from the
internal
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capabilities of large communications original equipment manufacturers, or OEMs,
and defense prime contractors. Our future success will depend upon the extent to
which these parties elect to purchase from outside sources rather than
manufacture their own microwave components. Our customers and large
manufacturers of components could enter into the market for microwave products
and compete directly with us. Many of our current and potential competitors have
substantially greater financial, technical, marketing, distribution and other
resources than us, and have greater name recognition and market acceptance of
their products and technologies. Our competitors may develop new technologies or
products that may offer superior price or performance features, and new products
or technologies may render our customers' products obsolete.
WE FACE CONTINUING PRESSURE TO REDUCE THE AVERAGE SELLING PRICE OF OUR WIRELESS
PRODUCTS.
Many of our wireless customers are under continuous pressure to reduce
costs and, therefore, we expect to continue to experience pressure from these
customers to reduce the prices of the products that we sell to them. Our
customers frequently negotiate supply arrangements well in advance of delivery
dates, requiring us to commit to price reductions before we can determine
whether the assumed cost reductions or the negotiated supply volumes can be
achieved. To offset declining average sales prices, we believe that we must
achieve manufacturing cost reductions and increase our sales volumes. If we are
unable to offset declining average selling prices, our gross margins will
decline, and this decline could materially harm our business, financial
condition and operating results.
IF WE ARE UNABLE TO MEET THE RAPID TECHNOLOGICAL CHANGES IN THE WIRELESS AND
SATELLITE COMMUNICATIONS MARKETS, OUR EXISTING PRODUCTS COULD BECOME OBSOLETE.
The markets in which we compete are characterized by rapidly changing
technologies, evolving industry standards and frequent improvements in products
and services. If technologies supported by our products become obsolete or fail
to gain widespread acceptance, as a result of a change in the industry standards
or otherwise, our business could be harmed. Our future success will depend in
part on factors including:
- our ability to enhance the functionality of our existing products in a
timely and cost-effective manner;
- our ability to establish close working relationships with major customers
for the design of their new wireless transmission systems that
incorporate our products;
- our ability to identify, develop and achieve market acceptance of new
products that address new technologies and meet customer needs in
wireless communications markets;
- our ability to continue to apply our expertise and technologies to
existing and emerging wireless and satellite communications markets; and
- our ability to achieve acceptable product costs on new products.
We must continue to make significant investments in research and
development efforts in order to develop necessary product enhancements, new
designs and technologies. We may not be able to obtain the funds necessary for
these investments when needed, our research and development efforts may not be
successful, and our new products may not achieve market acceptance. Wireless and
satellite technologies are complex and new products and enhancements developed
by our customers can in turn require long development periods for our new
products or for enhancement or adaptation of our existing products. If we are
unable to develop and introduce new products or enhancements in a timely manner
in response to changing market conditions or customer requirements, or if our
new products do not achieve market acceptance, our business, financial condition
and operating results could suffer.
OUR BUSINESS COULD BE HARMED IF WE OR OUR CUSTOMERS FAIL TO COMPLY WITH
GOVERNMENTAL REGULATIONS.
Our products are incorporated into wireless communications systems that are
subject to regulation domestically by the Federal Communications Commission and
internationally by other government agencies. Although the equipment operators
are generally responsible for compliance with these regulations, regulatory
changes, including changes in the allocation of available frequency spectra,
could materially restrict
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development efforts by our customers. Changes in applicable governmental
regulations, or our failure to manufacture products in compliance with these
regulations, could materially harm our business, financial condition and
operating results.
In addition, the increasing demand for wireless and satellite
communications has exerted pressure on regulatory bodies worldwide to adopt new
standards for these products, generally following extensive investigation of and
deliberation over competing technologies. The delays inherent in this
governmental approval process may cause our customers to cancel or postpone the
installation of communications systems, which in turn may reduce our sale of
products to these customers.
Because of our participation in the defense industry, we are subject to
broad audits by various government agencies. Responding to audits, inquiries or
investigations may involve significant expense and divert management attention.
If there is an adverse finding in any audit, inquiry or investigation, we could
be required to pay substantial fines or penalties.
RISKS RELATING TO THIS OFFERING
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AND YOU MAY NOT BE ABLE TO SELL YOUR
SHARES AT OR ABOVE THE PUBLIC OFFERING PRICE.
The market price of our stock will fluctuate in the future. Price
fluctuations may occur in response to a variety of factors, including:
- actual or anticipated operating results;
- announcements of technological innovations, new products or new contracts
by us, our customers, our competitors or our customers' competitors;
- government regulatory action;
- developments with respect to wireless and satellite communications; and
- general market conditions.
In addition, the stock market has from time to time experienced significant
price and volume fluctuations that have particularly affected the market prices
for the stocks of technology companies and that have often been unrelated to the
operating performance of particular companies. In the period from March 1, 1999
to March 7, 2000, the price of our common stock has ranged from $17.25 to
$110.25 per share. The market price of our common stock has been volatile and
may continue to be highly volatile.
YOU WILL BE RELYING ON THE JUDGMENT OF OUR MANAGEMENT REGARDING OUR USE OF
PROCEEDS.
We have not designated any specific use for the net proceeds from our sale
of common stock described in this prospectus. Rather, we expect to use the net
proceeds for general corporate purposes and potential acquisitions.
Consequently, our management will have significant flexibility in applying the
net proceeds of this offering. You will be relying on the judgment of our
management regarding the application of the proceeds. Our management will have
the ability to change the application of the proceeds of this offering without
shareholder approval.
SOME ANTI-TAKEOVER PROVISIONS MAY AFFECT THE PRICE OF OUR COMMON STOCK.
Our certificate of incorporation and by-laws contain provisions which may
impede any merger, consolidation, takeover or other business combination
involving us or may discourage a potential acquiror from making a tender offer
or otherwise attempting to obtain control of our company. These provisions
include:
- a classified board of directors;
- a super-majority voting requirement for removal of directors by the
shareholders;
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- the ability of the board of directors to issue additional shares of
common stock without shareholder approval; and
- a requirement that the provisions of the certificate of incorporation and
by-laws designed to protect us from unfriendly takeover attempts can only
be amended by the shareholders pursuant to a super-majority vote.
These provisions are intended to avoid costly takeover battles and lessen
our vulnerability to a hostile change in control, thereby enhancing the
possibility that our board of directors can maximize shareholder value in
connection with an unsolicited offer to acquire us. However, these provisions
could also serve to depress our stock price or discourage a hostile bid in which
shareholders could receive a premium for their shares. In addition, these
provisions could make it more difficult for a third party to acquire a majority
of our outstanding voting stock or otherwise effect a change of control of
Anaren.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
The vast majority of our outstanding shares and shares reserved for
issuance upon exercise of stock options are freely tradable without restriction
or further registration, and the 1,323,000 shares offered in this offering by us
will be freely tradable immediately upon completion of the offering. Our
directors, executive officers and the selling shareholders have agreed that for
a period of 90 days after the date of this prospectus, they will not directly or
indirectly sell any shares of common stock without the consent of our
underwriters. Sales of substantial amounts of common stock by our shareholders,
or even the potential for such sales, may depress the market price of our common
stock and could impair our ability to raise capital through the sale of our
equity securities.
WE DO NOT PAY CASH DIVIDENDS.
We have never paid any cash dividends on our common stock and do not
anticipate that we will pay cash dividends in the future. Instead, we intend to
apply any earnings to the expansion and development of our business.
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. We intend these forward-looking statements to be covered
by the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we are including this
statement for purposes of complying with these safe harbor provisions. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
assumptions, including those set forth under "Risk Factors." Words such as
"expect," "anticipate," "intend," "plan," "believe," "estimate" and variations
of these words and similar expressions are intended to identify these
forward-looking statements. We undertake no obligations to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
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USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 1,323,000 shares of
common stock that we are offering at an assumed public offering price of $99.25
per share will be approximately $124.0 million after deducting estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. If the underwriters exercise their over-allotment option in full, we
estimate that our net proceeds from this offering will be approximately $146.6
million. We will not receive any proceeds from the sale of shares by the selling
shareholders.
We expect to use the net proceeds from this offering for general corporate
purposes. We may also use a portion of the net proceeds to acquire complementary
products, technologies or businesses when the opportunity arises. As of the date
of this prospectus, we cannot specify with certainty the particular uses for the
net proceeds we will receive in this offering. Accordingly, our management will
have broad discretion in applying our net proceeds of this offering. Pending
these uses, the net proceeds of this offering will be invested in investment
grade, interest-bearing instruments.
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PRICE RANGE OF OUR COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
ANEN. The following table sets forth for the periods indicated the high and low
sale prices for our common stock, as reported by the Nasdaq National Market.
HIGH LOW
-------- --------
Fiscal Year Ended June 30, 1998
First Quarter........................................ $ 28.250 $ 13.000
Second Quarter....................................... 35.750 13.500
Third Quarter........................................ 25.750 13.375
Fourth Quarter....................................... 23.750 14.375
Fiscal Year Ended June 30, 1999
First Quarter........................................ $ 15.500 $ 9.875
Second Quarter....................................... 21.500 11.000
Third Quarter........................................ 28.000 20.500
Fourth Quarter....................................... 26.375 17.250
Fiscal Year Ending June 30, 2000
First Quarter........................................ $ 32.125 $ 20.500
Second Quarter....................................... 55.750 26.500
Third Quarter (through March 7, 2000)................ 110.250 43.500
On March 7, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $99.25. As of February 29, 2000, there were 5,674,209
shares of our common stock outstanding, held by approximately 483 holders of
record.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results and current and anticipated cash needs. Although
there are no direct restrictions on payments of cash dividends under our bank
credit facility, we are required to maintain a certain level of tangible net
worth. This requirement may restrict our ability to pay cash dividends in the
future.
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CAPITALIZATION
The following table provides our capitalization as of December 31, 1999 and
as adjusted to reflect the sale of the 1,323,000 shares of common stock we are
offering at an assumed public offering price of $99.25 per share and the receipt
of the estimated net proceeds, after deducting estimated underwriting discounts
and commissions, and our estimated offering expenses.
AS OF DECEMBER 31, 1999
----------------------------
ACTUAL AS ADJUSTED
---------- --------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
Stockholders' equity:
Common stock, $0.01 par value; 25,000,000 shares
authorized; 6,624,666 shares issued and 5,604,392
shares outstanding, actual; 7,947,666 shares issued and
6,927,392 shares outstanding, as adjusted.............. $ 66 $ 79
Additional paid-in capital.................................. 39,199 163,214
Unearned compensation....................................... (851) (851)
Retained earnings........................................... 21,465 21,465
Less cost of 1,020,274 treasury shares...................... (3,481) (3,481)
------- --------
Total stockholders' equity.................................. 56,398 180,426
------- --------
Total capitalization................................... $56,398 $180,426
======= ========
The number of outstanding shares as of December 31, 1999 excludes:
- 762,500 shares of common stock issuable upon exercise of outstanding
stock options with a weighted average exercise price of approximately
$19.52 per share; and
- 307,200 shares of common stock reserved for future issuance under our
stock option plans.
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SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and notes appearing
elsewhere in this prospectus. The statement of operations data for each of the
years in the three year period ended June 30, 1999 and the balance sheet data at
June 30, 1998 and June 30, 1999 are derived from our audited consolidated
financial statements and notes appearing elsewhere in this prospectus. The
statement of operations data for the years ended July 1, 1995 and June 30, 1996
and the balance sheet data at July 1, 1995, June 30, 1996 and June 30, 1997 are
derived from our audited consolidated financial statements and notes not
included in this prospectus. The statement of operations data for the six months
ended December 31, 1998 and December 31, 1999 and the balance sheet data at
December 31, 1999 are derived from our unaudited consolidated financial
statements and notes appearing elsewhere in this prospectus.
In our opinion, our unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation. The interim results for the six months ended December 31,
1999 are not necessarily indicative of results to be expected for the year
ending June 30, 2000. Historical results are not indicative of the results to be
expected in the future.
SIX MONTHS ENDED
YEAR ENDED YEAR ENDED JUNE 30, DECEMBER 31,
JULY 1, --------------------------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
---------- ------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $17,996 $17,082 $24,227 $ 37,449 $ 45,739 $ 21,535 $ 25,735
Cost of sales................................... 13,381 11,147 16,243 23,571 27,711 13,024 15,443
------- ------- ------- -------- -------- -------- --------
Gross profit.................................. 4,615 5,935 7,984 13,878 18,028 8,511 10,292
------- ------- ------- -------- -------- -------- --------
Operating expenses:
Marketing..................................... 3,028 2,970 3,171 3,999 4,177 1,996 2,280
Research and development...................... 939 1,185 540 1,380 2,835 1,360 1,490
General and administrative.................... 2,041 2,075 2,238 2,873 3,220 1,564 1,789
Restructuring................................. 360 810 -- -- -- -- --
------- ------- ------- -------- -------- -------- --------
Total operating expenses.................... 6,368 7,040 5,949 8,252 10,232 4,920 5,559
------- ------- ------- -------- -------- -------- --------
Operating income (loss)......................... (1,753) (1,105) 2,035 5,626 7,796 3,591 4,733
------- ------- ------- -------- -------- -------- --------
Other income (expense):
Interest expense.............................. (213) (123) (94) (82) (38) (19) (20)
Other, primarily interest income.............. 164 148 114 923 1,396 664 938
------- ------- ------- -------- -------- -------- --------
Total other income (expense)................ (49) 25 20 841 1,358 645 918
------- ------- ------- -------- -------- -------- --------
Income (loss) before income taxes............... (1,802) (1,080) 2,055 6,467 9,154 4,236 5,651
Income taxes.................................... 330 -- -- (2,330) (2,204) (1,483) (1,978)
------- ------- ------- -------- -------- -------- --------
Net income (loss)........................... $(1,472) $(1,080) $ 2,055 $ 4,137 $ 6,950 $ 2,753 $ 3,673
======= ======= ======= ======== ======== ======== ========
Net income (loss) per common and
common equivalent share:
Basic......................................... $ (0.36) $ (0.27) $ 0.50 $ 0.83 $ 1.26 $ 0.50 $ 0.66
======= ======= ======= ======== ======== ======== ========
Diluted....................................... $ (0.36) $ (0.27) $ 0.47 $ 0.79 $ 1.20 $ 0.48 $ 0.62
======= ======= ======= ======== ======== ======== ========
Shares used in computing net income (loss)
per common and common equivalent share:
Basic......................................... 4,047 4,057 4,106 4,984 5,522 5,511 5,554
Diluted....................................... 4,047 4,057 4,332 5,237 5,770 5,737 5,889
JUNE 30,
JULY 1, ------------------------------------- DECEMBER 31,
1995 1996 1997 1998 1999 1999
------- ------- ------- ------- ------- ------------
(IN THOUSANDS) (UNAUDITED)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........ $ 2,140 $ 1,740 $ 3,807 $25,091 $28,487 $28,952
Working capital.......................................... 13,258 12,914 15,043 38,965 39,054 42,220
Total assets............................................. 23,365 21,793 25,973 50,903 58,467 62,569
Long-term debt, less current installments................ 1,052 680 453 -- -- --
Stockholders' equity..................................... 18,824 18,195 20,327 45,506 51,846 56,398
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements included elsewhere in this prospectus. This discussion contains
forward-looking statements which involve risks and uncertainties. Our actual
results could differ materially from those anticipated in the forward-looking
statements as a result of certain factors, including but not limited to those
discussed in "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We design, develop and market integrated microwave components, assemblies
and subsystems for the wireless communications, satellite communications and
defense electronics markets. We use our proprietary Multi-Layer Stripline
technology to generate compact, light weight and cost-effective products for use
in these markets. We offer our integrated assemblies and high end subsystems to
leading wireless communications equipment manufacturers, such as Ericsson,
Motorola and Nortel Networks, and to satellite communications companies, such as
Hughes, Lockheed Martin and Loral Space & Communications.
We operate predominately in the wireless communications, satellite
communications and defense electronics markets. Our two reporting segments are
the wireless group and the space and defense group. These groups have been
determined based upon the nature of the products and services offered, customer
base, technology, availability of discrete internal financial information,
homogeneity of products and delivery channel and are consistent with the way we
organize and evaluate financial information internally for making operating
decisions and assessing performance. Before the third quarter of fiscal 1999,
our satellite communications and defense electronics business groups operated as
separate reporting segments. During the third quarter of fiscal 1999, these two
groups were combined to more efficiently utilize the engineering, manufacturing
and marketing resources allocated to the separate groups. Increased commonality
in the types of products and manufacturing processes required by the groups,
coupled with a significant increase in new orders and development activity in
the satellite area, were the basis for the change. The new combined group, the
space and defense group, will continue to focus on both the satellite
communications and defense electronics markets. Our fiscal year end is June 30.
We recognize sales at the time products are shipped to our customers or, in
case of customer funded engineering sales, upon achievement of design
milestones. Revenues and estimated profits on fixed-price contracts are
recognized under the percentage of completion method of accounting on the
units-of-delivery basis. Provisions for estimated losses on uncompleted
contracts are made in the period in which the losses are determined.
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RESULTS OF OPERATIONS
The following table presents financial information from our consolidated
statements of operations as a percentage of net sales.
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------- ----------------
1997 1998 1999 1998 1999
----- ----- ----- ------ ------
(UNAUDITED)
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 67.1 62.9 60.6 60.5 60.0
----- ----- ----- ----- -----
Gross profit.................................. 32.9 37.1 39.4 39.5 40.0
----- ----- ----- ----- -----
Operating expenses:
Marketing........................................ 13.1 10.7 9.1 9.3 8.8
Research and development......................... 2.2 3.7 6.2 6.3 5.8
General and administrative....................... 9.2 7.7 7.1 7.2 7.0
----- ----- ----- ----- -----
Total operating expenses...................... 24.5 22.1 22.4 22.8 21.6
----- ----- ----- ----- -----
Operating income................................... 8.4 15.0 17.0 16.7 18.4
----- ----- ----- ----- -----
Other income (expense):
Interest expense................................. (0.4) (0.2) (0.1) (0.1) (0.1)
Other, primarily interest income................. 0.5 2.4 3.1 3.1 3.7
----- ----- ----- ----- -----
Total other income............................ 0.1 2.2 3.0 3.0 3.6
----- ----- ----- ----- -----
Income before income taxes......................... 8.5 17.2 20.0 19.7 22.0
Income taxes....................................... -- (6.2) (4.8) (6.9) (7.7)
----- ----- ----- ----- -----
Net income.................................... 8.5% 11.0% 15.2% 12.8% 14.3%
===== ===== ===== ===== =====
The following table provides selected information by business segment for the
periods indicated:
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS) (UNAUDITED)
Net sales:
Wireless............................... $ 7,645 $16,580 $21,450 $ 9,103 $14,251
Space and defense...................... 16,582 20,869 24,289 12,432 11,484
------- ------- ------- ------- -------
$24,227 $37,449 $45,739 $21,535 $25,735
======= ======= ======= ======= =======
Operating income:
Wireless............................... $ 202 $ 2,961 $ 3,266 $ 804 $ 3,002
Space and defense...................... 1,833 2,665 4,530 2,787 1,731
------- ------- ------- ------- -------
$ 2,035 $ 5,626 $ 7,796 $ 3,591 $ 4,733
======= ======= ======= ======= =======
Operating income as a percentage of net
segment sales:
Wireless............................... 2.6% 17.9% 15.2% 8.9% 21.1%
Space and defense...................... 11.0 12.8 18.7 22.4 15.1
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
1998
Net Sales. Operations for the first six months of fiscal 2000 were
highlighted by continuing escalation of wireless sales, which consist of sales
of catalog surface mount components and custom subsystems for use in building
wireless base station equipment. Net sales increased 20% to $25.7 million for
the first six months
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of fiscal 2000, from $21.5 million for the first six months of the previous
fiscal year. This increase resulted from a 57% rise in sales of wireless
products, which more than offset an 8% drop in shipments of space and defense
products. Wireless product sales continue to rise due to high demand for custom
wireless base station products from our OEM customers as well as escalating
demand for our Xinger brand of surface mount components used by wireless
amplifier manufacturers.
Sales of space and defense products consist of custom multi-layer
components and assemblies for communications satellites, as well as defense
radar countermeasure subsystems. Sales in the space and defense group fell 8%,
or $948,000, for the first six months of fiscal 2000 compared to the first half
of the previous year. This decline in sales for the space and defense group was
due to delays in satellite contract awards in the prior fiscal year and the
completion of the Airborne Self Protection Jammer program, or the ASPJ program,
contract in the second quarter of fiscal 2000, both of which events we
anticipated. Quarterly sales in this business area are expected to remain at or
below second quarter levels for the remainder of fiscal 2000.
Gross Profit. Gross profit for the first six months of fiscal 2000 was
$10.3 million (40.0% of net sales) up from $8.5 million (39.5% of net sales) for
the first six months of fiscal 1999. This improvement was a result of the
increase in sales volume which resulted in significant economies of scale in the
manufacturing operations and improvements in product yields in the wireless
group. Cost of sales consists primarily of engineering design costs, material,
material fabrication costs, assembly costs and test costs.
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 14% to $2.3
million (8.8% of net sales) for the first six months of fiscal 2000 from $2.0
million (9.3% of net sales) for the first six months of fiscal 1999. This
increase was a result of the expansion of our marketing and sales organization
to support increased order volume.
Research and Development. Research and development expenses consist of
material and salaries and related overhead costs of employees engaged in ongoing
research, design and development activities associated with new products and
technology development. Research and development expenses increased 10% to $1.5
million (5.8% of net sales) in the first half of fiscal 2000 from $1.4 million
(6.3% of net sales) for the first half of fiscal 1999. Research and development
expenditures are expanding to support further development of wireless
infrastructure products and satellite communications opportunities.
General and Administrative. General and administrative expenses increased
14% to $1.8 million (7.0% of net sales) for the first six months of fiscal 2000
from $1.6 million (7.2% of net sales) for the first six months of fiscal 1999.
General and administrative expenses have increased due to the hiring of
additional personnel and a rise in professional fees due to our growth.
Other Income. Other income is primarily interest income received on
invested cash balances. Other income increased 41% to $938,000 (3.7% of net
sales) for the first six months of fiscal 2000 from $664,000 (3.1% of net sales)
for the first six months of fiscal 1999 due to a significant increase in cash
balances in the current year compared to the prior year.
Interest Expense. Interest expense represents commitment fees and interest
paid on our line of credit and letter of credit. Interest expense for the first
half of fiscal 2000 was $20,000 (0.1% of net sales) compared to $19,000 (0.1% of
net sales) for the first half of fiscal 1999.
Income Taxes. Income tax expense for the first six months of fiscal 2000
was $2.0 million (7.7% of net sales), representing an effective tax rate of 35%.
This compared to $1.5 million (6.9% of net sales) for the first six months of
fiscal 1999, representing an effective tax rate of 35%.
YEAR ENDED JUNE 30, 1999 (FISCAL 1999) COMPARED TO YEAR ENDED JUNE 30, 1998
(FISCAL 1998)
Net Sales. Net sales increased 22% to $45.7 million for fiscal 1999 from
$37.4 million for fiscal 1998. This increase resulted primarily from a 29%
increase in shipments of wireless products and a 16% increase in sales of space
and defense products. The increase in sales of wireless products reflects the
increased
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worldwide demand by our major OEM customers for both our surface mount
components and custom subsystems. Wireless sales were further augmented by the
first shipments of custom integrated backplane assemblies which increased our
dollar content, or dollar value of our products, per base station due to the
higher level of complexity and functionality of these assemblies.
Shipments of space and defense products rose 16% in fiscal 1999 due
principally to us being in full production for defense radar countermeasure
subsystems for foreign and domestic sales for the ASPJ program for all of fiscal
1999. The ASPJ program was just entering initial factory production in the first
half of the previous fiscal year. Additionally, space and defense sales were
bolstered by shipments on a number of small satellite component contracts for
Hughes and the initial customer funded engineering sales for a satellite program
being built for Lockheed Martin.
Gross Profit. Gross profit was 39.4% of net sales for fiscal 1999 compared
to 37.1% of net sales for 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 volume in both business groups.
Marketing. Marketing expenses increased 4% to $4.2 million (9.1% of net
sales) for fiscal 1999 from $4.0 million (10.7% of net sales) for fiscal 1998.
The increase was a result of higher advertising expenses related to increased
sales volume and further development of the sales organization instituted in
fiscal 1998 to support our expanding wireless markets.
Research and Development. Net research and development expenses increased
105% to $2.8 million (6.2% of net sales) for fiscal 1999 from $1.4 million (3.7%
of net sales) for fiscal 1998. Research and development expenses expanded to
support the increased development demands of wireless infrastructure and
satellite communications markets.
General and Administrative. General and administrative expenses increased
12% to $3.2 million (7.1% of net sales) for fiscal 1999 compared to $2.9 million
(7.7% of net sales) for fiscal 1998. General and administrative expense
increased due to higher professional fees resulting from corporate growth and
increased compensation levels for existing personnel.
Interest Expense. Interest expense decreased 54% to $38,000 (0.1% of net
sales) for fiscal 1999 from $82,000 (0.2% of net sales) for fiscal 1998 due to
the December 1997 repayment of our outstanding indebtedness.
Other Income. Other income increased to $1.4 million (3.1% of net sales)
for fiscal 1999 from $923,000 (2.4% of net sales) for fiscal 1998, due to a
higher level of cash balances in fiscal 1999 as a result of the large increase
in operating cash flow.
Income Taxes. Income tax expense for fiscal 1999 was $2.2 million (4.8% of
net sales), representing an effective tax rate of 24% compared to an effective
tax rate of 36% for fiscal 1998. The decline in the effective tax rate in fiscal
1999 was due to the recognition of a tax benefit of approximately $1.0 million
during the fourth quarter fiscal 1999 in connection with the dissolution of our
European subsidiary. The disposition of the net assets of the subsidiary and a
corresponding restructuring charge were recognized for financial reporting
purposes in 1996. In the fourth quarter of fiscal 1999, all of the criteria
necessary to support a deduction for the tax investment were met and the tax
benefit was recorded.
YEAR ENDED JUNE 30, 1998 (FISCAL 1998) COMPARED TO YEAR ENDED JUNE 30, 1997
(FISCAL 1997)
Net Sales. Net sales increased 55% to $37.4 million for fiscal 1998 up
from $24.2 million for fiscal 1997. This increase was driven by a 117% increase
in shipments of wireless products and a 26% increase in sales of space and
defense products. The increase in sales of wireless products was due to
continuing strong demand by our major OEM customers for our custom products and
off-the-shelf surface mount components. Sales of space and defense products in
fiscal 1998 consisted of initial shipments of beamformers to Loral Space &
Communications, as well as continued shipments to Lockheed Martin on a satellite
program and a program for Hughes. Sales of defense-oriented products increased
$4.3 million in fiscal 1998 as a result of
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25
shipments of defense radar countermeasure subsystems for foreign sales for the
ASPJ program, which first entered full production in the second quarter of
fiscal 1998.
Gross Profit. Gross profit was 37.1% of net sales for fiscal 1998 compared
to 32.9% of net sales for fiscal 1997. The improvement in gross profit was due
to continuing economies of scale resulting from higher sales volume.
Marketing. Marketing expenses increased 26% to $4.0 million (10.7% of net
sales) for fiscal 1998 from $3.2 million (13.1% of net sales) for fiscal 1997.
The increase was a result of higher commission and advertising expenses related
to increased sales volume and further development of the marketing organization
to support our expanding wireless markets.
Research and Development. Net research and development expenses increased
156% to $1.4 million (3.7% of net sales) for fiscal 1998 from $540,000 (2.2% of
net sales) for fiscal 1997. Research and development expenses expanded to
support the increased development of wireless infrastructure and satellite
communications products.
General and Administrative. General and administrative expenses increased
28% to $2.9 million (7.7% of net sales) for fiscal 1998 compared to $2.2 million
(9.2% of net sales) for fiscal 1997. General and administrative expenses
increased due to the hiring of additional employees and increased staffing
levels, as well as higher professional fees and increased compensation levels
for existing personnel.
Interest Expense. Interest expense decreased 13% to $82,000 (0.2% of net
sales) for fiscal 1998 from $94,000 (0.4% of net sales) for fiscal 1997, due to
the December 1997 repayment of our outstanding indebtedness.
Other Income. Other income increased to $923,000 (2.4% of net sales) for
fiscal 1998 from $114,000 (0.5% of net sales) for fiscal 1997, due to a higher
level of cash balances in fiscal 1998 as a result of the public offering
completed in November 1997.
Income Taxes. Income tax expense for fiscal 1998 was $2.3 million (6.2% of
net sales), representing an effective tax rate of 36%. We incurred no income tax
expense for fiscal 1997 due to the utilization of the remainder of available
loss carryforwards and substantially all of our available tax credits in fiscal
1997.
SELECTED UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table presents our unaudited results of operations for the
ten most recently ended fiscal quarters. We believe that all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts below to present fairly the selected quarterly information when
read in conjunction with the consolidated financial statements included
elsewhere in this prospectus. Our results from operations may vary substantially
from quarter to quarter; accordingly, the results of operations for a quarter
are not necessarily indicative of results for any subsequent quarter or for the
full year.
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26
QUARTER ENDED
------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31,
1997 1997 1998 1998 1998 1998
--------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales..................... $7,721 $9,362 $9,951 $10,415 $10,479 $11,056
Cost of sales................. 4,854 6,035 6,291 6,391 6,474 6,550
------ ------ ------ ------- ------- -------
Gross profit.............. 2,867 3,327 3,660 4,024 4,005 4,506
------ ------ ------ ------- ------- -------
Operating expenses:
Marketing................... 940 988 1,017 1,054 982 1,014
Research and development.... 189 268 368 555 575 785
General and
administrative............ 641 737 749 746 754 810
------ ------ ------ ------- ------- -------
Total operating
expenses................ 1,770 1,993 2,134 2,355 2,311 2,609
------ ------ ------ ------- ------- -------
Operating income.............. 1,097 1,334 1,526 1,669 1,694 1,897
------ ------ ------ ------- ------- -------
Other income (expense):
Interest expense............ (24) (19) (14) (25) (9) (10)
Other, primarily interest
income.................... 62 166 340 355 350 314
------ ------ ------ ------- ------- -------
Total other income........ 38 147 326 330 341 304
------ ------ ------ ------- ------- -------
Income before income taxes.... 1,135 1,481 1,852 1,999 2,035 2,201
Income taxes.................. (375) (523) (681) (751) (712) (771)
------ ------ ------ ------- ------- -------
Net income................ $ 760 $ 958 $1,171 $ 1,248 $ 1,323 $ 1,430
====== ====== ====== ======= ======= =======
Net income per common share
and common equivalent share:
Basic....................... $ 0.18 $ 0.20 $ 0.21 $ 0.22 $ 0.24 $ 0.26
====== ====== ====== ======= ======= =======
Diluted..................... $ 0.17 $ 0.19 $ 0.20 $ 0.22 $ 0.23 $ 0.25
====== ====== ====== ======= ======= =======
Shares used in computing net
income per common and common
equivalent share:
Basic....................... 4,173 4,681 5,540 5,561 5,525 5,496
Diluted..................... 4,512 4,971 5,738 5,748 5,680 5,726
QUARTER ENDED
------------------------------------------
MAR. 31, JUN. 30, SEPT. 30, DEC. 31,
1999 1999 1999 1999
-------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales..................... $11,833 $12,371 $12,464 $13,271
Cost of sales................. 7,157 7,530 7,513 7,930
------- ------- ------- -------
Gross profit.............. 4,676 4,841 4,951 5,341
------- ------- ------- -------
Operating expenses:
Marketing................... 1,058 1,123 1,122 1,158
Research and development.... 722 753 702 788
General and
administrative............ 827 829 864 925
------- ------- ------- -------
Total operating
expenses................ 2,607 2,705 2,688 2,871
------- ------- ------- -------
Operating income.............. 2,069 2,136 2,263 2,470
------- ------- ------- -------
Other income (expense):
Interest expense............ (9) (10) (9) (11)
Other, primarily interest
income.................... 354 378 437 501
------- ------- ------- -------
Total other income........ 345 368 428 490
------- ------- ------- -------
Income before income taxes.... 2,414 2,504 2,691 2,960
Income taxes.................. (845) 124 (942) (1,036)
------- ------- ------- -------
Net income................ $ 1,569 $ 2,628 $ 1,749 $ 1,924
======= ======= ======= =======
Net income per common share
and common equivalent share:
Basic....................... $ 0.28 $ 0.47 $ 0.32 $ 0.35
======= ======= ======= =======
Diluted..................... $ 0.27 $ 0.45 $ 0.30 $ 0.32
======= ======= ======= =======
Shares used in computing net
income per common and common
equivalent share:
Basic....................... 5,529 5,538 5,541 5,566
Diluted..................... 5,816 5,789 5,834 5,944
QUARTER ENDED
----------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUN. 30, SEPT. 30, DEC. 31, MAR. 31, JUN. 30,
1997 1997 1998 1998 1998 1998 1999 1999
--------- -------- -------- -------- --------- --------- -------- --------
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................. 62.9 64.5 63.2 61.4 61.8 59.2 60.5 60.9
------ ------ ------ ------- ------- ------- ------- -------
Gross profit.............. 37.1 35.5 36.8 38.6 38.2 40.8 39.5 39.1
------ ------ ------ ------- ------- ------- ------- -------
Operating expenses:
Marketing................... 12.2 10.5 10.2 10.1 9.3 9.2 8.9 9.1
Research and development.... 2.4 2.9 3.7 5.3 5.5 7.1 6.1 6.1
General and
administrative............ 8.3 7.9 7.6 7.2 7.2 7.3 7.0 6.7
------ ------ ------ ------- ------- ------- ------- -------
Total operating
expenses................ 22.9 21.3 21.5 22.6 22.0 23.6 22.0 21.9
------ ------ ------ ------- ------- ------- ------- -------
Operating income.............. 14.2 14.2 15.3 16.0 16.2 17.2 17.5 17.2
------ ------ ------ ------- ------- ------- ------- -------
Other income (expense):
Interest expense............ (0.3) (0.2) (0.1) (0.2) (0.1) (0.1) (0.1) (0.1)
Other, primarily interest
income.................... 0.8 1.8 3.4 3.4 3.3 2.8 3.0 3.1
------ ------ ------ ------- ------- ------- ------- -------
Total other income........ 0.5 1.6 3.3 3.2 3.2 2.7 2.9 3.0
------ ------ ------ ------- ------- ------- ------- -------
Income before income taxes.... 14.7 15.8 18.6 19.2 19.4 19.9 20.4 20.2
Income taxes.................. (4.9) (5.6) (6.8) (7.2) (6.8) (7.0) (7.1) 1.0
------ ------ ------ ------- ------- ------- ------- -------
Net income................ 9.8% 10.2% 11.8% 12.0% 12.6% 12.9% 13.3% 21.2%
====== ====== ====== ======= ======= ======= ======= =======
QUARTER ENDED
--------------------
SEPT. 30, DEC. 31,
1999 1999
--------- --------
Net sales..................... 100.0% 100.0%
Cost of sales................. 60.3 59.8
------- -------
Gross profit.............. 39.7 40.2
------- -------
Operating expenses:
Marketing................... 9.0 8.7
Research and development.... 5.6 5.9
General and
administrative............ 6.9 7.0
------- -------
Total operating
expenses................ 21.5 21.6
------- -------
Operating income.............. 18.2 18.6
------- -------
Other income (expense):
Interest expense............ (0.1) (0.1)
Other, primarily interest
income.................... 3.5 3.8
------- -------
Total other income........ 3.4 3.7
------- -------
Income before income taxes.... 21.6 22.3
Income taxes.................. (7.6) (7.8)
------- -------
Net income................ 14.0% 14.5%
======= =======
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LIQUIDITY AND CAPITAL RESOURCES
Since fiscal 1997, we have financed our operations primarily from cash flow
from operations. Net cash provided by operations was $2.4 million for the first
six months of fiscal 2000, $3.9 million for the first six months of fiscal 1999,
$11.5 million for fiscal 1999, $3.4 million for fiscal 1998 and $3.5 million for
fiscal 1997. The positive cash flow from operations in those periods was due
primarily to the profit attained in those periods.
The relatively higher level of cash provided by operations in the first six
months of fiscal 1999 compared to the first six months of fiscal 2000 resulted
primarily from the decrease in inventory levels in the first quarter of fiscal
1999 compared to the increasing accounts receivable levels in the first half of
fiscal 2000. The additional $4.5 million in operating cash flow in excess of
earnings in fiscal 1999 was the result of significant reductions in both
accounts receivable of $900,000 and inventory of $2.0 million during the year
compared to the increases in both balances in fiscal 1998. At June 30, 1999, day
sales outstanding had improved to 46 days compared to 62 days at June 30, 1998.
In November 1997, we completed a follow-on public offering of our common
stock. This offering resulted in the sale of 1,165,450 new shares and provided
us with net proceeds after underwriters fees and offering expenses of $19.8
million.
Net cash used in investing activities consists of funds which were used to
purchase short-term marketable debt securities and capital equipment. Capital
equipment expenditures were $2.0 million in the first six months of fiscal 2000,
$2.1 million in fiscal 1999, $2.3 million in fiscal 1998 and $1.2 million in
fiscal 1997. These capital investments consist primarily of equipment to further
expand our wireless production capacity, as well as test and production
equipment for the current production run of the ASPJ program.
Cash provided by financing activities for the first six months of fiscal
2000 amounted to $391,000 and consisted of cash generated by the exercise of
stock options. Cash used in financing activities amounted to $1.0 million for
fiscal 1999 and consisted primarily of funds used to repurchase our common
stock, net of funds received for the exercise of stock options. During the
fourth quarter of fiscal 1998, our board of directors authorized the repurchase
of up to 500,000 shares of our common stock at prevailing market prices. During
fiscal 1999, we repurchased 128,000 shares and expended $1.5 million. Cash
provided by financing activities for fiscal 1998 was $20.1 million and consisted
primarily of cash generated by the follow-on public offering of our common stock
and the exercise of stock options.
In connection with our recently completed acquisition of RF Power
Components, we paid $7.5 million in cash. During fiscal 2000, our other major
cash requirements will be for additions to capital equipment. Capital equipment
additions and building renovations for the first six months of fiscal 2000 were
approximately $2.0 million, all of which were funded by cash generated from
operations.
We have a credit facility providing an unsecured $10 million working
capital revolving line of credit bearing interest at prime and maturing December
31, 2003. The terms of the credit facility require maintenance of a minimum
tangible net worth, ratio of cash flows to maturities, and leverage ratio as
defined in the respective agreements. We were in compliance with all
restrictions and covenants at December 31, 1999. At December 31, 1999, $0 was
outstanding under the credit facility.
We believe that our cash requirements for the foreseeable future will be
satisfied by currently invested cash balances, expected cash flows from
operations, funds available under our credit facilities and our net proceeds
from this offering.
YEAR 2000 STATUS
We have conducted a full review of our program and systems that could be
affected by the "year 2000 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. We had undertaken
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28
projects to update and replace all known non-compliant internal information
systems and processes to ensure that the year 2000 situation will not have an
adverse impact on our internal operations.
As of the date of this prospectus, we have not incurred any significant
business interruptions as a result of the year 2000 problem. However, while we
have not become aware of any such occurrence, year 2000 problems may surface
throughout calendar year 2000. Therefore, there is no assurance that we will not
be negatively impacted by the year 2000 situation in the future. We will
continue to monitor this situation and expeditiously address any issues that may
arise.
Based on our readiness efforts, we currently do not reasonably foresee any
material year 2000 issues, and therefore the costs associated with potential
year 2000 issues that may arise during calendar year 2000 are not expected to
have a material adverse effect on either our financial condition or results of
operations. However, there is no guarantee that we will not incur significant
business interruptions due to the year 2000 situation, whether due to our own
year 2000 problems or that of our customers or suppliers.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 30, 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No.
133), which establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement requires recognition of all
derivatives at fair value in the financial statements. FASB Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB Statement No. 133, an amendment of FASB Statement No.
133, defers implementation of SFAS No. 133 until fiscal years beginning after
June 15, 2000. We have reviewed SFAS No. 133 and believe that, upon
implementation, the standard will not have a significant effect on our financial
statements.
DISCLOSURES ABOUT MARKET RISK
The following discusses our possible exposure to market risk related to
changes in interest rates, equity prices and foreign currency exchange rates.
This discussion contains forward-looking statements that are subject to risks
and uncertainties. Actual results could vary materially as a result of a number
of factors, including those discussed in "Risk Factors."
As of December 31, 1999, we had cash, cash equivalents and marketable debt
securities of $34.2 million, of which approximately $28.2 million consisted of
highly liquid investments in marketable debt securities. These investments at
the date of purchase normally have maturities between one and 18 months and are
exposed to interest rate risk and will decrease in value if market interest
rates increase. A hypothetical increase or decrease in market interest rate of
10% from December 31, 1999 rates would cause the market price of these
securities to decline by an insignificant amount. Due to the relatively short
maturities of the securities and our ability to hold these investments to
maturity, an immediate increase in interest rates would not have a significant
effect on our financial condition or results of operations. Over time however,
declines in interest rates will reduce our interest income.
We do not own any material equity investments. Therefore, we do not
currently have any direct equity price risk.
All of our sales to foreign customers are denominated in United States
dollars and, accordingly, we are not currently exposed to foreign currency
exchange risk.
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29
BUSINESS
OVERVIEW
We are a leading provider of highly integrated microwave components,
assemblies and subsystems for the rapidly expanding wireless communications
industry. We use our proprietary Multi-Layer Stripline technology to produce
compact, light weight, cost-effective products for use in wireless, satellite
and defense electronics systems. Our distinctive microwave modeling capabilities
and integration technology allow us to replace numerous discrete components with
compact integrated assemblies that consistently deliver optimal signal
performance. We sell our integrated assemblies, which range from simple
splitting and combining networks to complete microwave backplanes, and our high
end subsystems to leading communications equipment manufacturers in the mobile
and fixed broadband wireless markets and the satellite communications market.
Our technology supports a wide range of digital and analog wireless
communications protocols, systems and standards including:
- - Code Division Multiple Access, or CDMA
- - Global System for Mobile communications, or GSM
- - Local Multipoint Distribution System, or LMDS
- - Multi-channel, Multipoint Distribution System, or MMDS
- - Personal Communications System, or PCS
- - Third Generation wireless, or 3G
- - Time Division Multiple Access, or TDMA
Through our focused research and development efforts, we have designed and
continue to design components and subsystems that enable high speed wireless
access to the Internet and other broadband wireless applications. In addition,
we are developing and producing a diverse set of products and technologies to
support the latest generation of wireless communications systems, including 3G,
MMDS and LMDS. 3G is the first internationally agreed upon standard for a
packet-switched data network for mobile and fixed wireless communications
applications. Our customer base includes leading global OEMs that serve the
wireless, satellite and defense electronics markets, including:
- - Ericsson
- - Lucent Technologies
- - Motorola
- - Nortel Networks
- - Powerwave Technologies
- - Hughes
- - ITT Aerospace/Communications
- - Lockheed Martin
- - Loral Space & Communications
- - Northrop Grumman
- - Raytheon
INDUSTRY BACKGROUND
Worldwide demand for integrated voice, data and video communications
services is growing rapidly. The volume of high-speed data traffic across global
communications networks has grown dramatically as the public Internet and
private business intranets have become essential for daily communications and
electronic commerce. International Data Corporation, or IDC, has estimated that
the number of persons using the Internet to buy and sell goods and services was
approximately 142 million in 1998 and could exceed 500 million by 2003.
Servicing the increasing demand for higher bandwidth content and applications
requires cost-effective and high-speed connections, which are often unavailable
or inadequate over existing wire-based networks. For many users, wireless
communications provide an advantageous access solution for high-speed Internet
and multimedia services. This is underscored by the increasing number of
wireless subscribers worldwide. IDC has estimated that the number of wireless
users around the world is expected to continue to grow from approximately 300
million in 1998 to over 1.1 billion in 2003, as illustrated in the following
chart:
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30
[BAR CHART]
[A graph showing 303 million worldwide wireless subscribers in 1998, 427
million in 1999, 558 million in 2000, 725 million in 2001, 895 million in 2002,
and 1.1 billion in 2003, is provided. This graph also shows 823,000 worldwide
base station deployment in 1998, 1.3 million in 1999, 1.6 million in 2000, 1.8
million in 2001, 2.0 million in 2002, and 2.3 million in 2003.]
A Wireless Network
A typical mobile or fixed wireless communications system comprises a
geographic region containing a number of cells, each of which contains one or
more base stations, which are linked in a network to form a service provider's
coverage area. Each base station houses the equipment that receives incoming
telephone calls from the switching offices of the local wire-based telephone
company and broadcasts calls to the wireless users within the cell. A base
station can process a fixed number of radio channels through the use of multiple
transceivers, power amplifiers and tunable filters, along with an antenna to
transmit and receive signals to and from the wireless user.
Mobile Wireless Communications
The demand for mobile communications has grown significantly during the
past decade and has been fueled by a number of factors including:
- decreasing prices for wireless handsets and airtime;
- more favorable global communications regulatory environment;
- increasing competition among service providers; and
- greater availability of services and frequency spectrum.
Additionally, many developing countries are installing wireless networks as
an alternative to installing, expanding or upgrading traditional wire-based
networks.
Service providers are striving to keep up with the demand for mobile
wireless services by increasing the capacity of their existing base stations and
by adding more base stations to increase the number of frequency
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31
channels in their networks. Cellular service providers are upgrading their
legacy analog networks to digital networks, such as CDMA, TDMA, GSM and 3G,
which allow more calls per frequency channel and provide improved quality and
increased security. In addition, PCS service providers, which operate at a much
higher frequency than cellular service providers, are expanding the coverage of
their networks. PCS networks generally require a significantly larger number of
base stations than traditional cellular-based networks. As illustrated in the
chart above, Allied Business Intelligence has estimated that the number of base
stations deployed worldwide will increase from approximately 800,000 in 1998 to
approximately 2.3 million in 2003.
Fixed Broadband Wireless Communications
Fixed broadband wireless solutions provide meaningful advantages over
wire-based alternatives, such as digital subscriber lines, cable and fiber
optics. These advantages include significantly lower initial capital costs for
network equipment, reduced installation costs and more rapid deployment. In
addition, wireless solutions are particularly advantageous in areas where: a
wired infrastructure may be difficult to install or upgrade, minimal or no
communications infrastructure exists or geographically dispersed customers
render the installation of a wired infrastructure impractical or uneconomical.
Emerging fixed broadband wireless data transmissions systems have the
potential to further expand the market for wireless communications by allowing
service providers to increase revenue-generating traffic on their networks.
These systems include 3G, MMDS and LMDS. Broadband wireless technology is being
deployed by both incumbent and emerging service providers. The established
carriers are expected to use broadband wireless technology to reach customers
whom they previously could not serve, fill coverage gaps in their existing
networks and deploy value-added services, such as streaming video, multimedia
conferencing and high-speed Internet access, in a cost-effective manner. IDC has
estimated that United States revenue generated by basic services delivered via
fixed broadband wireless technologies will grow from $767 million in 1999 to
$7.4 billion in 2003.
Satellite Communications
Satellite communications currently serve several business and consumer
markets. Current satellite services include direct to home television, direct to
home Internet access, business to business data transmission, regional and
worldwide telephone services and worldwide paging. Several new services are
being planned to offer high-speed Internet access, videoconferencing, large
scale data transmission and other multimedia applications. These new services
will have significantly greater information content and will therefore require
the allocation of significantly more bandwidth than many current applications.
These large bandwidth allocations are not available at the operating frequencies
of current satellite systems. To address this problem, regulatory agencies
around the world have allocated additional frequency spectrum for two-way
transmission. The proposed systems to deliver these broadband services are
significantly more complex and will therefore require design advances in
on-board signal processing, on-board re-configuration of multi-beam antennas,
power handling and low-cost user equipment.
As demand for Internet access and other data-driven applications expands
rapidly, and as both commercial and residential consumers are increasingly
seeking efficient and effective means of access, satellite service providers are
entering the broadband wireless market. Some of the advantages of satellite
communications for this market are: global access to an existing satellite
infrastructure, the ability to cover large geographic areas, scalable deployment
and the ability to quickly reallocate capacity. Pioneer Consulting has estimated
that the number of subscribers to broadband satellite services will grow from
approximately 150,000 at the end of 1999 to approximately 21 million by the end
of 2005. There are several large-scale satellite communications projects in
various stages of development and implementation that are attempting to meet
this demand. These projects include Spaceway, Astrolink, Inmarsat 4, Teledesic
and SkyBridge.
Defense Electronics
Dataquest estimated that the radar, sonar and electronic warfare markets
will grow from $15.7 billion in 1998 to 18.0 billion in 2003. Recently, there
has been a shift in defense spending away from the development
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32
of new platforms and into technologies that improve the performance and
survivability of existing platforms. As a result, funding for advanced radar
systems, advanced jamming systems and smart munitions has continued. These
technologies enable the detection, identification, deception and elimination of
missile systems, a current focus of military planners.
THE ANAREN SOLUTION
Our technology addresses the increasing demands of the wireless market for
high quality products manufactured in volume with continuous improvements in
performance and cost. We also provide the satellite market with enabling
technologies that increase network capacity and flexibility, allowing for
increased revenue generation. Our proprietary Multi-Layer Stripline technology
allows us to provide compact, light weight, cost-effective, and highly
integrated microwave components, assemblies and subsystems. Our solution
includes:
Broad Array of Standard and Customized Products. We offer a broad array of
standard and custom microwave products to the mobile and fixed wireless,
satellite communications and defense electronics markets. The technologies
underlying our product portfolio allow us to address the new wireless data
communications products being developed by our existing and potential customers
with limited incremental investment. As the OEMs in the wireless communications
industry have been reducing the number of their suppliers, we believe that our
expanding product portfolio has helped us become a strategic supplier to many of
these OEMs.
Advanced Microwave Design and Manufacturing Capabilities. Our engineering
and design staff of 89 microwave engineers as of December 31, 1999 works with
our customers to develop system level solutions. Our engineers collaborate with
customers to develop products that provide state-of-the-art performance and that
can be manufactured in significant volume with excellent quality and
reliability. We have consistently met the stringent requirements of the wireless
and satellite communications markets due to our strengths in advanced packaging
and interconnecting of radio, microwave and extremely high frequency signals,
and our ability to produce small, light weight, cost-effective and efficient
microwave components and assemblies.
Rapid Product Development. Our integrated design and manufacturing
facilities allow us to produce custom solutions from concept to product delivery
in a matter of days. With our Multi-Layer Stripline technology, design
libraries, manufacturing experience and investment in automation, we can
facilitate a rapid transition from development to production, thereby offering
our customers a complete turnkey solution and allowing them to bring their
products to market faster.
Strong Customer Relationships. We believe that we have become an integral
part of our key customers' operations by working closely with them through the
entire development and production process. We assign a project engineer to each
customer to ensure a high level of responsiveness and customer service. The
project engineer and a design team assist our customers from the conceptual,
system level design stages through the development and manufacturing process. By
maintaining close contact with our customers' design engineering, manufacturing,
purchasing and project management personnel, we can better understand their
needs, rapidly develop customer-specific solutions and more effectively design
our solutions into our customers' systems and networks. We believe that our
strong customer support and depth of our customer relationships provide us a
competitive advantage.
STRATEGY
Our strategy is to continue to use our proprietary Multi-Layer Stripline
technology, extensive microwave design libraries and turnkey design, development
and manufacturing capabilities to further expand our penetration in the wireless
and satellite communications markets. Key components of our strategy include the
following:
Pursue New Wireless Markets. We have successfully penetrated the mobile
wireless market and intend to use our market position to pursue other wireless
markets, including the 3G and fixed broadband wireless
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markets. We intend to offer additional products and technologies to address
existing and developing wireless markets.
Increase Component Integration and Value Added Content. We plan to
continue to increase the value of our products in wireless and satellite
communications systems. We intend to expand our component offerings to enable us
to increase the number of our products in each base station. In addition, with
our Multi-Layer Stripline manufacturing technology, we intend to continue to
increase the functionality of our products, thereby enabling our customers to
continue to reduce the size and cost of their platforms, while we increase our
content value. As an example, we believe that the dollar value of our average
product content per base station has more than doubled between fiscal 1997 and
fiscal 2000. We are currently selling our integrated solutions to five of the
largest base station manufacturers for the wireless markets.
Strengthen and Expand Customer Relationships. Today, a limited number of
large systems manufacturers drives the wireless and satellite communications
markets. We have developed and plan to continue to expand our customer
relationships with many of these manufacturers, including Ericsson, Lucent,
Motorola, Nokia and Nortel Networks for wireless communications and Hughes,
Lockheed Martin, Loral Space & Communications and TRW for satellite
communications. We intend to further strengthen our customer relationships by
offering complete outsourcing solutions, from research and development through
product design and production, thereby increasing our customers' reliance on us.
Enhance Technology Leadership in Wireless Communications. We intend to use
our technological leadership in the mobile wireless and satellite markets to
extend our competitive advantage. We plan to pursue further technological
advances through continued investment in research and development. We will seek
to advance our leadership in wireless technology by developing next generation
products for the mobile and fixed broadband wireless markets. In addition, we
will build upon our relationships with key wireless OEMs in order to develop
state-of-the-art wireless products.
Expand Our Business through Strategic Acquisitions. We intend to make
opportunistic acquisitions of companies, product lines and technologies that
complement our business. By expanding our product offerings, we expect to better
serve the needs of our OEM customers. We intend to use our existing customer
relationships and distribution channels to sell these additional products.
TECHNOLOGY
Traditional stripline technology consists of circuit runs etched on
dielectric sheets, or thin teflon layers, which are then sandwiched in a
precision machined aluminum case. The case provides grounding on the top and
bottom, and also provides a structure on the edge for mounting connectors.
Integration is achieved through connecting multiple stripline components via
numerous cables.
Multi-Layer Stripline technology is a technique of processing stripline
circuits, in which multiple layers of etched stripline circuits are laminated
together in a manner that is similar to printed circuit board, or PCB,
manufacturing, but with superior microwave characteristics. Similar to
traditional PCB manufacturing, holes are used to interconnect layers. Our
proprietary techniques enable us to implement multi-layer connections that
perform optimally at microwave frequencies. Unlike traditional PCB
manufacturing, simply connecting the appropriate points on the multi-layer board
does not ensure adequate performance. In order to achieve optimal microwave
performance on a consistent basis, material and process variations must be
tightly controlled and the circuit design must take into consideration
variations in the manufacturing process. Our microwave design engineering staff
has developed proprietary modeling techniques and component design libraries
that allow for consistent and efficient design and production of complex
microwave products.
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The figures below depict our Multi-Layer Stripline technology and our
AdrenaLine products based upon that technology:
[MULTI-LAYER STRIPLINE GRAPHIC]
LOGO
[GRAPHICS OF MULTI-LAYER STRIPLINE AND ADRENALINE AMPLIFIER]
Our microwave antenna beamforming technology, coupled with our Multi-Layer
Stripline manufacturing process, produces light weight, cost-effective
beamforming assemblies for communication satellites. These beamforming
assemblies provide multibeam coverage where the size and direction of beams is
fixed. Additionally, we are utilizing our Multi-Layer Stripline technology and
microwave design experience to develop cost-effective solutions for wireless
high data rate transmission applications, such as Internet access and multimedia
communications. In conjunction with Raytheon Company, we developed a next
generation Multi-Layer Stripline technology to address applications at extremely
high frequencies. In addition, we have developed high density microwave switch
matrices by incorporating active microwave switches into our passive Multi-Layer
Stripline technology. We are currently qualifying a production subsystem for a
communications satellite program. These switch matrices are a key element in
providing the flexibility that system designers desire.
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PRODUCTS
Wireless Communications
We provide microwave components, assemblies and subsystems to leading
wireless infrastructure equipment manufacturers. We believe that our products
are used in most wireless base stations. Traditionally, all of the signal
distribution, or combining and splitting, within a base station has been
accomplished with discrete signal distribution components and coaxial cables.
Through the use of our Multi-Layer Stripline technology, we provide microwave
components, assemblies and subsystems that eliminate the need for discrete
components and interconnecting cables. These integrated assemblies, which range
from simple splitting and combining networks to complete microwave backplanes,
distribute microwave signals throughout the base stations, from reception at the
antenna, to multiple radios, to multiple amplifiers, and back to the antenna for
transmission. The figure below depicts the locations within a typical base
station where our products are commonly used.
LOGO
[Graphic showing path of signals from antenna to base station, through the
interior of the base station and back out to antenna. The location of our Xinger
and custom products used in power amplifiers is identified. Locations showing
areas of opportunity for our signal distribution/combination assemblies are
shown. The caption reads as follows: "Signals that are received from a
subscriber's handset at the base station antenna are distributed to one of
several radios within the base station to be processed and to be passed to the
digital wire-based network. The radios also take the incoming signals from the
wire-based network, process them for transmission and distribute them to power
amplifiers to boost the strength of the signal. The amplified signals are then
combined and sent back out the base station antenna to the subscriber's
handset."]
We have developed our product offerings to enable our customers to reduce
the size and cost while enhancing the performance of their equipment. We
continually invest capital and resources to enhance existing products as well as
develop new products to address the latest market demands. We have developed and
continue to market a full line of standard products, as well as custom products,
to wireless OEMs. A brief description of our major product categories is as
follows:
Xinger Surface Mount Components. Our Xinger line of products are
off-the-shelf surface mount microwave components which provide passive microwave
signal distribution functions. They were originally developed to provide a
low-cost signal distribution component, which could be placed on standard PCBs
with automated production equipment. The primary application of these products
is in radio frequency, or RF, power amplifiers, but they are also found in
low-noise amplifiers and radios. We believe we are currently the market leader
in this product area, supplying industry leading OEMs such as Ericsson, Lucent,
Motorola and Nokia, as well as leading power amplifier manufacturers such as
Powerwave Technologies and Spectrian. We are investing to expand this product
line, as well as expand our addressable market. In addition, we have one patent,
and have filed several other patent applications, to protect both the
construction and product design.
AdrenaLine Power Splitting and Combining Networks. We developed the
AdrenaLine product line to provide a low-cost, high-performance network to
combine individual power modules. These products enable our customers to produce
smaller, lower cost, more efficient power amplifiers. We have teamed with
Motorola's Semiconductor Product Sector in developing and marketing AdrenaLine
as an effective means of
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integrating power transistors. AdrenaLine supports all major wireless standards
and frequencies, including the unique power demands of the new 3G standard.
Custom Splitting and Combining Products. In addition to our standard
products, we offer a wide range of custom splitting solutions. These custom
solutions are typically used to distribute signals to and from radio
transceivers and power amplifiers. Our custom products offer consistent
performance and can be designed in unique configurations, allowing base station
designers an opportunity to greatly reduce space, complexity and cost while
enhancing performance.
Custom RF Backplane Assemblies. Our RF backplanes provide efficient
connections of microwave signals between subsystems in wireless base stations.
RF backplanes are similar to the motherboard in a personal computer, which
efficiently connects signals between multiple subsystems. These assemblies range
from RF-only to fully integrated RF, direct current power, and signal routing
solutions. They are typically used in conjunction with radio transceivers and RF
power amplifiers.
Hybrid Matrix Assemblies. Our hybrid matrix assemblies allow our customers
to effectively reduce the number of amplifiers in their base stations. Base
station amplifier systems are designed to handle peak usage, when maximum calls
are made over a network. Due to the sector coverage of typical base stations,
some amplifiers are heavily used while others are not. Our matrices allow the
spreading of high usage volume over all base station amplifiers, permitting a
reduction in the total number of amplifiers needed.
Space and Defense
We are a leading supplier of passive beamforming networks for use in
multi-beam antennas critical to the success of communications satellites. Our
Multi-Layer Stripline technology enables us to provide our customers with highly
complex beamforming networks that maintain high performance, while reducing size
and weight. Each of these products is specifically designed for a particular
satellite program, and each design determines the number, size and quality of
beams that are produced from the satellite's antenna. Multi-Layer Stripline
technology can be used at extremely high microwave frequencies, making it well
positioned to support our customers' requirements for the next generation of
satellite programs.
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[MULTI-BEAM MICROWAVE GRAPHIC]
[Graphic showing two communications stations on the ground transmitting
information to two orbiting satellites. A group of satellites form a grid in the
sky, with two communications satellites forming multiple beams, which are
projected on the ground, to allocate capacity based on the projected demand. The
caption reads as follows: "Multi-beam transmission allows different beams to use
the same frequency for different callers, thereby expanding caller capacity with
the same amount of frequency allocation."]
We are also a leading supplier of electronic subsystems and passive feed
networks to the defense electronics market. Our electronic subsystems utilize
several technologies including Multi-Layer Stripline, application specific
integrated circuits and signal processing technologies.
A brief description of our major product categories is as follows:
Passive Beamformers: These passive beamformers determine the number, size
and quality of beams that are produced from an antenna array. These products are
essential to allowing satellite communications providers the most efficient use
of their allocated spectrum.
Switch Matrices: Switch matrices route RF signals from a single location
to one or multiple end user locations. These products allow satellite operators
to allocate satellite capacity as required, thereby increasing utilization and
revenue generation.
Radar Feed Networks: Radar feeds are power dividers that distribute RF
energy to the antenna elements of the radar. The power dividers are arranged to
provide two or three inputs and several thousand outputs.
Defense Radar Countermeasure Subsystems: Defense radar countermeasure
subsystems digitally measure, locate and counter enemy radar systems.
CUSTOMERS
During the six months ended December 31, 1999, approximately 55% of our
sales were to customers in the wireless markets and 45% of our sales were to
customers in the space and defense markets. We had two customers who each
accounted for more than 10% of our net sales. Approximately 19% of our net sales
were to Motorola through our wireless group and approximately 13% of our net
sales were to Lockheed Martin through our space and defense group.
Wireless Communications. We sell our standard line of Xinger components to
leading OEMs and a broad range of other wireless equipment manufacturers. In
addition, we sell our custom wireless products to major wireless infrastructure
OEMs. In general, our customers have purchased our products directly from us
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or through distributors or contract manufacturers. The following is a list of
our customers who generated $500,000 or more in revenues in the six months ended
December 31, 1999:
- Avnet
- BFI Optilas
- Ericsson
- Lucent Technologies
- Motorola
- Nortel Networks
- Powerwave Technologies
- Spectrian
Space and Defense. We currently sell satellite communications subsystems
to many of the world's leading satellite manufacturers. Our subsystems are found
on communications satellites. We are now actively involved in developing
products for a number of major satellite programs. We also sell defense
electronics products to prime contractors serving the United States and foreign
governments. The following is a list of the customers who generated $500,000 or
more in revenues in the six months ended December 31, 1999:
- Hughes
- ITT Aerospace/Communications
- Lockheed Martin
- Loral Space & Communications
- Raytheon
- Northrop Grumman
SALES AND MARKETING
We market our products worldwide to OEMs in wireless and satellite markets
and prime contractors in defense markets primarily through a sales force of 19
people as of December 31, 1999. The sales force is generally organized by
geographic territory and market segment. In addition, as of December 31, 1999,
we had contracts with one major distributor, Avnet, and with 17 manufacturers'
representatives in the United States and 24 international representatives
located in Western Europe, the Middle East and Asia. As part of our marketing
efforts, we advertise in major trade publications, attend major industry shows
and maintain a website on the Internet. Recently, we have invested significantly
in our Internet website which contains an electronic version of our entire
catalog. In addition, we provide the ability to download important device
parameter files. These files contain the performance information for the catalog
parts in a format which is compatible with commonly used computer aided
design/computer aided modeling, or CAD/CAM equipment. We also provide mechanical
drawings and applications notes for proper use of the parts. This service allows
designers to get the information they require and to easily incorporate our
parts into their designs.
After we have identified key potential customers, we make sales calls with
our own sales, management and engineering personnel and our manufacturers'
representatives. In order to promote widespread acceptance of our products and
provide customers with support for their wireless communications needs, our
sales and engineering teams work closely with our customers to develop solutions
tailored for their wireless requirements. We believe that our customer
engineering support, staffed with 89 design and engineering professionals as of
December 31, 1999, is a key competitive advantage.
We use distributors for our standard products, most notably the Xinger line
of surface mount components. In the United States, Canada, Asia and most of
Europe, we have exclusive agreements with Avnet, which operates under the name
of BFI Optilas in Europe. The Scandinavian countries are handled by Setron, a
subsidiary of Elektronikgruppen. Distribution has become an important part of
our sales efforts as it has provided us with a larger sales force to promote our
catalog offerings. We are also seeing a trend on the part of our customers to
consolidate their material handling activities, including purchasing,
warehousing, and fulfillment. The result is that many OEMs are outsourcing all
or part of these activities to large distribution firms like Avnet.
BACKLOG
Our backlog of orders for the wireless group was $4.5 million as of
December 31, 1999 and $2.8 million as of December 31, 1998. Backlog for the
wireless group primarily represents firm orders for surface mount products and
signed purchase orders for custom components due to ship within the next four to
six weeks. However, backlog is not necessarily indicative of future sales.
Accordingly, we do not believe that our
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backlog as of any particular date is representative of actual sales for any
succeeding period. Typically, large OEMs including Ericsson, Lucent, Motorola,
Nokia and Nortel, who use our surface mount and custom products, negotiate set
prices for estimated annual volumes. We receive weekly orders one week prior to
shipment. We do not recognize backlog until we have received a firm order.
As part of our close working relationships with major wireless
communications customers, they expect us to respond quickly to changes in the
volume and delivery schedule of their orders and, if necessary, to inventory
products at our facilities for just-in-time delivery. Therefore, although
contracts with these customers typically specify aggregate dollar volumes of
products to be purchased over an extended time period, these contracts also
provide for delivery flexibility, on short notice. In addition, our customers
may cancel or defer orders without significant penalty.
Our backlog of orders for the space and defense group was $40.8 million as
of December 31, 1999 and $27.5 million as of December 31, 1998. During the last
six months of fiscal 2000, we expect to ship between $10 million and $11 million
of our backlog existing at December 31, 1999. All of the orders included in the
space and defense group backlog are covered by signed contracts or purchase
orders. However, backlog is not necessarily indicative of future sales.
Accordingly, we do not believe that our backlog as of any particular date is
representative of actual sales for any succeeding period.
RESEARCH AND DEVELOPMENT
Our research and development efforts are focused on the design, development
and engineering of both products and manufacturing processes. We intend to focus
our future research and development efforts on next generation products and
technologies. Our current development efforts include:
- advanced Multi-Layer Stripline manufacturing processes for use in
low-cost, light weight satellite and wireless applications;
- products for use in mobile and fixed wireless applications;
- advanced manufacturing technology to produce microwave stripline
structures for broadband millimeter wave, or extremely high frequency,
communications satellite applications;
- advanced low temperature co-fired ceramic for use in low-cost, light
weight satellite and wireless applications; and
- broadband wireless technologies for high-speed Internet access.
These activities include customer-funded design and development, as well as
efforts funded directly by us. Our own research and development expenses were
$1.5 million for the six months ended December 31, 1999, $2.8 million in fiscal
1999, $1.4 million in fiscal 1998 and $540,000 in fiscal 1997. Research and
development costs are charged to expense as incurred.
In addition, our net sales included approximately $2.0 million for the six
months ended December 31, 1999, approximately $1.4 million for fiscal 1999,
approximately $1.9 million in fiscal 1998 and approximately $6.2 million in
fiscal 1997 attributable to payments by customers for the design and development
of products within the space and defense group to meet their specific
requirements. In any given year, the amount of customer funding for design and
development can vary widely depending upon the status of particular contracts.
We are typically not restricted in our use of technologies developed through
customer funding for other applications.
MANUFACTURING
We continue to invest in the advancement of our proprietary Multi-Layer
Stripline manufacturing processes and in the automation of the manufacturing
processes of products for our wireless group. Automation is critical in meeting
our customers' demands for lower prices, high quality and on-time delivery. We
are also investing to enhance our responsiveness to increased production demands
from our wireless
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customers, as well as the need to accommodate unpredictable surges in production
rates that are common in this market.
In July 1999, we began a major renovation and upgrade to our manufacturing
facility, located at our headquarters in East Syracuse, New York, in order to
increase our current capacity and improve our response time to our customers.
Toward this end, we have continued to invest in automated design and
manufacturing equipment to reduce production times and we reorganized our entire
manufacturing and engineering facilities to allocate more space and provide for
a better workflow for our wireless group. Additionally, we have created
specialized work areas and manufacturing cells required by our space and defense
group in order to meet the demanding specifications of our space customers.
These renovations are expected to provide us with the necessary manufacturing
capability and capacity to meet our anticipated customer delivery demands over
the next 18 to 24 months. This facility became ISO 9001 certified on July 19,
1999.
We manufacture our products from standard components, as well as from items
which are manufactured by vendors to our specifications. A majority of our
commercial and defense electronics assemblies and subsystem products contain
proprietary Multi-Layer Stripline technology which is designed and tested by our
engineers and technicians and is manufactured at our facilities.
The raw materials utilized in our various product areas are generally
accessible and common to both of our business segments. We purchase most of our
raw materials from a variety of vendors and most of these raw materials are
available from a number of sources. During the first six months of fiscal 2000,
we have purchased approximately 11% and 10% of our total raw materials from two
vendors, but we believe that alternate sources of supply are generally available
for these and all other raw materials.
COMPETITION
The microwave component and subsystems industry is highly competitive. We
compete against many companies, both foreign and domestic, many of which are
larger and have greater financial and other resources. As a direct supplier to
OEMs, we also face significant competition from the in-house capabilities of our
customers. Recently, however, in the wireless market, many of the OEMs are
increasing the amount of design and production they are outsourcing, thereby
freeing up their internal resources for other use. Internal customer competition
exists predominantly in our satellite business. Our direct competitors in the
wireless market include KDI, M/A-com, a division of Tyco International, Merrimac
Industries and Mini-Circuits.
The principal competitive factors in both the foreign and domestic markets
are technical performance, reliability, ability to produce in volume, on-time
delivery and price. Based on these factors, we believe that we compete favorably
in our markets. We feel that we are particularly strong in the areas of
technical performance and on-time delivery in the wireless marketplace.
GOVERNMENT REGULATION
Our products are incorporated into wireless communications systems that are
subject to regulation domestically by the Federal Communications Commission and
internationally by other government agencies. In addition, because of our
participation in the defense industry, we are subject to audit from time to time
for compliance with government regulations by various governmental agencies. We
are also subject to a variety of local, state and federal government regulations
relating to environmental laws, as they relate to toxic or other hazardous
substances used to manufacture our products. We believe that we operate our
business in material compliance with applicable laws and regulations.
INTELLECTUAL PROPERTY
Our success depends to a significant degree upon the preservation and
protection of our product and manufacturing process designs and other
proprietary technology. To protect our proprietary technology, we generally
limit access to our technology, treat portions of our technology as trade
secrets and obtain confidentiality or non-disclosure agreements from persons
with access to our technology. Our agreements with our employees prohibit them
from disclosing our confidential information, technology developments and
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business practices, and from disclosing any confidential information entrusted
to us by other parties. Our consultants who have access to our confidential
information generally sign an agreement requiring them to keep confidential and
not disclose our non-public, confidential information. We also rely on
protections available under trade secret, copyright and trademark law. We have
recently filed four United States patent applications regarding new our wireless
products. We plan to pursue intellectual property protection in foreign
countries, primarily in the form of international patents, in instances where
the technology covered is considered important enough to justify the added
expense.
EMPLOYEES
As of December 31, 1999, we employed 303 people full time. Of these
employees, 89 were members of the engineering staff, 172 were in manufacturing,
19 were in sales and marketing positions, and 23 were in management and support
functions. None of our employees are represented by a labor union, and we have
not experienced any work stoppages. We consider employee relations to be
excellent.
FACILITIES
Our principal facility is a 105,000 square foot building, which we own,
located on a 30 acre parcel in East Syracuse, New York. The building currently
houses nearly all of our marketing, manufacturing, administrative, research and
development, systems design and engineering activities. We believe that our
existing facility is adequate to meet current needs and that suitable additional
space will be available to us, as needed, at reasonable commercial terms.
Additionally, we lease a 20,000 square foot building in Frimley, England
which we sublet. Annual rental cost of this facility is approximately $430,000
and we are currently subletting the building. During the six months ended
December 31, 1999, payments to us under this sublease were at more than 90% of
the full lease value. The existing lease term on this building runs to 2014. We
do not know whether we will be able to continuously sublet the building during
the remaining lease term so as to offset our rental cost in whole or in part.
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MANAGEMENT
Our executive officers and directors, and their ages as of February 29,
2000, are as follows:
NAME AGE POSITION
- ---- --- --------
Lawrence A. Sala............ 37 President, Chief Executive Officer and Director
Hugh A. Hair................ 65 Chairman of the Board
Carl W. Gerst, Jr........... 62 Chief Technical Officer, Treasurer and Vice Chairman
Gert R. Thygesen............ 44 Vice President, Operations
Joseph E. Porcello.......... 48 Vice President, Finance
Stanley S. Slingerland...... 52 Vice President, Human Resources
Mark P. Burdick............. 41 Vice President and General Manager, Wireless Group
Timothy P. Ross............. 41 Vice President and General Manager, Space and Defense Group
Thomas J. Passaro, Jr....... 38 Vice President and President of RF Power Components
Herbert I. Corkin........... 77 Director
Dale F. Eck................. 57 Director
Brian P. Kelly.............. 40 Director
Abraham Manber.............. 71 Director
Matthew S. Robison.......... 39 Director
Dr. David Wilemon........... 62 Director
Set forth below is certain information relating to our executive officers
and directors.
Lawrence A. Sala joined our company in 1984. He has been President since
May 1995 and has served as Chief Executive Officer since September 1997. Before
May 1995, Mr. Sala served as Vice President of Marketing. Mr. Sala became a
member of our board of directors in 1995. He holds a bachelor's degree in
computer engineering, a master's degree in electrical engineering and a master's
degree in business administration, all from Syracuse University.
Hugh A. Hair has been a member of our board of directors since 1968 and has
served as Chairman of the Board since 1968. Mr. Hair served as President from
our founding until May 1995 and as Chief Executive Officer from our founding
until September 1997. He holds a bachelor of science degree from the University
of Glasgow, Scotland.
Carl W. Gerst, Jr. has been a member of our board of directors since 1968.
Mr. Gerst has served as Chief Technical Officer and Vice Chairman of the Board
since May 1995 and as our Treasurer since May 1992. Mr. Gerst previously served
as our Executive Vice President from our founding until May 1995. He holds a
bachelor's degree from Youngstown University and a master's degree in business
administration from Syracuse University.
Gert R. Thygesen joined our company in 1981 and has served as our Vice
President, Operations since April 1995. He previously served as our Operations
Manager from 1992 until 1995 and as our Program Manager, Digital RF Memories &
Advanced Systems, from 1988 to 1992. Mr. Thygesen holds a bachelor of science
degree and a master's degree in electrical engineering from Aalborg University
Center, Denmark.
Joseph E. Porcello joined our company in 1977 and has served as our Vice
President, Finance, since May 1995. He previously served as our Controller from
1981 to 1999. Mr. Porcello holds a bachelor's degree from the State University
of New York at Buffalo and is a certified public accountant.
Stanley S. Slingerland joined our company in 1980 and has served as our
Vice President, Human Resources since November 1996. He previously served as
Human Resource Manager until 1996. Mr. Slingerland holds a bachelor's degree
from Hope College.
Mark P. Burdick has been with us since 1978 and has served as Vice
President and General Manager, Wireless Group since November 1999. He served as
our Business Unit Manager -- Commercial Products from 1994 to 1999 and as our
Group Manager for Defense Radar Countermeasure Subsystems from 1991 to
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1994. Mr. Burdick holds a bachelor of science in electrical engineering from the
Rochester Institute of Technology.
Thomas J. Passaro, Jr., joined our company in February 2000 in connection
with our acquisition of RF Power Components. He serves as a Vice President of
our company and as President of RF Power Components. Mr. Passaro, a co-founder
of RF Power Components, served as its President from June 1998 to February 2000
and as its Vice President from 1988 to June 1998.
Timothy P. Ross has been with our company since 1982 and has served as our
Vice President and General Manager, Space and Defense Group since November 1999.
He served as our Business Unit Manager -- Satellite Communications from 1995 to
1999 and as a Program Manager from 1988 to 1995. Mr. Ross holds an associate's
degree in engineering science and a bachelor of science in electrical
engineering from Clarkson University.
Herbert I. Corkin has served as a member of our board of directors since
1989. Mr. Corkin has been Chairman of the Board of The Entwistle Company, a
defense contractor, since 1959. Mr. Corkin also served as the Chief Executive
Officer of The Entwistle Company since December 1993 and served as its President
from 1959 through December 1993.
Dale F. Eck has served as a member of our board of directors since 1995.
Mr. Eck was Vice President of Finance and Treasurer of The Entwistle Company
from 1978 until his retirement in February 1997. Mr. Eck has also served as a
director of The Entwistle Company since 1978. Mr. Eck has provided consulting
services to us since March 1997. He holds a bachelor's degree from Augustana
College and a master's degree in business administration from Harvard Business
School.
Brian P. Kelly has served as a member of our board of directors since 1999.
He is a co-founder of Telergy, a regional integrated communications provider,
and has served as Chairman of the Board of Directors and Chief Executive Officer
of Telergy since its inception in April 1995. From 1986 until 1995, Mr. Kelly
served as President of Communications Management Systems, a communications
billing services provider specializing in the health care industry.
Abraham Manber has served as a member of our board of directors since 1971.
Mr. Manber has been President of Ad Connect, an advertising and promotional
imprint sales firm, since January 1998. Mr. Manber was President of Amtech
Patent Licensing Corp. from 1979 until his retirement from Amtech in March 1993.
He holds a degree from the College of the City of New York.
Matthew S. Robison has served as a member of our board of directors since
1999. Mr. Robison has been Vice President Senior Analyst-Technology of Ferris,
Baker Watts Incorporated since January 1999. Mr. Robison previously served as a
General Partner and Analyst of Botti Brown Asset Management from January 1997
until January 1999, and as Vice President and Analyst for Montgomery Securities
from October 1994 until January 1997. Mr. Robison is a member of the board of
directors of Telaxis Communications Corporation, a provider of broadband
wireless access equipment. Mr. Robison holds a bachelor of sciences in physics
from the University of Denver.
Dr. David Wilemon has served as a member of our board of directors since
1997. Dr. Wilemon has been a Professor of Marketing and Innovation Management at
the Syracuse University School of Management since 1966. He has also served as
Director of the Synder Innovation Management Program at the Syracuse University
since 1980 and as Co-Director of the Entrepreneurship and Emerging Enterprises
Program there since 1993. Dr. Wilemon is a consultant to several
technology-based companies.
At the 1999 annual meeting of shareholders, our shareholders voted to
classify the board of directors into three classes as nearly equal in number as
possible. At this meeting, in order to transition to a classified board, our
shareholders also elected the members of the board for terms of one year for
class I directors, two years for class II directors and three years for class
III directors. The class I directors, Messrs. Carl W. Gerst, Jr., Abraham Manber
and Brian P. Kelly, will hold office until the 2000 annual meeting of
shareholders. The class II directors, Messrs. Hugh A. Hair, Herbert I. Corkin
and Matthew S. Robison, will hold office until the 2001 annual meeting. The
class III directors, Messrs. Lawrence A. Sala, Dale F. Eck and
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Dr. David Wilemon, will hold office until the 2002 annual meeting. After this
interim arrangement, members of each class will serve for three years with one
class being elected each year. Officers are elected at the first board of
directors meeting following the shareholders' meeting at which directors are
elected, and serve at the discretion of our board of directors. There are no
family relationships among our directors or officers.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table provides information regarding the beneficial ownership
of our common stock as of February 29, 2000 by:
- each director;
- our named executive officers;
- all of our executive officers and directors as a group;
- all those known by us to be beneficial owners of more than five percent
of our common stock; and
- each of the selling shareholders.
The table is based upon information supplied by our executive officers,
directors and principal shareholders and filings with the Securities and
Exchange Commission. Unless otherwise indicated in the footnotes to this table
and subject to community property laws where applicable, we believe that each of
the shareholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned by them. Percentage
ownership is based on 5,674,209 shares outstanding on February 29, 2000, and
6,997,209 shares outstanding immediately following the completion of this
offering, adjusted as required by rules promulgated by the SEC.
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO THE OWNED AFTER THE
OFFERING (INCLUDING OFFERING
SHARES ISSUABLE THE NUMBER OF (INCLUDING THE
PURSUANT TO SHARES NUMBER NUMBER OF SHARES
OPTIONS SHOWN IN THE FIRST OF SHOWN IN THE FIRST
EXERCISABLE WITHIN COLUMN) SHARES COLUMN)
60 DAYS OF ------------------- BEING -------------------
BENEFICIAL OWNER FEBRUARY 29, 2000 NUMBER PERCENT OFFERED NUMBER PERCENT
- ---------------- ------------------ -------- -------- ------- -------- --------
Kern Capital Management, LLC. ... -- 821,000 14.5% -- 821,000 11.7%
Suite 1926
114 West 47th Street
New York, NY 10036
Global Securities, Inc........... -- 562,800 10.0 200,000 362,800 5.2
P.O. Box 560
Sudbury, MA 01776
Bank of America Corporation...... -- 414,500 7.3 -- 414,500 5.9
110 South Tryon Street
Charlotte, NC 38255
AmvesCap PLC..................... -- 373,400 6.6 -- 373,400 5.3
11 Devonshire Square
London EC2M 4YR
England
Lawrence A. Sala(1).............. 73,000 84,700 1.5 20,000 64,700 *
Hugh A. Hair(2).................. 2,000 20,500 * -- 20,500 *
Carl W. Gerst, Jr.(3)............ 2,000 266,700 4.7 57,000 209,700 3.0
Gert R. Thygesen(4).............. 28,700 32,200 * -- 32,200 *
Joseph E. Porcello(5)............ 19,500 20,500 * -- 20,500 *
Abraham Manber................... 2,000 5,000 * -- 5,000 *
Dale F. Eck...................... 7,500 17,500 * -- 17,500 *
Herbert I. Corkin(6)............. -- 16,000 * -- 16,000 *
Dr. David Wilemon................ 16,500 16,500 * -- 16,500 *
Matthew S. Robison............... 12,500 12,500 * -- 12,500 *
Brian P. Kelly................... 10,000 10,000 * -- 10,000 *
Directors and executive officers
as a group (15 persons)(7)..... 181,100 565,017 9.6 77,000 488,017 6.8
44
46
- ---------------
* Indicates less than 1%
(1) Includes 6,500 shares of restricted stock. The restrictions will terminate
in May 2003.
(2) Includes 6,700 shares owned by Mr. Hair's wife.
(3) Includes 4,500 shares owned by Mr. Gerst's wife.
(4) Includes 1,500 shares of restricted stock. The restrictions will terminate
in May 2003.
(5) Includes 1,000 shares of restricted stock. The restrictions will terminate
in May 2003.
(6) Includes 1,000 shares owned by The Entwistle Company, of which Mr. Corkin is
Chairman, Chief Executive Officer and a majority shareholder. Does not
include 562,800 shares owned by Global Securities, Inc., as to which shares
Mr. Corkin, the owner of 24% of the capital stock of Global, disclaims
beneficial ownership.
(7) Includes an aggregate of 13,000 shares of restricted stock held by our
directors and executive officers. The restrictions will terminate in May
2003.
45
47
UNDERWRITING
Anaren and the selling shareholders are offering the shares of common stock
described in this prospectus through a number of underwriters. Banc of America
Securities LLC, CIBC World Markets Corp., Needham & Company, Inc. and Pacific
Growth Equities, Inc. are the representatives of the underwriters. Anaren and
the selling shareholders have entered into a firm commitment underwriting
agreement with the representatives. Subject to the terms and conditions of the
underwriting agreement, Anaren and the selling shareholders have agreed to sell
to the underwriters, and each underwriter has agreed to purchase, the number of
shares of common stock listed next to its name below at the public offering
price less the underwriting discount and commissions on the cover page of the
prospectus:
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
Banc of America Securities LLC..............................
CIBC World Markets Corp.....................................
Needham & Company, Inc......................................
Pacific Growth Equities, Inc................................
---------
Total.................................................. 1,600,000
=========
The underwriting agreement is subject to a number of terms and conditions
and provides that the underwriters must buy all of the shares if they buy any of
them. The underwriters will sell the shares to the public when and if the
underwriters buy the shares from us and the selling shareholders.
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters may
also allow, and any other dealers may reallow, a concession of not more than
$ per share to some other dealers. If all the shares are not sold at the
public offering price, the underwriters may change the public offering price and
the other selling terms. No change in the selling terms will vary the proceeds
to be received by us as specified on the cover page to the prospectus. The
common stock is offered subject to a number of conditions, including:
- receipt and acceptance of the common stock by the underwriters; and
- the right on the part of the underwriters to reject orders in whole or in
part.
We have granted the underwriters an option to buy up to 240,000 additional
shares of common stock. These additional shares would cover sales of shares by
the underwriters that exceed the number of shares specified in the table above.
The underwriters may exercise this option at any time within 30 days after the
date of this prospectus. If the underwriters exercise this option, they will
each purchase, subject to a number of terms and conditions, additional shares
approximately in proportion to the amounts specified in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters. These amounts are shown assuming
no exercise and full exercise of the underwriters' option to purchase additional
shares.
NO EXERCISE FULL EXERCISE
----------- -------------
Per share underwriting discounts and commissions............ $ $
Total underwriting discounts and commissions to be paid by
us........................................................ $ $
Total underwriting discounts and commissions to be paid by
the selling shareholders.................................. $ $
The expenses of the offering, not including underwriting discounts and
commissions, are estimated to be approximately $550,000 and will be paid by us
and the selling shareholders. Expenses of the offering, exclusive of
underwriting discounts and commissions, include the SEC filing fee, printing
expenses, transfer agent and registration and other miscellaneous fees.
46
48
We, our executive officers and directors, and the selling shareholders have
entered into lock-up agreements with the underwriters. Under these agreements,
subject to exceptions, we may not issue any new shares of common stock, and our
executive officers and directors and the selling shareholders may not offer,
sell, contact to sell, or otherwise dispose of or hedge any common stock or
securities convertible into or exchangeable for shares of common stock. These
restrictions will be in effect for a period of 90 days after the date of this
prospectus, At any time and without notice, Banc of America Securities LLC may,
in its sole discretion, release all or some of the securities from these lock-up
agreements.
We and the selling shareholders will indemnify the underwriters against
some liabilities, including some liabilities under the Securities Act. If we or
the selling shareholders are unable to provide this indemnification, we and the
selling shareholders will contribute to payments the underwriters may be
required to make in respect of those liabilities.
In connection with this offering, the underwriters may engage in activities
that stabilize, maintain or otherwise affect the price of the common stock.
These transactions may include:
- short sales;
- over-allotment;
- purchases to cover positions created by short sales; and
- stabilizing transactions.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. In order to cover a
short position, the underwriters may bid for and purchase shares of common stock
in the open market or may exercise their over-allotment option. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
As a result of these activities, the price of the common stock may be
higher than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.
In connection with this offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may engage
in passive market making transactions in the common stock on the Nasdaq National
Market in accordance with Rule 103 of Regulation M. Rule 103 permits passive
market making during the period when Regulation M would otherwise prohibit
market making activity by the participants in this offering. Passive market
making may occur during the business day before the pricing of the offering,
before the commencement of offers or sales of the common stock. Passive market
makers must comply with applicable volume and price limitations and must be
identified as a passive market maker. In general, a passive market maker must
display its bid at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, the bid must then be lowered when purchase limits are exceeded.
Net purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
common stock during a specified period and must be discontinued when such limit
is reached. Underwriters and dealers are not required to engage in passive
market making and may end passive market making activities at any time.
47
49
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for us by Bond, Schoeneck & King, LLP, Syracuse, New York. David M.
Ferrara, Esq., a member of Bond, Schoeneck & King, LLP, serves as our General
Counsel and Secretary. In addition, certain members of that firm beneficially
own an aggregate of 11,240 shares of our common stock, including shares subject
to options exercisable within 60 days of this prospectus. Certain legal matters
in connection with this offering will be passed upon for the underwriters by
Foley, Hoag & Eliot LLP, Boston, Massachusetts.
EXPERTS
Our consolidated financial statements as of June 30, 1998 and 1999, and for
each of the years in the three year period ended June 30, 1999, have been
included in this prospectus and in the related registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere in this prospectus, and upon the authority of that firm as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are a reporting company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission, or the SEC. You may read and copy such materials at the public
reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may also obtain copies of such material from the SEC
at prescribed rates for the cost of copying by writing to the Public Reference
Section of the SEC at the same address. You may call the SEC at 1-800-SEC-0330
for more information on the public reference rooms. You can also find our SEC
filings at the SEC's web site at www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:
- Annual Report on Form 10-K for the year ended June 30, 1999 filed on
September 27, 1999;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 1999
filed on November 5, 1999;
- Quarterly Report on Form 10-Q for the quarter ended December 31, 1999
filed on February 11, 2000;
- Proxy Statement on Schedule 14A for our 1999 Annual Meeting filed on
September 27, 1999; and
- The description of the common stock contained in our Registration
Statement on Form 8-A filed in November 1972.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address:
Anaren Microwave, Inc.
6635 Kirkville Road
East Syracuse, New York 13057
(315) 432-8909
48
50
ANAREN MICROWAVE, INC.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of June 30, 1998 and 1999
(audited) and December 31, 1999 (unaudited)............... F-3
Consolidated Statements of Operations for the years ended
June 30, 1997, 1998, and 1999 (audited) and the six months
ended December 31, 1998 and 1999 (unaudited).............. F-4
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1997, 1998, and 1999 (audited) and
the six months ended December 31, 1999 (unaudited)........ F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1998, and 1999 (audited) and the six months
ended December 31, 1998 and 1999 (unaudited).............. F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
51
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Anaren Microwave, Inc.:
We have audited the accompanying consolidated balance sheets of Anaren
Microwave, Inc. and subsidiaries as of June 30, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three year period ended June 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Anaren Microwave,
Inc. and subsidiaries as of June 30, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three year period
ended June 30, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Syracuse, New York
August 2, 1999
F-2
52
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30,
------------------ DECEMBER 31,
1998 1999 1999
------- ------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................ $11,249 $13,482 $ 6,068
Marketable debt securities (Note 2)...................... 13,842 15,005 22,884
Receivables, less allowance for bad debts of $13 in 1998
and 1999 and at December 31, 1999 (Unaudited)......... 7,278 6,333 8,624
Inventories (Note 3)..................................... 10,355 8,385 8,401
Refundable income taxes.................................. -- 462 --
Prepaid expenses......................................... 138 224 478
Deferred income taxes (Note 12).......................... 109 117 141
------- ------- -------
Total current assets.................................. 42,971 44,008 46,596
Marketable debt securities (Note 2)........................ -- 4,976 5,281
Property, plant and equipment, net (Note 4)................ 7,891 8,604 9,819
Deferred income taxes (Note 12)............................ 41 304 334
Patent (Note 1)............................................ -- 575 539
------- ------- -------
$50,903 $58,467 $62,569
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 2,221 $ 2,360 $ 2,481
Accrued expenses (Note 5)................................ 1,277 1,774 1,593
Income taxes payable..................................... 317 472 122
Customer advance payments................................ 191 348 180
------- ------- -------
Total current liabilities............................. 4,006 4,954 4,376
Postretirement benefit obligation (Note 11)................ 1,247 1,279 1,307
Deferred compensation...................................... 144 388 488
------- ------- -------
Commitments and concentrations (Notes 13, 14, and 15)
Total liabilities..................................... $ 5,397 $ 6,621 $ 6,171
------- ------- -------
Stockholders' equity:
Common stock of $.01 par value. Authorized 25,000,000
shares; issued 6,455,366 and 6,554,366 shares in 1998
and 1999, respectively, and 6,624,666 shares at
December 31, 1999 (Unaudited)......................... 65 66 66
Additional paid-in capital............................... 36,611 37,469 39,199
Unearned compensation (Note 9)........................... -- -- (851)
Retained earnings........................................ 10,842 17,792 21,465
------- ------- -------
47,518 55,327 59,879
Less cost of 892,274 and 1,020,274 treasury shares in
1998 and 1999, respectively, and 1,020,274 treasury
shares at December 31, 1999 (Unaudited)............... 2,012 3,481 3,481
------- ------- -------
Total stockholders' equity............................ 45,506 51,846 56,398
------- ------- -------
$50,903 $58,467 $62,569
======= ======= =======
See accompanying notes to consolidated financial statements.
F-3
53
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
----------------------------- ------------------
1997 1998 1999 1998 1999
------- ------- ------- ------- -------
(UNAUDITED)
Net sales................................ $24,227 $37,449 $45,739 $21,535 $25,735
Cost of sales............................ 16,243 23,571 27,711 13,024 15,443
------- ------- ------- ------- -------
Gross profit............................. 7,984 13,878 18,028 8,511 10,292
------- ------- ------- ------- -------
Operating expenses:
Marketing.............................. 3,171 3,999 4,177 1,996 2,280
Research and development............... 540 1,380 2,835 1,360 1,490
General and administrative............. 2,238 2,873 3,220 1,564 1,789
------- ------- ------- ------- -------
Total operating expenses............ 5,949 8,252 10,232 4,920 5,559
------- ------- ------- ------- -------
Operating income......................... 2,035 5,626 7,796 3,591 4,733
------- ------- ------- ------- -------
Other income (expense):
Interest expense....................... (94) (82) (38) (19) (20)
Other, primarily interest income....... 114 923 1,396 664 938
------- ------- ------- ------- -------
Total other income.................. 20 841 1,358 645 918
------- ------- ------- ------- -------
Income before income taxes............... 2,055 6,467 9,154 4,236 5,651
Income taxes (Note 12)................... -- (2,330) (2,204) (1,483) (1,978)
------- ------- ------- ------- -------
Net income............................... $ 2,055 $ 4,137 $ 6,950 $ 2,753 $ 3,673
======= ======= ======= ======= =======
Net income per common and common
equivalent share:
Basic.................................. $ .50 $ .83 $ 1.26 $ .50 $ .66
======= ======= ======= ======= =======
Diluted................................ $ .47 $ .79 $ 1.20 $ .48 $ .62
======= ======= ======= ======= =======
Shares used in computing net income per
common and common equivalent share:
Basic.................................. 4,106 4,984 5,522 5,511 5,554
======= ======= ======= ======= =======
Diluted................................ 4,332 5,237 5,770 5,737 5,889
======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements.
F-4
54
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------ PAID-IN UNEARNED RETAINED ------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS SHARES AMOUNT EQUITY
--------- ------ ---------- ------------ -------- --------- ------- -------------
Balance at June 30, 1996... 4,992,116 $50 $15,507 $ -- $ 4,650 892,274 $(2,012) $18,195
Net income............... -- -- -- -- 2,055 -- -- 2,055
Stock options exercised
(Note 8)............... 20,000 -- 77 -- -- -- -- 77
--------- --- ------- ----- ------- --------- ------- -------
Balance at June 30, 1997... 5,012,116 50 15,584 -- 6,705 892,274 (2,012) 20,327
Net income............... -- -- -- -- 4,137 -- -- 4,137
Stock options exercised
(Note 8)............... 277,800 3 1,051 -- -- -- -- 1,054
Sale of common stock
(Note 7)............... 1,165,450 12 19,738 -- -- -- -- 19,750
Tax benefit from exercise
of stock options (Note
12).................... -- -- 238 -- -- -- -- 238
--------- --- ------- ----- ------- --------- ------- -------
Balance at June 30, 1998... 6,455,366 65 36,611 -- 10,842 892,274 (2,012) 45,506
Net income............... -- -- -- -- 6,950 -- -- 6,950
Purchase of treasury
stock.................. -- -- -- -- -- 128,000 (1,469) (1,469)
Stock options exercised
(Note 8)............... 99,000 1 516 -- -- -- -- 517
Stock options granted in
connection with
acquisition of patent
(Notes 1 and 8)........ -- -- 250 -- -- -- -- 250
Tax benefit from exercise
of stock options (Note
12).................... -- -- 92 -- -- -- -- 92
--------- --- ------- ----- ------- --------- ------- -------
Balance at June 30, 1999... 6,554,366 66 37,469 -- 17,792 1,020,274 (3,481) 51,846
Net income (Unaudited)... -- -- -- -- 3,673 -- -- 3,673
Stock options exercised
(Note 8) (Unaudited)... 46,300 -- 391 -- -- -- -- 391
Issuance of restricted
stock (Note 9)
(Unaudited)............ 24,000 -- 894 (894) -- -- -- --
Amortization of unearned
compensation (Note 9)
(Unaudited)............ -- -- -- 43 -- -- -- 43
Tax benefit from exercise
of stock options (Note
12) (Unaudited)........ -- -- 445 -- -- -- -- 445
--------- --- ------- ----- ------- --------- ------- -------
Balance at December 31,
1999 (Unaudited)......... 6,624,666 $66 $39,199 $(851) $21,465 1,020,274 $(3,481) $56,398
========= === ======= ===== ======= ========= ======= =======
See accompanying notes to consolidated financial statements.
F-5
55
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
SIX MONTHS ENDED
YEAR ENDED JUNE 30, DECEMBER 31,
--------------------------- ------------------
1997 1998 1999 1998 1999
------ -------- ------- ------- --------
(UNAUDITED)
Cash flows from operating activities:
Net income................................ $2,055 $ 4,137 $ 6,950 $ 2,753 $ 3,673
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.......... 1,240 1,336 1,433 697 808
Amortization of intangibles............ -- -- -- -- 36
Deferred income taxes.................. (467) 318 (271) (65) (55)
Unearned compensation.................. -- -- -- -- 43
Changes in operating assets and
liabilities:
Receivables.......................... (1,549) (560) 944 (306) (2,290)
Refundable income taxes.............. 321 -- (462) -- 462
Inventories.......................... (526) (2,619) 1,970 1,425 (16)
Prepaid expenses..................... 59 58 (86) (60) (254)
Other assets......................... 29 14 (325) -- --
Accounts payable..................... 837 720 139 (843) 121
Income taxes payable................. 494 62 247 (117) 95
Accrued expenses..................... 247 558 497 (148) (181)
Customer advance payments............ 754 (813) 158 526 (168)
Deferred compensation................ -- 144 244 72 100
Postretirement benefit obligation.... 43 65 32 -- 28
------ -------- ------- ------- --------
Net cash provided by operating
activities...................... 3,537 3,420 11,470 3,934 2,402
------ -------- ------- ------- --------
Cash flows from investing activities:
Capital expenditures...................... (1,154) (2,257) (2,146) (659) (2,023)
Net purchases of marketable debt
securities............................. -- (13,842) (6,139) (2,702) (8,184)
------ -------- ------- ------- --------
Net cash used in investing
activities...................... (1,154) (16,099) (8,285) (3,361) (10,207)
------ -------- ------- ------- --------
Cash flows from financing activities:
Proceeds from long-term debt.............. 907 -- -- -- --
Principal payments on long-term debt...... (1,300) (682) -- -- --
Stock options exercised................... 77 1,053 517 374 391
Purchase of treasury stock................ -- -- (1,469) (1,469) --
Proceeds from sale of common stock, net
(Note 7)............................... -- 19,750 -- -- --
------ -------- ------- ------- --------
Net cash provided by (used in)
financing activities............ (316) 20,121 (952) (1,095) 391
------ -------- ------- ------- --------
Net increase (decrease) in cash
and cash equivalents............ 2,067 7,442 2,233 (522) (7,414)
Cash and cash equivalents at beginning of
period.................................... 1,740 3,807 11,249 11,249 13,482
------ -------- ------- ------- --------
Cash and cash equivalents at end of
period.................................... $3,807 $ 11,249 $13,482 $10,727 $ 6,068
====== ======== ======= ======= ========
See accompanying notes to consolidated financial statements.
F-6
56
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Anaren
Microwave, Inc. and its wholly-owned subsidiaries ("the Company"). All
significant intercompany balances and transactions have been eliminated in
consolidation.
(b) Operations
The Company is engaged in the design, development and manufacture of
microwave components, assemblies and subsystems which receive and analyze radar
signals and other microwave transmissions. Its primary products include devices
and systems used in the wireless communications, satellite communications and
defense electronics markets.
(c) Sales Recognition
The Company recognizes sales at the time products are shipped to its
customers. Revenues and estimated profits on fixed-price contracts are
recognized under the percentage of completion method of accounting on the
units-of-delivery basis. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined.
(d) Cash Equivalents
Cash equivalents of $11,248,925 and $13,481,576 at June 30, 1998 and 1999,
respectively, and $6,068,059 (unaudited) at December 31, 1999, consist of
certificates of deposit and money market instruments having maturities of three
months or less. Cash equivalents are stated at cost which approximates fair
value.
(e) Marketable Debt Securities
The Company classifies its portfolio of marketable debt securities as
held-to-maturity in accordance with Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities, as
the Company does not hold any securities considered to be trading. Securities
held-to-maturity are those securities the Company has the ability and intent to
hold to maturity.
Held-to-maturity securities are recorded at amortized cost. A decline in
the fair value of a held-to-maturity security that is deemed to be other than
temporary results in a charge to earnings resulting in the establishment of a
new cost basis for the security, and dividend and interest income are recognized
when earned.
(f) Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out basis. Work-in-process inventories related
to fixed-price contracts are stated at the accumulated cost of material, labor
and manufacturing overhead, less the estimated cost of units delivered.
(g) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of land
improvements and buildings is calculated by the straight-line method over an
estimated service life of 25 years. Machinery and equipment are depreciated
primarily by the straight-line method based on estimated useful lives of 5 to 10
years.
F-7
57
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Patent
During fiscal 1999, the Company purchased a patent for $325,000 and 50,000
stock options. The stock options were valued at $249,965 as discussed in note 8.
The patent is being amortized on a straight-line basis over its remaining life
of 8 years.
(i) Net Income Per Share
Basic income per share is based on the weighted average number of common
shares outstanding. Diluted income per share is based on the weighted average
number of common shares outstanding, as well as dilutive potential common shares
which, in the Company's case, comprise shares issuable under the stock option
and restricted stock plans described in notes 8 and 9. The treasury stock method
is used to calculate dilutive shares which reduces the gross number of dilutive
shares by the number of shares purchasable from the proceeds of the options
assumed to be exercised.
The weighted average number of common shares outstanding for the basic
income per share calculation was 4,106,245, 4,984,307 and 5,522,056 for fiscal
1997, 1998 and 1999, respectively, and 5,510,759 (unaudited) and 5,553,671
(unaudited) for the six months ended December 31, 1998 and 1999, respectively.
For diluted earnings per share purposes, these balances increased by 225,417,
252,850 and 247,643 shares for fiscal 1997, 1998 and 1999, respectively, and
226,089 (unaudited) and 334,961 (unaudited) shares for the six months ended
December 31, 1998 and 1999, respectively, due to the effect of common
equivalent shares which were issuable under the Company's stock option
and restricted stock plans.
(j) Pension and Postretirement Plans
On July 1, 1998, the Company adopted Financial Accounting Standards Board
(FASB) Statement No. 132, Employers' Disclosures about Pension and Other
Postretirement Benefits. Statement 132 revises employers' disclosures about
pension and other postretirement benefit plans; it does not change the method of
accounting for such plans.
(k) 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. In
fiscal 1997, 1998 and 1999, the Company recognized product development fees of
$338,939, $335,390 and $100,013, respectively, under the contract, which were
netted with research and development costs.
(l) Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates.
(m) Financial Instruments
The Company's financial instruments, which include cash and cash
equivalents, receivables, and accounts payable, are stated at cost which
approximates fair value at June 30, 1998 and 1999 and at December 31, 1999
(unaudited). The Company's marketable debt securities are stated at amortized
cost, and their fair values, as determined by quoted market prices, are
presented in note 2.
F-8
58
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(n) Stock-based Compensation
The Company measures compensation expense for its stock-based employee
compensation plans using the intrinsic value method and has provided pro forma
disclosures of the effect on net income and earnings per share as if the fair
value-based method had been applied in measuring compensation expense.
(o) Segment Information
Effective June 30, 1999, the Company adopted FASB Statement No. 131,
Disclosures About Segments of an Enterprise and Related Information, which
changes the way the Company reports information about its operating segments.
The information for fiscal 1997 and 1998 has been restated in accordance with
the requirements of the new standard.
(p) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of certain assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of sales and expenses during the reporting
period. Actual results could differ from those estimates.
(q) Interim Results (Unaudited)
The accompanying consolidated balance sheet at December 31, 1999 and the
related consolidated statements of operations and cash flows for the six months
ended December 31, 1998 and 1999, and the statement of stockholders' equity for
the six months ended December 31, 1999 are unaudited. In the opinion of
management, these consolidated statements have been prepared on the same basis
as the audited consolidated financial statements and include all adjustments,
consisting of only normal recurring adjustments, necessary for the fair
statement of results of the interim periods. The data disclosed in these notes
to the consolidated financial statements at such dates and for such periods are
also unaudited.
(r) Recent Pronouncements
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. The statement
requires recognition of all derivatives at fair value in the financial
statements. FASB Statement No. 137, Accounting for Derivative Instruments and
Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133,
an amendment of FASB Statement No. 133, defers implementation of Statement No.
133 until fiscal years beginning after June 15, 2000. The Company has reviewed
Statement No. 133 and believes that, upon implementation in fiscal 2001, the
standard will not have a significant effect on its financial statements.
F-9
59
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) MARKETABLE DEBT SECURITIES
Marketable debt securities classified as held-to-maturity are summarized as
follows:
JUNE 30, 1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
U.S. Government and agency obligations.... $ 80 $-- $-- $ 80
Corporate bonds........................... 2,751 -- 5 2,746
Medium and short-term notes............... 953 -- 1 952
Euro Dollar bonds......................... 8,558 1 8 8,551
Taxable auction securities................ 1,500 -- -- 1,500
------- -- --- -------
Total................................ $13,842 $1 $14 $13,829
======= == === =======
JUNE 30, 1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
U.S. Government and agency obligations.... $ 151 $-- $ 1 $ 150
Corporate bonds........................... 9,301 -- 44 9,257
Medium and short-term notes............... 1,784 -- 9 1,775
Euro Dollar bonds......................... 7,945 -- 30 7,915
Taxable auction securities................ 800 -- -- 800
------- -- --- -------
Total................................ $19,981 $-- $84 $19,897
======= == === =======
DECEMBER 31, 1999
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
(UNAUDITED)
(IN THOUSANDS)
U.S. Government and agency obligations.... $ -- $-- $ -- $ --
Corporate bonds........................... 13,118 -- 126 12,992
Medium and short-term notes............... 8,584 -- 41 8,543
Euro Dollar bonds......................... 5,707 -- 33 5,674
Taxable auction securities................ 756 -- 8 748
------- -- ---- -------
Total................................ $28,165 $-- $208 $27,957
======= == ==== =======
Marketable debt securities are classified as either current or long-term
assets in the accompanying consolidated balance sheets based upon their maturity
dates.
F-10
60
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVENTORIES
Inventories are summarized as follows:
JUNE 30,
----------------- DECEMBER 31,
1998 1999 1999
------- ------ ------------
(UNAUDITED)
(IN THOUSANDS)
Component parts..................................... $ 4,213 $3,689 $3,961
Work-in-process..................................... 4,410 3,242 2,797
Finished goods...................................... 1,732 1,454 1,643
------- ------ ------
$10,355 $8,385 $8,401
======= ====== ======
(4) PROPERTY, PLANT AND EQUIPMENT
Components of property, plant and equipment consist of the following:
JUNE 30,
------------------ DECEMBER 31,
1998 1999 1999
------- ------- ------------
(UNAUDITED)
(IN THOUSANDS)
Land and land improvements......................... $ 1,362 $ 1,362 $ 1,362
Buildings.......................................... 5,243 5,266 5,822
Machinery and equipment............................ 25,732 27,855 29,322
------- ------- -------
32,337 34,483 36,506
Less accumulated depreciation and amortization..... 24,446 25,879 26,687
------- ------- -------
$ 7,891 $ 8,604 $ 9,819
======= ======= =======
(5) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
JUNE 30,
---------------- DECEMBER 31,
1998 1999 1999
------ ------ ------------
(UNAUDITED)
(IN THOUSANDS)
Compensation......................................... $ 859 $1,097 $ 787
Commissions.......................................... 293 400 412
Other................................................ 125 277 394
------ ------ ------
$1,277 $1,774 $1,593
====== ====== ======
(6) LONG-TERM DEBT
The Company has a $10,000,000 unsecured working capital revolving line of
credit bearing interest at prime (7.5% at June 30, 1999) through December 31,
2001. In December 1999, the facility was extended through December 2003
(unaudited). The terms of the revolving line of credit require maintenance of a
minimum tangible net worth, ratio of cash flow to current maturities, and
leverage ratio, as defined. There were no borrowings against the line of credit
in fiscal 1998 and 1999 or during the six months ended December 31, 1999
(unaudited).
Cash payments for interest were $92,358, $93,148 and $38,537 during fiscal
1997, 1998 and 1999, respectively, and $20,029 (unaudited) for the six months
ended December 31, 1999.
F-11
61
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMON STOCK OFFERING
During the second quarter of fiscal 1998, the Company sold 1,165,450 shares
of its common stock in a public offering for $19,750,450, net of issuance costs.
A portion of the proceeds was used to pay bank debt and for other general
corporate purposes.
(8) STOCK OPTION PLANS
Under the Company's Incentive Stock Option Plan (ISO), 400,000 shares of
common stock were reserved for the granting of options to eligible employees.
Options are granted at a price not less than fair market value of shares at the
date of grant, become exercisable 20% twelve months from the date of grant and
20% per year thereafter, and must be exercised within ten years of the date of
grant. During fiscal 1999, an additional 500,000 shares of common stock were
reserved for the granting of options.
The Company also has a Non-Statutory Stock Option Plan (NSO) which allows
for the granting of options to Board members and nonemployees. Under the Plan,
100,000 shares of common stock were reserved for the granting of options at
prices to be determined by the Board (options granted to Board members may not
be less than the fair market value on the date of grant). Options become
exercisable immediately and must be exercised within five years of the date of
grant. During fiscal 1999, an additional 150,000 shares of common stock were
reserved for the granting of options.
As discussed in note 1, during fiscal 1999, the Company granted 50,000
stock options as partial consideration for a patent. The stock options were
valued at $249,965 using the Black-Scholes model as of June 30, 1999 (the date
of grant), become exercisable one year from the date of grant, and must be
exercised within five years of the date of grant.
Information for the three years ended June 30, 1999 and the six months
ended December 31, 1999 (unaudited) with respect to these plans are as follows:
WEIGHTED
SHARES AVERAGE
------------------------------------- EXERCISE
ISO NSO OTHER TOTAL OPTION PRICE PRICE
-------- ------ ------ -------- ---------------- --------
Outstanding at June 30, 1996.......... 627,870 -- -- 627,870 $ 1.38 to $ 7.50 $ 4.25
Issued.............................. 95,000 10,000 -- 105,000 6.50 to 8.25 6.95
Exercised........................... (20,000) -- -- (20,000) 1.38 to 7.50 2.97
Expired............................. (31,870) -- -- (31,870) 6.88 6.88
-------- ------ ------ --------
Outstanding at June 30, 1997.......... 671,000 10,000 -- 681,000 1.38 to 8.25 4.58
Issued.............................. 74,500 14,000 -- 88,500 15.00 to 21.13 19.72
Exercised........................... (277,800) -- -- (277,800) 1.38 to 7.50 3.79
-------- ------ ------ --------
Outstanding at June 30, 1998.......... 467,700 24,000 -- 491,700 1.38 to 21.13 7.75
Issued.............................. 154,000 20,000 50,000 224,000 11.13 to 25.08 18.06
Exercised........................... (99,000) -- -- (99,000) 1.38 to 19.88 5.22
Expired............................. (12,000) -- -- (12,000) 5.88 5.88
-------- ------ ------ --------
Outstanding at June 30, 1999.......... 510,700 44,000 50,000 604,700 1.38 to 25.08 12.02
Issued (Unaudited).................. 188,000 37,500 -- 225,500 22.94 to 40.25 36.74
Exercised (Unaudited)............... (41,300) (5,000) -- (46,300) 1.38 to 21.13 8.46
Canceled (Unaudited)................ (21,400) -- -- (21,400) 13.88 to 21.13 13.14
-------- ------ ------ --------
Outstanding at December 31, 1999
(Unaudited)......................... 636,000 76,500 50,000 762,500 1.38 to 40.25 19.52
======== ====== ====== ========
F-12
62
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
WEIGHTED
SHARES AVERAGE
------------------------------------- EXERCISE
ISO NSO OTHER TOTAL OPTION PRICE PRICE
-------- ------ ------ -------- ---------------- --------
Shares exercisable at June 30, 1999... 356,700 44,000 -- 400,700 $ 1.38 to $21.13 $ 8.98
======== ====== ====== ========
Shares exercisable at December 31,
1999 (Unaudited).................... 216,100 76,500 -- 292,600 $ 1.38 to $37.25 $12.43
======== ====== ====== ========
Shares available for grant at June 30,
1999................................ 431,300 80,000 -- 511,300
======== ====== ====== ========
Shares available for grant at December
31, 1999 (Unaudited)................ 264,700 42,500 -- 307,200
======== ====== ====== ========
The following table summarizes significant ranges of outstanding and
exercisable options at June 30, 1999:
OPTIONS OUTSTANDING
- ----------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE LIFE IN EXERCISE EXERCISE
PRICES SHARES YEARS PRICE SHARES PRICE
- ---------------- ------- ------------- -------- -------- ---------
$ 1.38 to $ 4.12 51,000 1.25 $1.38 51,000 $1.38
4.13 to 6.49 100,000 5.83 4.13 100,000 4.13
6.50 to 8.25 142,400 6.64 7.12 142,400 7.12
8.26 to 13.88 12,000 9.25 11.77 -- --
13.89 to 19.88 231,300 8.70 18.14 96,300 19.47
19.89 to 25.08 68,000 9.87 21.09 11,000 20.56
------- -------
604,700 400,700
======= =======
The per share weighted average fair value of stock options granted during
fiscal 1997, 1998 and 1999 was $4.71, $12.86 and $9.60, respectively. The fair
value of options at the date of the grant was estimated using the Black-Scholes
model with the following weighted average assumptions for the respective fiscal
year:
1997 1998 1999
---- ---- ----
Expected life.......................................... 5 5 5
Interest rate.......................................... 6.08% 5.81% 4.82%
Volatility............................................. 78% 75% 69%
Dividend yield......................................... 0% 0% 0%
Stock-based compensation costs would have reduced pretax income by
$166,106, $393,662 and $773,810 in fiscal 1997, 1998 and 1999 ($161,678,
$374,718 and $735,791 after tax and $.04, $.08 and $.13 per share in fiscal
1997, 1998 and 1999, respectively) if the fair values of options granted in that
year had been recognized as compensation expense on a straight-line basis over
the vesting period of the grant. The pro forma effect on net income for fiscal
1997, 1998 and 1999 is not representative of the pro forma effect on net income
in future years because it does not take into consideration pro forma
compensation expense related to grants made prior to fiscal 1996.
F-13
63
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) RESTRICTED STOCK PROGRAM (UNAUDITED)
In November 1999, the Company authorized the issuance of 25,000 shares of
restricted stock under a Restricted Stock Program. In November 1999, the Company
issued 24,000 shares of restricted stock and recognized $894,000 in unearned
compensation on the date of issuance. The shares of restricted stock vest over a
period of 42 months. For the six months ended December 31, 1999, the Company
recognized $43,000 (unaudited) in compensation expense.
(10) EMPLOYEE BENEFIT PLANS
The Company has a non-contributory defined benefit pension plan covering
substantially all of its employees. Benefits under this plan generally are based
on the employee's years of service and compensation. The following table
presents the changes in the defined benefit pension plan and the fair value of
the plan's assets for the years ended June 30:
1997 1998 1999
------ ------ ------
(IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year................ $4,286 $4,628 $5,566
Service cost........................................... 140 145 199
Interest cost.......................................... 317 351 374
Actuarial loss (gain).................................. (17) 571 97
Benefits paid.......................................... (98) (129) (148)
------ ------ ------
Benefit obligation at end of year...................... $4,628 $5,566 $6,088
====== ====== ======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year......... $4,401 $4,971 $5,595
Actual return on plan assets........................... 549 691 128
Employer contributions................................. 119 63 52
Benefits paid.......................................... (98) (130) (148)
------ ------ ------
Fair value of plan assets at end of year............... $4,971 $5,595 $5,627
====== ====== ======
Funded status............................................ 342 29 (461)
Unrecognized net (gain)/loss............................. (502) (204) 234
Unrecognized net assets existing at initial
application............................................ 57 47 38
Unrecognized prior service cost.......................... 134 116 97
------ ------ ------
Prepaid (accrued) pension cost........................... $ 31 $ (12) $ (92)
====== ====== ======
Components of net periodic pension cost for the years ended June 30 are as
follows:
1997 1998 1999
----- ----- -----
(IN THOUSANDS)
Service cost.............................................. $ 140 $ 145 $ 199
Interest cost............................................. 317 351 374
Actual return on plan assets.............................. (549) (691) (128)
Amortization of prior service cost........................ 18 18 18
Deferral of gain.......................................... 196 274 (341)
Amortization of net asset at transition................... 9 9 9
----- ----- -----
Net periodic pension cost............................ $ 131 $ 106 $ 131
===== ===== =====
F-14
64
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 1998 1999
----- ----- -----
(IN THOUSANDS)
Weighted-average assumptions:
Discount rate........................................... 7.50% 6.70% 6.70%
Rate of increase in compensation levels, applicable to
Salaried Plan only................................... 5.0 4.0 4.0
Expected return on plan assets.......................... 8.0 8.0 8.5
Plan assets consist principally of equity securities and U.S. government
and corporate obligations.
The Company maintains a voluntary contributory salary savings plan to which
participants may contribute up to 15% of their total compensation. During fiscal
1997, the Company contributed an amount equal to 50% of the participants'
contribution up to a maximum of 3% of the participants' compensation. In fiscal
1998, the Company increased its matching contribution to an amount equal to 50%
of the participants' contribution up to a maximum of 5% of the participants'
compensation. During fiscal 1997, 1998 and 1999, the Company contributed
$129,115, $173,369 and $256,590, respectively, to this plan.
During fiscal 1998, the Company instituted a profit sharing plan which
provides an annual contribution by the Company based upon a percentage of
operating earnings, as defined. Eligible employees are allocated amounts under
the profit sharing plan based upon their respective earnings, as defined.
Contributions under the plan were approximately $231,000 and $207,000 in fiscal
1998 and 1999, respectively. While the Company intends to continue this plan, it
reserves the right to terminate or amend the plan at any time.
During fiscal 1998, the Company implemented a deferred compensation plan
for one employee. Under the plan, the Company will pay a certain sum annually
for fifteen years upon the employee's retirement or in the event of his death,
to the employee's beneficiary. Deferred compensation expense in fiscal 1998 and
1999 was $144,000 and $244,000, respectively.
(11) POSTRETIREMENT BENEFITS
The Company provides medical coverage for current and future eligible
retirees of the Company plus their eligible dependents. Employees generally
become eligible for retiree medical coverage by retiring from the Company after
attaining at least age 55 with 15 years of service (active employees at June 27,
1993 were eligible by retiring after attaining at least age 55 with 10 years of
service). Retirees at June 27, 1993 pay approximately $30 per month for health
care coverage and the Company is responsible for paying the remaining costs. For
this group, any increase in health care coverage costs for retired employees
will be shared by the Company and retirees on a fifty-fifty basis, while any
increase in coverage costs for retiree dependents will be totally paid by the
retirees. For eligible employees retiring after June 26, 1993, the Company
contributes a fixed dollar amount towards the cost of the medical plan. Any
future cost increases for the retiree medical program for these participants
will be charged to the retiree.
F-15
65
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the changes in the postretirement benefit
obligation and the funded status of the plan at June 30:
1997 1998 1999
------- ------- -------
(IN THOUSANDS)
Benefit obligation at beginning of year................ $ 1,130 $ 1,192 $ 1,317
Service cost........................................... 33 28 24
Interest cost.......................................... 85 89 88
Plan participants' contributions....................... 21 23 30
Actuarial loss/(gain).................................. (3) 60 15
Benefits paid.......................................... (74) (75) (111)
------- ------- -------
Benefit obligation at end of year...................... $ 1,192 $ 1,317 $ 1,363
======= ======= =======
Fair value of plan assets.............................. $ -- $ -- $ --
======= ======= =======
Funded status.......................................... $(1,192) $(1,317) $(1,363)
Unrecognized actuarial (gain) loss..................... 11 70 84
------- ------- -------
Accrued postretirement benefit cost.................... $(1,181) $(1,247) $(1,279)
======= ======= =======
Net periodic postretirement benefit cost includes the following components:
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
Service cost................................................ $ 33 $ 28 $ 24
Interest cost............................................... 85 89 88
---- ---- ----
Net periodic postretirement benefit cost.................... $118 $117 $112
==== ==== ====
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5%, 6.7% and 6.7% in fiscal 1997, 1998
and 1999, respectively. For measurement purposes, the annual rate of increase in
the per capita cost of covered benefits (i.e., health care cost trend rate) was
assumed to be 8.5%, 5% and 5% for fiscal 1997, 1998 and 1999, respectively; the
rate is assumed to remain at 5% thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. A one-percentage
point change in assumed health care cost trend rates would have the following
effects:
1% INCREASE 1% DECREASE
----------- -----------
Effect on total of service and interest cost
components.......................................... $ 93 $ 84
Effect on postretirement benefit obligation........... 107 28
(12) INCOME TAXES
Income tax expense (benefit) consists of:
CURRENT DEFERRED TOTAL
------- -------- ------
(IN THOUSANDS)
Year ended June 30, 1997:
U.S. Federal........................................... $ 450 $ (738) $ (288)
State.................................................. 17 271 288
------ ------ ------
$ 467 $ (467) $ --
====== ====== ======
F-16
66
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CURRENT DEFERRED TOTAL
------- -------- ------
(IN THOUSANDS)
Year ended June 30, 1998:
U.S. Federal........................................... $1,831 $ 22 $1,853
State.................................................. 181 296 477
------ ------ ------
$2,012 $ 318 $2,330
====== ====== ======
Year ended June 30, 1999:
U.S. Federal........................................... $1,807 $ (257) $1,550
State.................................................. 668 (14) 654
------ ------ ------
$2,475 $ (271) $2,204
====== ====== ======
Six months ended December 31, 1999 (Unaudited):
U.S. Federal........................................ $1,951 $ (51) $1,900
State............................................... 81 (3) 78
------ ------ ------
$2,032 $ (54) $1,978
====== ====== ======
A reconciliation of the expected consolidated income tax expense, computed
by applying the U.S. Federal corporate income tax rate of 34% to income before
income taxes, to income tax expense, is as follows:
JUNE 30,
---------------------------- DECEMBER 31,
1997 1998 1999 1999
------- ------ ------- ------------
(IN THOUSANDS) (UNAUDITED)
Expected consolidated income tax $ 699 $2,199 $ 3,112 $1,921
expense.................................
Tax benefit related to liquidation of -- -- (1,012) --
foreign subsidiary......................
State income taxes, net of Federal income 190 315 431 51
tax benefit.............................
Change in valuation allowance............. (1,060) (350) (233) --
Other, net................................ 171 166 (94) 6
------- ------ ------- ------
$ -- $2,330 $ 2,204 $1,978
======= ====== ======= ======
F-17
67
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities at June 30, 1998 and 1999, and December 31,
1999 are presented below:
JUNE 30,
----------------- DECEMBER 31,
1998 1999 1999
------ ------- ------------
(UNAUDITED)
(IN THOUSANDS)
Deferred tax assets:
Inventories........................................ $ 65 $ 57 $ 57
Deferred compensation.............................. 59 151 190
Retirement benefits................................ 32 48 73
Postretirement benefits............................ 486 510 521
Nondeductible reserves............................. 11 11 11
State investment tax credit carryforwards.......... 666 684 679
Other.............................................. -- -- 23
------ ------- -------
Total deferred tax assets....................... 1,319 1,461 1,554
Less valuation allowance........................ 233 -- --
------ ------- -------
Net deferred tax asset........................ 1,086 1,461 1,554
------ ------- -------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation................................. (936) (1,040) (1,079)
------ ------- -------
Net deferred taxes............................ $ 150 $ 421 $ 475
====== ======= =======
Presented as:
Current deferred tax asset......................... $ 109 $ 117 $ 141
Long-term deferred tax asset....................... 41 304 334
------ ------- -------
$ 150 $ 421 $ 475
====== ======= =======
The valuation allowance for deferred tax assets as of June 30, 1998 and
1999 and the six months ended December 31, 1999 (unaudited) was $233,044, $0 and
$0, respectively. The net change in the total valuation allowance for the years
ended June 30, 1998 and 1999 was a decrease of $350,060 and $233,044,
respectively. 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 June
30, 1999. The deferred tax asset valuation allowance is principally related to
the recoverability of the Company's state investment tax credit carryforwards at
June 30, 1998.
The Company recognized a tax benefit of $1,012,088 during the fourth
quarter of fiscal 1999 in connection with the dissolution of the Company's
European subsidiary. The disposition of the net assets of the subsidiary and a
corresponding restructuring charge were recognized for financial reporting
purposes in 1996. In the fourth quarter of fiscal 1999, all of the criteria
necessary to support a deduction for the tax investment in the subsidiary were
met and the tax benefit was recorded.
F-18
68
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At June 30, 1999, the Company has investment tax credit carryforwards for
state income tax purposes of $683,715 which are available to reduce future state
income taxes, if any, through 2014.
The tax benefit associated with the exercise of stock options and
disqualifying dispositions by employees reduced taxes payable by $238,000 and
$92,225 in fiscal 1998 and 1999 and $445,963 (unaudited) for the six months
ended December 31, 1999, respectively. Such benefits are reflected as additional
paid-in capital.
Cash payments for income taxes were $1,950,717 in fiscal 1998 and
$2,689,469 in fiscal 1999.
(13) SEGMENT AND RELATED INFORMATION
Segments
The Company operates predominately in the wireless communications,
satellite communications and defense electronics markets. The Company's two
reporting segments are the wireless group and the space and defense group. The
Company's two reportable segments have been determined based upon the nature of
the products and services offered, customer base, technology, availability of
discrete internal financial information, homogeneity of products and delivery
channel and are consistent with the way the Company organizes and evaluates
financial information internally for making operating decisions and assessing
performance.
The wireless segment designs, manufactures and markets commercial products
used mainly by the wireless communications market. Products produced in this
business segment include highly integrated microwave components, assemblies and
subsystems, as well as a product line of standard surface mount microwave signal
splitting and combining components, trade name Xinger, that are used in wireless
communications base station amplifiers.
The space and defense segment of the business designs, manufactures and
markets specialized products for companies in the radar and satellite
communications market. Products produced in this business segment include
passive beamforming networks for communications satellite multi-beam antennas,
digital frequency discriminators and other radar-type discriminators, as well as
a wide range of standard component products for defense electronics, such as
mixers, couplers, power dividers and correlators.
F-19
69
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table reflects the results of the segments consistent with
the Company's internal financial reporting process. The following results are
used in part, by management, both in evaluating the performance of, and in
allocating resources to, each of the segments.
SPACE & CORPORATE AND
WIRELESS DEFENSE UNALLOCATED CONSOLIDATED
-------- ------- ------------- ------------
(IN THOUSANDS)
AS OF AND FOR THE YEAR ENDED JUNE 30:
Net sales:
1997........................................ $ 7,645 $16,582 $ -- $24,227
1998........................................ 16,580 20,869 -- 37,449
1999........................................ 21,450 24,289 -- 45,739
Operating income:
1997........................................ 202 1,833 -- 2,035
1998........................................ 2,961 2,665 -- 5,626
1999........................................ 3,266 4,530 -- 7,796
Identifiable assets*:
1997........................................ 2,842 11,479 11,651 25,972
1998........................................ 4,575 11,583 34,745 50,903
1999........................................ 5,355 8,793 44,319 58,467
Depreciation and amortization**:
1997........................................ 351 889 -- $ 1,240
1998........................................ 517 819 -- 1,336
1999........................................ 613 820 -- 1,433
AS OF AND FOR THE SIX MONTHS ENDED DECEMBER 31
(UNAUDITED):
Net sales:
1998........................................ $ 9,103 $12,432 $ -- $21,535
1999........................................ 14,251 11,484 -- 25,735
Operating income:
1998........................................ 804 2,787 -- 3,591
1999........................................ 3,002 1,731 -- 4,733
Identifiable assets*:
1999........................................ 9,087 7,199 46,283 62,569
Depreciation and amortization**:
1998........................................ 281 416 -- 697
1999........................................ 417 427 -- 844
- ---------------
* Segment assets primarily include trade accounts receivable and inventories.
The Company does not segregate other assets on a products and services basis
for internal management reporting and, therefore, such information is not
presented. Assets included in corporate and unallocated principally are cash
and cash equivalents; marketable debt securities other receivables; prepaid
expenses; deferred income taxes; refundable income taxes; property, plant and
equipment; and patent.
** Depreciation expense is allocated departmentally based on an estimate of
capital equipment employed by each department. Depreciation expense is then
further allocated within the department as it relates to the specific
business segment impacted by the consumption of the capital resources
utilized. Due to the similarity of the property, plant and equipment
utilized, the Company does not specifically identify these assets by
individual business segment for internal reporting purposes.
F-20
70
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Geographic Information
Geographic net sales by geographic region are as follows:
OTHER FOREIGN CONSOLIDATED
UNITED STATES CANADA COUNTRIES NET SALES
------------- ------ ------------- ------------
(IN THOUSANDS)
YEAR ENDED JUNE 30:
1997............................... $19,526 $1,103 $3,598 $24,227
1998............................... 29,837 3,253 4,359 37,449
1999............................... 36,469 4,591 4,679 45,739
SIX MONTHS ENDED DECEMBER 31:
1998 (Unaudited)................... 19,176 253 2,106 21,535
1999 (Unaudited)................... 21,107 1,477 3,151 25,735
Customers
In 1997, sales to two customers (approximately $3,400,000, relating to the
space and defense electronics segment, and $2,700,000, relating to the wireless
segment) exceeded 10% of consolidated net sales. In 1998, sales to one customer
(approximately $6,800,000, relating to the wireless segment) exceeded 10% of
consolidated net sales. In 1999, sales to two customers (approximately
$8,375,000, relating to the wireless segment, and $5,250,000, relating to the
space and defense electronics segment) exceeded 10% of consolidated net sales.
During the six months ended December 31, 1999, sales to two customers
(approximately $4,973,000 (unaudited), relating to the wireless segment, and
$3,395,000 (unaudited), relating to the space and defense electronics segment)
exceeded 10% of consolidated net sales.
(14) COMMITMENTS
The Company is obligated under an operating lease for a building. Future
minimum payments under the noncancelable operating lease for the next five years
and thereafter are summarized as follows:
YEAR ENDING JUNE 30, (IN THOUSANDS)
2000.................................................. $ 397
2001.................................................. 397
2002.................................................. 397
2003.................................................. 397
2004.................................................. 397
Thereafter............................................ 3,836
------
5,821
Less amounts representing
sublease income....................................... 943
------
$4,878
======
Rent expense for the years ended June 30, 1997, 1998 and 1999 was $384,835,
$392,051 and $396,861, respectively. Rent expense for fiscal 1997, 1998 and 1999
was offset by sublease income of $125,667, $242,435 and $347,254, respectively.
F-21
71
ANAREN MICROWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) CONCENTRATIONS
The Company and others, which are engaged in supplying defense-related
equipment to the United States Government (the Government), are subject to
certain business risks peculiar to the defense industry. Sales to the Government
may be affected by changes in procurement policies, budget considerations,
changing concepts of national defense, political developments abroad and other
factors. Sales to the Government accounted for approximately 16%, 18% and 13% of
consolidated net sales in fiscal 1997, 1998 and 1999, respectively. While
management believes there is a high probability of continuation of the Company's
current defense-related programs, it continues to attempt to reduce its
dependence on sales to the Government through development of its commercial
electronic business.
(16) SUBSEQUENT EVENT (UNAUDITED)
On February 29, 2000, the Company acquired 100% of the capital stock of RF
Power Components, Inc. (RF). RF is based in Long Island, New York, and is
primarily engaged in the manufacture of electronic products, including
resistors, attentuators and couplers. The purchase price consisted of cash of
$7.5 million and 23,517 Anaren common shares. The acquisition of RF will be
accounted for under the purchase method of accounting for business combinations.
F-22
72
INSIDE BACK COVER - EDGAR DESCRIPTION
[The word "Anaren . . ." appears at the top left corner of the page. Our logo
and tag line (Anaren -- "What'll we think of next?") appear in the center of
the page, superimposed on top of a rectangular photo which contains on the
right-hand side a picture of our Xinger(R) coupler component on a human finger,
the Xinger(R) logo on the bottom center of the photo and a drawing of a human
figure with our Xinger(R) coupler component for its head (the Xinger-Man) on
the left-hand side. The phrase "What'll we think of next?" appears at the bottom
center of the page.]
73
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,600,000 SHARES
[ANAREN MICROWAVE, INC. LOGO]
ANAREN MICROWAVE, INC.
------------------------------
Prospectus
, 2000
------------------------------
BANC OF AMERICA SECURITIES LLC
CIBC WORLD MARKETS
NEEDHAM & COMPANY, INC.
PACIFIC GROWTH EQUITIES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
74
PART II:
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions, are as follows:
Securities and Exchange Commission Registration Fee......... $ 34,689
National Association of Securities Dealers Filing Fee*...... 13,640
Nasdaq Additional Listing Fee............................... 13,230
Legal Fees*................................................. 145,000
Accounting Fees*............................................ 140,000
Transfer Agent and Registrar*............................... 10,000
Printing, Postage and Handling Expenses*.................... 130,000
Miscellaneous Expenses*..................................... 63,441
--------
Total.................................................. $550,000
========
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under the New York Business Corporation Law ("NYBCL"), a corporation may
indemnify its directors and officers made, or threatened to be made, a party to
any action or proceeding, except for stockholder derivative suits, if such
director or officer acted in good faith, for a purpose which he or she
reasonably believed to be in or, in the case of service to another corporation
or enterprise, not opposed to, the best interests of the corporation, and, in
criminal proceedings, had no reasonable cause to believe his or her conduct was
unlawful. In the case of stockholder derivative suits, the corporation may
indemnify a director or officer if he or she acted in good faith for a purpose
which he or she reasonably believed to be in or, in the case of service to
another corporation or enterprise, not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of (i) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (ii) any claim, issue or matter as to which such person has been adjudged
to be liable to the corporation, unless and only to the extent that the court in
which the action was brought, or, if no action was brought, any court of
competent jurisdiction, determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the court
deems proper.
Any person who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the NYBCL, any indemnification under the NYBCL pursuant to
the above paragraph may be made only if authorized in the specific case and
after a finding that the director or officer met the requisite standard of
conduct by (i) the disinterested directors if a quorum is available, (ii) the
board upon the written opinion of independent legal counsel or (iii) the
stockholders.
The indemnification described above under the NYBCL is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or bylaws or when
authorized by (i) such certificate of incorporation or bylaws; (ii) a resolution
of stockholders, (iii) a resolution of directors or (iv) an agreement providing
for such indemnification, provided that no indemnification may be made to or on
behalf of any director or officer if a judgment or other final adjudication
adverse to the director or officer establishes that his or her acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that he or she
personally gained in fact a financial profit or other advantage to which he or
she was not legally entitled.
II-1
75
The foregoing statement is qualified in its entirety by reference to
Sections 715, 717 and 721 through 725 of the NYBCL.
The By-laws of the Registrant provide that the Registrant shall indemnify
any officer or director who is made or is threatened to be made a party to an
action by or in the right of the Registrant to procure a judgment in its favor
by reason of the fact that he, his testator or intestate, is or was a director
or officer of the Registrant or is or was serving at the request of the
Registrant as a director or officer of any other corporation of any type or
kind, domestic or foreign, of any partnership, joint venture, trust, employee
benefit plan or other enterprise against amounts paid in settlement and
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him, in connection with the defense or settlement of such action, or
in connection with an appeal therein, if such director or officer acted in good
faith for a purpose which he reasonably expected to be in or, in the case of
service for any other corporation or any partnership, joint venture, trust,
employee benefit plan or other enterprise, not opposed to the best interests of
the Registrant, except that no indemnification shall be made in respect to (1) a
threatened action, or a pending action which is settled or otherwise disposed
of, or (2) any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Registrant; unless and only to the extent that the
court in which the action was brought, or if no action was brought, any court of
competent jurisdiction, determines upon application that, in view of the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such portion of the settlement amount and expenses as the court
deems proper.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
1.1 Proposed Form of Underwriting Agreement*
4.1 Certificate of Incorporation(1)**
4.2 Restated By-laws, as amended on February 1, 2000**
4.3 Specimen Certificate of Common Stock**
5.1 Opinion of Bond, Schoeneck & King, LLP*
23.1 Consent of KPMG LLP***
23.2 Consent of Bond, Schoeneck & King, LLP (included in Exhibit
5.1)*
24.1 Power of Attorney (included in signature page)**
- ---------------
* To be filed by amendment
** Previously filed
*** Filed herewith
(1) (A) Restated Certificate of Incorporation of the Registrant, filed on August
11, 1967, is incorporated herein by reference to Exhibit 3(a) to Registrant's
Registration Statement on Form S-1 (Registration No. 2-42704), (B) Amendment,
filed December 19, 1980, is incorporated herein by reference to Exhibit 4.1(ii)
to Registrant's Registration Statement on Form S-2 Registration (Registration
No. 2-86025); (C) Amendment, filed March 18, 1985, is incorporated herein by
reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K
(Commission File No. 0-6620) for the fiscal year ended June 30, 1987; (D)
Amendment, filed December 14, 1987, is incorporated herein by reference to
Exhibit 4(a)(iv) to the Registrant's Registration Statement on Form S-8
(Registration No. 33-19618); (E) Amendment, filed April 8, 1999, is incorporated
herein by reference to Exhibit 3.1 to the Registrant's Annual Report on Form
10-K (Commission File No. 0-6620) for the fiscal year ended June 30, 1999; and
(F) Amendment, filed February 8, 2000, which was previously filed as Exhibit 4.1
to this Registration Statement.
II-2
76
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement or amendment to be signed on its behalf by the undersigned thereunto
duly authorized, in East Syracuse, New York on this eighth day of March, 2000.
ANAREN MICROWAVE, INC.
By: /s/ LAWRENCE A. SALA
------------------------------------
Name: Lawrence A. Sala
Title: President and Chief
Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints each of Lawrence
A. Sala and David Ferrara, severally, acting alone and without the other, his
true and lawful attorney-in-fact with the authority to execute in the name of
each such person, any and all amendments (including without limitation,
post-effective amendments) to this Registration Statement on Form S-3, to sign
any and all additional registration statements relating to the same offering of
securities as this Registration Statement that are filed pursuant to Rule 462(b)
of the Securities Act, and to file such registration statements with the
Securities and Exchange Commission, together with any exhibits thereto and other
documents therewith, necessary or advisable to enable the registrant to comply
with the Securities Act, and any rules, regulations and requirements of the
Securities and Exchange Commission in respect thereof, which amendments may make
such other changes in the Registration Statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LAWRENCE A. SALA Director, President and Chief March 8, 2000
- --------------------------------------------------- Executive Officer (Principal
Lawrence A. Sala Executive Officer)
/s/ HUGH A. HAIR Chairman of the Board March 8, 2000
- ---------------------------------------------------
Hugh A. Hair
/s/ CARL W. GERST, JR. Chief Technical Officer, March 8, 2000
- --------------------------------------------------- Treasurer and Vice Chairman
Carl W. Gerst, Jr.
/s/ JOSEPH E. PORCELLO Vice President, Finance March 8, 2000
- --------------------------------------------------- (Principal Financial Officer
Joseph E. Porcello and Principal Accounting
Officer)
/s/ HERBERT I. CORKIN Director March 8, 2000
- ---------------------------------------------------
Herbert I. Corkin
II-4
78
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DALE F. ECK Director March 8, 2000
- ---------------------------------------------------
Dale F. Eck
/s/ ABRAHAM MANBER Director March 8, 2000
- ---------------------------------------------------
Abraham Manber
/s/ DAVID WILEMON Director March 8, 2000
- ---------------------------------------------------
David Wilemon
/s/ MATTHEW ROBISON Director March 8, 2000
- ---------------------------------------------------
Matthew Robison
/s/ BRIAN P. KELLY Director March 8, 2000
- ---------------------------------------------------
Brian P. Kelly
II-5