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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 2002
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________________ to ________________________
Commission file number 0-6620
ANAREN MICROWAVE, INC.
(Exact name of Registrant as specified in its Charter)
New York 16-0928561
(State of incorporation) (I.R.S Employer Identification No.)
6635 Kirkville Road, East Syracuse, New York 13057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 315-432-8909
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Securities Act:
Common Stock, $.01 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant, based on the closing sale price of the Common
Stock on August 2, 2002, as reported on the Nasdaq National Market, was
approximately $178,508,000.
The number of shares of Registrant's Common Stock outstanding on August 2,
2002 was 22,458,620.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for use in connection with
its 2002 Annual Meeting of Shareholders are incorporated into Part III of this
Annual Report on Form 10-K.
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PART I
Item 1. Business
Forward-Looking Cautionary Statement
In an effort to provide investors a balanced view of the Company's current
condition and future growth opportunities, this Annual Report on Form 10-K
includes comments by the Company's management about future performance. Because
these statements are forward-looking statements pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, management's
forecasts involve risks and uncertainties, and actual results could differ
materially from those predicted in the forward-looking statements. Among the
factors that could cause actual results to differ materially from those
predicted are the following:
o further decline in the general economy, and particularly the
wireless telecommunications sector;
o decreased capital expenditures by wireless service providers;
o loss of one or more of a limited number of original equipment
manufacturers as customers;
o costs associated with potential product recalls;
o unpredictable difficulties or delays in the development of new
products;
o the unavailability of component parts and services from a limited
number of suppliers;
o the risks associated with any technological market shifts away from
the Company's technologies and core competencies;
o cancellation of existing contracts or orders, or other declines in
demand for the Company's products;
o difficulties in successfully integrating newly acquired businesses
(including Celeritek Inc. if a transaction were consummated);
o increased pricing pressure and increased competition;
o the failure of wireless customers' annual procurement forecasts to
result in future sales;
o unanticipated impairments of assets and investment values;
o foreign currency fluctuations;
o litigation relating to Anaren's ownership interest in Celeritek,
Inc. or a potential transaction with Celeritek, or involving
antitrust, intellectual property, product warranty, product
liability and other issues;
Anaren disclaims any obligation, unless required by law, to update or
revise any forward looking statement. Readers are advised to carefully review
the risk factors set forth in this Annual Report on Form 10-K filed with the
Securities and Exchange Commission to learn more about the various risks and
uncertainties facing Anaren's business and their potential impact on Anaren's
revenues and earnings.
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General
Anaren Microwave, Inc. was incorporated in New York in 1967. The Company's
executive offices are located at 6635 Kirkville Road, East Syracuse, New York
13057. The telephone number of the Company at that location is (315) 432-8909.
The Company's common stock is listed on the Nasdaq National Market under the
symbol "ANEN." Unless the context otherwise provides, the "Company" or "Anaren"
refers to Anaren Microwave, Inc. and its subsidiaries.
Recent Developments
On August 31, 2001 the Company acquired all of the outstanding stock of
Amitron, Inc. Amitron is based in North Andover, Massachusetts, and is primarily
engaged in the manufacture of precision thick film ceramic components and
circuits for the medical, telecommunications, and defense electronics markets.
Amitron's technology is very complimentary to the Company's proprietary
Multi-Layer Stripline technology (described below). Whereas the Company's
technology is well suited for large scale and high power applications, Amitron's
technology is well suited for miniaturization and low power applications. The
Company believes that Amitron's technology will enable it to increase its
current addressable markets.
On October 1, 2001, the Company, through its wholly owned subsidiary
Anaren Microwave Europe B.V., acquired all of the outstanding stock of The 5M
Company Europe, B.V. (now named Anaren Europe, B.V.). Anaren Europe, based in
Almelo, Netherlands is a manufacturer of high frequency printed circuit boards.
Anaren Europe's manufacturing technology is very similar to the Company's
Multi-Layer Stripline technology. In addition, Anaren Europe has a unique metal
backing technology that offers performance and cost advantages for high power
applications. The Company believes that this acquisition will enable it to
reduce its manufacturing costs, increase its dollar content in high power
applications and provide customers with a higher level of vendor security with a
second manufacturing facility.
In March 2002, the Company, through a newly created subsidiary, Anaren
Communication Suzhou Co., Ltd., signed a three-year lease for a 12,300 square
foot manufacturing facility in the Suzhou Industrial Park in Suzhou, China. The
Company has hired a General Manager for the facility and additional staffing
began in early July 2002. The Company presently expects to begin light
manufacturing and assembly at this location during the second quarter of fiscal
2003. It is anticipated that this facility will serve all of the Company's Asian
customers and will concentrate on producing more labor intensive products.
Additionally, it is expected that the Company will use this location to
facilitate procurement of raw materials in Asia, when possible, for the
Company's other subsidiaries.
On July 11, 2002, the Company filed a Schedule 13D with the Securities and
Exchange Commission to disclose that it has, through open market purchases,
acquired an ownership position of approximately 6.35% of the common stock of
Celeritek, Inc. Anaren believes that a business combination between Anaren and
Celeritek would be in the best interest of the respective shareholders,
customers and employees of both companies and intends to seek a
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negotiated acquisition of Celeritek or take other actions to effect such a
potential transaction, as more fully described in Anaren's Schedule 13D filing.
On August 2, 2002, Tamer Husseini, Celeritek's Chairman, President and
Chief Executive Officer, Margaret E. Smith, Celeritek's Vice President, Finance
and Chief Financial Officer, and Celeritek's outside counsel met with Anaren's
representatives to discuss Anaren's overtures. During this meeting, Mr. Husseini
stated that Celeritek has adopted a "stand-alone strategy" and indicated that
Celeritek is not interested in negotiating a business combination transaction
between Anaren and Celeritek. Following Mr. Sala's stated rationale as to the
merits of a potential business combination, Celeritek counsel stated that
Celeritek would further consider Anaren's position and contact Anaren during the
week of August 5, 2002. In the evening of August 5, 2002, Anaren was informed by
Celeritek's counsel that Celeritek continues to prefer a stand-alone strategy
but offered Anaren the opportunity to present its position to Celeritek's Board
of Directors, and indicated that if Anaren was willing to enter into a
standstill agreement, Celeritek would consider allowing Anaren to perform
certain due diligence investigation. Anaren's management continues to believe in
the merits of a business combination between Celeritek and Anaren and the
benefits to the shareholders, customers and employees of each Company. Given the
disappointing response from Celeritek, Anaren intends to consider all of the
alternatives available to it, and may pursue one or more of the possible actions
outlined in its Schedule 13D, as amended.
Overview
The Company is a leading provider of microwave components and assemblies
for the wireless communications, satellite communications and defense
electronics markets. The Company's distinctive manufacturing and packaging
techniques enable it to cost-effectively produce compact, lightweight microwave
products for use in base stations for wireless communications systems, in
satellites and in defense electronics systems.
Through its focused research and development efforts, Anaren has designed
and continues to design components and subsystems that enable high speed
wireless access to the Internet and other broadband wireless applications, as
well as advanced radar and receiver applications for defense electronics
subsystem applications. In addition, the Company is developing and producing a
diverse set of products and technologies to support the latest generation of
wireless communications systems. The Company's customer base includes leading
global original equipment manufacturers that serve the wireless, satellite and
defense electronics markets, including:
o Ericsson
o Lucent Technologies
o Motorola
o Nokia
o Nortel Networks
o Powerwave Technologies
o Boeing, Inc.
o ITT Aerospace/Communications
o Lockheed Martin
o TRW
o Northrop Grumman
o Raytheon
Industry Background
Worldwide demand for integrated voice, data and video communications
services continues to grow. The volume of high-speed data traffic across global
communications
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networks has grown as the public Internet and private business intranets have
become essential for daily communications and electronic commerce. The number of
persons using the Internet to buy and sell goods and services also is expected
to continue to grow. Servicing the increasing demand for higher bandwidth
content and applications requires cost-effective and high-speed connections.
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.
Despite this continued growth in customer demand, expenditures for capital
infrastructure equipment by service providers began to decline rapidly during
the first quarter of calendar year 2001. This severe market downturn has had a
negative impact on all of the Company's wireless product lines, and it appears
that these unfavorable wireless market conditions will continue for an uncertain
time period.
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:
o decreasing prices for wireless handsets and airtime;
o more favorable global communications regulatory environment;
o increasing competition among service providers; and
o 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 channels in
their networks. Cellular service providers are upgrading their voice networks to
digital networks, which allow more data to be transmitted to
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users at acceptable speed. With the broader bandwidth technology, service
providers are able to offer additional services including real-time web/e-mail
access.
Wireless Local Area Networking
Wireless local area networks are flexible data communication systems that
can either replace or extend wired communication systems. Using radio frequency
technology wireless local area networks transmit and receive data over the air
without wired cabling. A wireless local area network provides all the features
and benefits of traditional local area network technologies like Ethernet, with
lower installation costs and increased flexibility.
Wireless local area network technology is now in the process of widespread
deployment and accelerated development for low-cost, interoperable products.
Wireless local area network technology provides data rates to rapidly transfer
large data files, access the web, and support wireless video conferencing from
mobile platforms including palm personal computers and laptops. The flexibility
that the wireless local area network, standards offer the business and consumer
user is expected to lead to applications such as wireless home multimedia,
wireless roadside assistance, wireless e-business, wireless printers and
scanners.
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, worldwide paging, and military communication
command and control. 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
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.
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Defense Electronics
There continues to be a shift in defense spending away from the
development 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.
The Anaren Solution
The Company's technology addresses the demands of the wireless market for
high quality products manufactured in volume with continuous improvements in
performance and cost. The Company also provides the satellite market with
enabling technologies that increase network capacity and flexibility, allowing
for increased revenue generation. The Company's proprietary Multi-Layer
Stripline and ceramic circuit technologies, which are described more fully
below, allow the Company to provide compact, light weight, cost-effective, and
highly integrated microwave components, assemblies and subsystems. The Company's
solution includes:
Broad Array of Standard and Customized Products. The Company offers a
broad array of standard and custom microwave products to the mobile and wireless
networking, satellite communications and defense electronics markets. The
technologies underlying the Company's product portfolio allow the Company to
address the new wireless data communications products being developed by its
existing and potential customers with limited incremental investment. As the
original equipment manufacturers in the wireless communications industry have
been reducing the number of their suppliers, the Company believes that its
expanding product portfolio has helped the Company become a strategic supplier
to many of these original equipment manufacturers.
Advanced Microwave Design and Manufacturing Capabilities. The engineering
and design staff of 124 engineers as of June 30, 2002 works with customers of
the Company to develop product solutions. Anaren's 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. The Company has consistently met the stringent requirements of the
wireless and satellite communications markets due to the Company's strengths in
advanced packaging and interconnecting of radio, microwave and extremely high
frequency signals, and the Company's ability to produce small, light weight,
cost-effective and efficient microwave components and assemblies.
Rapid Product Development. Anaren's integrated design and manufacturing
facilities allow it to produce custom solutions from concept to product delivery
in a matter of days. With its Multi-Layer Stripline technology, design
libraries, manufacturing experience and investment in automation, the Company
can facilitate a rapid transition from development to production, thereby
offering its customers a complete turnkey solution and allowing them to bring
their products to market faster.
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Strong Customer Relationships. The Company believes that it has become an
integral part of its key customers' operations by working closely with them
through the entire development and production process. The Company assigns a
project engineer to each customer to ensure a high level of responsiveness and
customer service. The project engineer and a design team assist customers from
the conceptual, system level design stages through the development and
manufacturing process. By maintaining close contact with the customers' design
engineering, manufacturing, purchasing and project management personnel, the
Company can better understand their needs, rapidly develop customer-specific
solutions and more effectively design the Company's solutions into the
customers' systems and networks. The Company believes that the strength of its
customer support and depth of its customer relationships provide the Company a
competitive advantage.
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 manufacturing, but
with superior microwave characteristics. Similar to traditional printed circuit
board manufacturing, holes are used to interconnect layers. The Company's
proprietary techniques enable it to implement multi-layer connections that
perform optimally at microwave frequencies. Unlike traditional printed circuit
board 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. The Company's 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.
Anaren's microwave antenna beamforming technology, coupled with the
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, the Company is utilizing its Multi-Layer
Stripline technology and microwave design experience to develop cost-effective
solutions for wireless high data rate transmission applications, such as
wireless local area networking. In addition, the Company has recently introduced
several new products that incorporate active devices into the passive
Multi-Layer Stripline technology. Active devices require voltage and current to
operate and are typically based on silicon, germanium or gallium arsenide semi
conductor technologies. Active devices are frequently used for amplification,
switching and modulation of radio frequency signals. Passive multi-layer strip
line technology is based on high frequency printed circuit board materials and
is an excellent integration platform for active devices.
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Active devices require voltage and current to operate and are typically
manufactured from silicon, germanium or gallium arsenide materials. Active
devices are frequently used for amplification, switching and modulation of radio
frequency signals. Passive multi-layer stripline technology utilize high
frequency printed circuit board materials and is an excellent integration
platform for active devices.
The Company's etched thick film technology allows for high frequency
performance similar to that of thin film with reduced costs characteristic of
thick film processing. The Company's investment into low temperature co-fired
ceramic capability will result in the ability to build multi-layer ceramic
circuits which fully leverage Anaren's microwave design competence.
Strategy
The Company's strategy is to continue to use its proprietary Multi-Layer
Stripline technology, extensive microwave design libraries and turnkey design,
development and manufacturing capabilities to further expand its penetration in
the wireless and satellite communications markets. Key components of the
Company's strategy include the following:
Pursue New Wireless Markets. The Company has successfully penetrated the
mobile wireless market and intends to use its market position to pursue other
wireless markets. The Company also intends to offer additional products and
technologies to address existing and developing wireless markets.
Increase Component Integration and Value Added Content. The Company plans
to continue to increase the value of its products in wireless and satellite
communications systems. The Company intends to expand its component offerings to
enable the Company to increase the number of its products in each base station.
In addition, with its Multi-Layer Stripline and ceramic circuit manufacturing
technology, the Company intends to continue to increase the functionality of its
products, thereby enabling its customers to continue to reduce the size and cost
of their platforms, while the Company increases its content value.
Strengthen and Expand Customer Relationships. Today, a limited number of
large systems manufacturers drives the wireless and satellite communications
markets. The Company has developed, and plans to continue to expand, customer
relationships with many of these manufacturers, including Ericsson, Lucent,
Motorola, Nokia, Nortel Networks and Powerwave for wireless communications and
Boeing, Lockheed Martin, Raytheon and TRW for satellite communications. The
Company intends to further strengthen its customer relationships by offering
complete outsourcing solutions, from research and development through product
design and production, thereby increasing the customers' reliance on the
Company.
Enhance Technology Leadership in Wireless Communications. The Company
intends to use its technological leadership in the mobile wireless and satellite
markets to extend its competitive advantage. Anaren plans to pursue further
technological advances through continued investment in research and development.
The Company will seek to advance its
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leadership in wireless technology by developing next generation products for the
mobile and wireless networking markets. In addition, the Company will build upon
its relationships with key wireless original equipment manufacturers in order to
develop state-of-the-art wireless products.
Expand Its Business through Strategic Acquisitions. The Company intends to
continue to make opportunistic acquisitions of companies, product lines and
technologies that complement its business. Amitron's technology and unique
processing capabilities provide performance advantages for high frequency and
medical applications and represents another strategic acquisition for the
Company. Amitron also provides a platform to implement low temperature co-fired
ceramic technology, which the Company believes has application in high frequency
electronics. By expanding its product offerings, the Company expects to better
serve the needs of its customers. The Company intends to use its existing
customer relationships and distribution channels to sell these additional
products.
Products
Wireless Communications
The Company provides microwave components, assemblies and subsystems to
leading wireless infrastructure equipment manufacturers. 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 its Multi-Layer Stripline and ceramic technologies,
the Company provides 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 Company has developed its product offerings to enable customers to
reduce the size and cost, while enhancing the performance, of their equipment.
The Company continually invests capital and resources to enhance existing
products as well as develop new products to address the latest market demands.
The Company has developed and continues to market a full line of standard
products, as well as custom products, to wireless original equipment
manufacturers. A brief description of the Company's major product categories is
as follows:
Component Products
Xinger(R) Surface Mount Components. The Company's Xinger(R) 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 printed circuit boards with automated production equipment. The primary
application of these products is in radio frequency power amplifiers, but they
are also found in low-noise amplifiers and radios. Based on market intelligence
and
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information from original equipment manufacturers and base station
manufacturers, the Company believes it is currently the market leader in this
product area, supplying industry leading original equipment manufacturers such
as Ericsson, Lucent, Motorola and Nokia, as well as leading power amplifier
manufacturers such as Powerwave Technologies and Spectrian. The Company is
investing to expand this product line, as well as expand its addressable market.
Ferrite Products. The Company's ferrite components are widely used in
various wireless and defense applications. They are a key component in base
station amplifiers, and their primary function is to protect the sensitive
electronics from damage by isolating them electronically from potentially
harmful signal levels. The Company recently introduced a new "Xinger(R)
Circulator" product line integrating the Company's ferrite technology with its
Xinger(R) technology. This product line offers ferrite product performance in a
surface mountable Xinger(R) package for automated insertion.
Resistive Products. The Company's resistive product line includes
resistors, power terminations, and attenuators for use in high power wireless
and medical imaging applications. They are typically found in power amplifiers
and used in conjunction with ferrite products as well as Xinger(R) surface mount
components.
AdrenaLine Power Splitting and Combining Networks. The Company developed
the AdrenaLine product line to provide a low-cost, high-performance network to
combine individual power modules. These products enable the Company's customers
to produce smaller, lower cost, more efficient power amplifiers. AdrenaLine
supports all major wireless standards and frequencies.
Custom Splitting and Combining Products. In addition to its standard
products, the Company offers a wide range of custom splitting solutions. These
custom solutions are typically used to distribute signals to and from radio
transceivers and power amplifiers. The Company's 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 Radio Frequency Backplane Assemblies. The Company's radio frequency
backplanes provide efficient connections of microwave signals between subsystems
in wireless base stations. Radio frequency backplanes are similar to the
motherboard in a personal computer, which efficiently connects signals between
multiple subsystems. These assemblies range from radio frequency-only to fully
integrated radio frequency, direct current power, and signal routing solutions.
They are typically used in conjunction with radio transceivers and radio
frequency power amplifiers.
Hybrid Matrix Assemblies. The Company's hybrid matrix assemblies allow
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. The Company's
matrices allow the spreading of high usage volume over all base station
amplifiers, permitting a reduction in the total number of amplifiers needed.
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High Frequency Printed Circuit Boards. Anaren also offers high frequency
circuit board manufacturing capability in its Almelo, The Netherlands facility.
The Company's proprietary metal backing technology is particularly advantageous
for high power applications where thermal management is paramount, such as
basestation amplifiers.
High Frequency Etched Thick Film and LTCC Circuits. The Company's ceramic
capabilities include etched thick film circuits and low temperature co-fired
ceramic built to customer specifications. These circuits are suitable for
wireless, defense, aerospace, and medical applications.
Space and Defense
The Company is a supplier of passive beamforming networks for use in
multi-beam antennas critical to the success of communications satellites. The
Company's Multi-Layer Stripline technology enables the Company to provide
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 the customers'
requirements for the next generation of satellite programs.
The Company is also a supplier of electronic subsystems and passive feed
networks to the defense electronics market. The electronic subsystems sold by
the Company utilize several technologies including Multi-Layer Stripline,
application specific integrated circuits and signal processing technologies.
A brief description of the Company's 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 radio frequency 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 radio
frequency energy to the antenna elements of the radar. The power dividers are
frequently 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.
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Customers
During the fiscal year ended June 30, 2002, approximately 65.0% of the
Company's sales were to customers in the wireless markets and approximately
35.0% of its sales were to customers in the space and defense markets. The
Company had one customer who accounted for more than 10.0% of net sales.
Approximately 16% of net sales were to Boeing, Inc. through the Company's Space
and Defense group.
Wireless Communications. The Company sells its standard line of Xinger(R)
components to leading original equipment manufacturers and a broad range of
other wireless equipment contract manufacturers. In addition, the Company sells
its custom wireless products to major wireless infrastructure original equipment
manufacturers. In general, customers have purchased the Company's products
directly from the Company or through distributors or sales representatives. The
following is a list of the Company's customers who generated $500,000 or more in
revenues in the fiscal year ended June 30, 2002:
o Avnet
o BFI Optilas
o Cana
o Celestica Corp.
o ElektroMekan AB
o Ericsson
o Knowles Electronics
o Lucent Technologies
o Motorola
o Nokia
o Nortel Networks
o Pacesetter, Inc.
o Plexus Southern California
o Powerwave Technologies
o Richardson Electronics Inc.
o Sanmina
o Venture Manufacturing
Space and Defense. The Company currently sells satellite communications
subsystems to many of the world's leading satellite manufacturers. Subsystems
produced by the Company are found on communications satellites. The Company is
actively involved in developing products for major satellite programs. The
Company also sells 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 fiscal year ended June 30,
2002:
o Boeing Inc.
o FR Aviation
o Lockheed Martin
o Raytheon
o Thales Defense, Ltd.
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Sales and Marketing
The Company markets its products worldwide to original equipment
manufacturers in wireless and satellite markets and prime contractors in defense
markets primarily through a sales and marketing force of 43 people as of June
30, 2002. The Company has regional sales offices located in Sacramento,
California; Raleigh, North Carolina; Waterloo, England; and Suzhou, China. In
addition, as of June 30, 2002, the Company had contracts with two major
distributors, Avnet and Richardson, and with 20 manufacturers' representatives
in the United States and 15 international representatives located in Western
Europe, the Middle East and Asia. As part of its marketing efforts, the Company
advertises in major trade publications, attends major industry shows and
maintains a website on the Internet. The Company has also invested significantly
in its Internet website which contains an electronic version of its entire
catalog. In addition, the website enables users 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. The Company also provides
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 the Company's parts into their designs.
After identifying key potential customers, the Company makes sales calls
with its own sales, management and engineering personnel and its manufacturers'
representatives. To promote widespread acceptance of the Company's products and
provide customers with support for their wireless communications needs, the
sales and engineering teams work closely with the customers to develop solutions
tailored for their wireless requirements. The Company believes that its customer
engineering support team, comprised of 124 design and engineering professionals
as of June 30, 2002, is a key competitive advantage.
The Company uses distributors for its standard products, most notably the
Xinger(R) line of surface mount components. In the United States, Canada, Asia
and most of Europe, the Company has agreements with Richardson and Avnet, which
operates under the name of BFI Optilas in Europe. The Scandinavian countries are
handled by E.G. Components, Inc., a subsidiary of Elektronikgruppen.
Distribution has become an important part of the sales efforts by providing the
Company with a larger sales force to promote its catalog offerings. The Company
is also seeing a trend on the part of its customers to consolidate their
material handling activities, including purchasing, warehousing, and
fulfillment. The result is that many original equipment manufacturers are
outsourcing all or part of these activities to large distribution firms like
Avnet.
Backlog
The Company's backlog of orders for the Wireless group was $10.4 million
and $6.8 million as of June 30, 2002 and 2001, respectively. Backlog for the
Wireless group primarily represents firm orders for surface mount products
(i.e., orders for a fixed quantity of component products) and signed purchase
orders (i.e., orders for specific custom sub-assemblies) for custom components
due to ship within the next four to six weeks. However, backlog is not
necessarily indicative of future sales. Accordingly, the Company does not
believe that its backlog as of any
15
particular date is representative of actual sales for any succeeding period.
Typically, large original equipment manufacturers including Ericsson, Lucent,
Motorola, Nokia and Nortel, who use the Company's surface mount and custom
products, negotiate set prices for estimated annual volumes. The Company
receives weekly orders one week prior to shipment. The Company does not
recognize backlog until it has received a firm order.
As part of the Company's close working relationships with major wireless
communications customers, the customers expect the Company to respond quickly to
changes in the volume and delivery schedule of their orders and, if necessary,
to inventory products at the facilities of the Company 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, these customers may cancel or defer orders without significant
penalty.
Backlog of orders for the Space and Defense group was $33.5 million and
$37.2 million as of June 30, 2002 and 2001, respectively. During fiscal year
2003, the Company expects to ship between $27.0 million and $29.0 million of its
backlog existing at June 30, 2002. 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, the
Company does not believe that its backlog as of any particular date is
representative of actual sales for any succeeding period.
Research and Development
The Company's research and development efforts are focused on the design,
development and engineering of both products and manufacturing processes. The
Company intends to focus its future research and development efforts on next
generation products and technologies. The current development efforts of the
Company include:
o advanced Multi-Layer Stripline manufacturing processes for use in
low-cost, light weight satellite and wireless applications;
o products for use in mobile and fixed wireless applications;
o advanced manufacturing technology to produce microwave stripline
structures for broadband millimeter wave, or extremely high
frequency, communications satellite applications;
o advanced low temperature co-fired ceramic for use in low-cost, light
weight satellite and wireless applications; and
o Miniature components for wireless networking and subscriber
applications
These activities include customer-funded design and development, as well
as efforts funded directly by the Company. Research and development expenses
funded by the Company
16
were $6.3 million in fiscal 2002, $5.0 million in fiscal 2001 and $3.8 million
in fiscal 2000. Research and development costs are charged to expense as
incurred.
In addition, the Company's net sales included approximately $1.1 million
for fiscal year 2002, approximately $4.6 million for fiscal 2001 and
approximately $5.1 million in fiscal 2000 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. The Company is typically not restricted in the use of
technologies developed through customer funding for other applications.
Manufacturing
The Company continues to invest in the advancement of its proprietary
Multi-Layer Stripline manufacturing processes and in the automation of the
manufacturing processes of products for the Wireless group. Automation is
critical in meeting the customers' demands for lower prices, high quality and
on-time delivery. The Company is also investing to reduce the size of its
products to increase its addressable markets including local area networking and
wireless subscriber applications.
In fiscal 2001, the Company completed a major renovation and upgrade to
its manufacturing facility, located at the headquarters in East Syracuse, New
York, to increase current capacity and improve response time to its customers.
Toward this end, the Company has continued to invest in automated design and
manufacturing equipment to reduce production times. The Company also reorganized
its manufacturing and engineering facility in East Syracuse to allocate more
space and provide for a better workflow for the Wireless group. Additionally,
the Company has created specialized work areas and manufacturing cells required
by its Space and Defense group to meet the demanding specifications of the
Company's space customers. The Company's East Syracuse facility has been ISO
9001 certified since July 1999.
During fiscal 2002, the Company completed the consolidation of its New
Jersey based subsidiary, Anaren Power Products, Inc., into its East Syracuse,
New York operation. In March of 2002, the Company opened a facility in Suzhou,
China for the purpose of serving a growing customer base in the Asia-Pacific
region. This location will serve as a light manufacturing operation supporting
all of the Company's wireless business interests.
The Company manufactures its products from standard components, as well as
from items which are manufactured by vendors to its specifications. A majority
of the Company's commercial and defense electronics assemblies and subsystem
products contain proprietary Multi-Layer Stripline technology which is designed
and tested by engineers and technicians employed by the Company and is
manufactured primarily at the Company's East Syracuse facility.
The raw materials utilized in the various product areas are generally
accessible and common to both of the Company's business segments. The Company
purchases most of its raw materials from a variety of vendors and most of these
raw materials are available from a number
17
of sources. During fiscal year 2002, the Company had one vendor from which it
purchased more than 10.0% of its total raw materials, but the Company believes
that alternate sources of supply are generally available for these and other raw
materials.
Competition
The microwave component and subsystems industry is highly competitive. The
Company competes against many companies, both foreign and domestic, many of
which are larger and have greater financial and other resources. Direct
competitors of the Company in the wireless market include KDI, M/A-com, a
division of Tyco International, Merrimac Industries, Filtronic PLC, Radiall
Smith Industries and Mini-Circuits. As a direct supplier to original equipment
manufacturers, the Company also faces significant competition from the in-house
capabilities of its customers. Recently, however, in the wireless market many of
the original equipment manufacturers are outsourcing more design and production
work, thereby freeing up their internal resources for other use. Thus, internal
customer competition exists predominantly in the Company's satellite business.
In the wireless market, the overall weak market conditions and reduction
in demand for wireless infrastructure equipment have resulted in increased price
pressure from the Company's customers. It is anticipated that this pricing
pressure will continue until the overall wireless market conditions improve.
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, the Company believes that it
competes favorably in its markets. The Company feels that it is particularly
strong in the areas of technical performance and on-time delivery in the
wireless marketplace.
Government Regulation
The Company's 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 its participation in the defense industry, the Company is
subject to audit from time to time for compliance with government regulations by
various governmental agencies. The Company is 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 the
Company's products. The Company believes that it operates its business in
material compliance with applicable laws and regulations. However, any failure
to comply with existing or future laws or regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Intellectual Property
The Company's success depends to a significant degree upon the
preservation and protection of its product and manufacturing process designs and
other proprietary technology. To
18
protect its proprietary technology, the Company generally limits access to its
technology, treats portions of such technology as trade secrets, and obtains
confidentiality or non-disclosure agreements from persons with access to the
technology. The Company's agreements with its employees prohibit them from
disclosing any confidential information, technology developments and business
practices, and from disclosing any confidential information entrusted to the
Company by other parties. Consultants engaged by the Company who have access to
confidential information generally sign an agreement requiring them to keep
confidential and not disclose any non-public confidential information. The
Company has four patents and has filed eight other patent applications that are
currently pending before the United States Patent and Trademark Office to
protect both the construction and product design of its products. The Company
plans 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 June 30, 2002, the Company employed 643 full-time people including
17 temporary employees. Of these employees, 124 were members of the engineering
staff, 435 were in manufacturing, 43 were in sales and marketing positions, and
41 were in management and support functions. None of these employees are
represented by a labor union, and the Company has not experienced any work
stoppages. The Company considers its employee relations to be excellent.
Item 2. Properties
The principal facility of the Company is a 105,000 square foot building,
which the Company owns, located on a 30 acre parcel in East Syracuse, New York.
The building currently houses a substantial portion of the Company's marketing,
manufacturing, administrative, research and development, systems design and
engineering activities.
The Company leases a 20,000 square foot building in Frimley, England.
Annual rental cost of this facility is approximately $370,000 and the Company is
currently subletting the building. During the fiscal year ended June 30, 2002,
payments to the Company under this sublease were at more than 90.0% of the full
lease value. The existing lease term on this building runs to 2014. There is no
assurance that the Company will be able to continuously sublet the building
during the remaining lease term so as to offset its rental cost in whole or in
part.
The Company also leases a 15,700 square foot facility in Bohemia, New
York, which houses the production, engineering and administrative functions of
its subsidiary RF Power Components, Inc. pursuant to a lease that expires in
June, 2003. Annual rent for this facility is approximately $132,000.
Effective August 31, 2001, the Company signed a five year lease with an
option for five additional years for approximately 20,000 square feet in North
Andover, Massachusetts, which currently houses the acquired business of Amitron.
Annual rent for this facility is approximately $155,000.
19
The Company also leases a 45,000 square foot facility in Almelo, The
Netherlands, which houses Anaren Europe which was acquired effective October 1,
2001. Annual rent for this facility is approximately $182,000 and the lease
expires in December 2003.
In March 2002, the Company signed a lease for a 12,300 square foot
facility in Suzhou, China to begin light manufacturing and assembly activities
for its Asian customers. This facility has an annual rent of $21,400 and expires
in 2005, and may be renewed for an additional three year period. Additionally,
the Company has an option to lease the second floor of this facility
(approximately 12,300 square feet) at a slightly reduced rate per square foot.
This option is available until March 2003.
Management considers the foregoing facilities adequate for the current and
anticipated short-term future requirements of the Company and expects that
suitable additional space will be available to the Company, as needed, at
reasonable commercial terms.
Item 3. Legal Proceedings
There are no material pending legal proceedings against the Company or any
of its subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of the fiscal year ended June 30, 2002, there
were no matters submitted to a vote of security holders.
Item 4A. Executive Officers of the Registrant
Executive officers of the Company, their respective ages as of June 30,
2002, and their positions held with the Company are as follows:
Name Age Position
Lawrence A. Sala..........................39 President, Chief Executive
Officer, Chairman and Director
Carl W. Gerst, Jr.........................64 Chief Technical Officer, Vice
Chairman and Director
Gert R. Thygesen..........................47 Vice President, Technology
Joseph E. Porcello........................50 Vice President, Finance,
Treasurer
Mark P. Burdick...........................44 Vice President and General
Manager
Timothy P. Ross...........................43 Vice President, Business
Development
Thomas J. Passaro, Jr.....................41 Vice President and President of
RF Power
Raymond Simione...........................61 Vice President and President of
Amitron
Rutger Theunissen.........................34 Managing Director of Anaren
Europe
Stanley S. Slingerland....................54 Vice President, Human Resources
20
Lawrence A. Sala joined the Company in 1984. He has been President since
May 1995, has served as Chief Executive Officer since September 1997, and has
been Chairman of the Board of Directors since November 2001. Mr. Sala became a
member of the Board of Directors of the Company 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.
Carl W. Gerst, Jr. has been a member of the Board of Directors of the
Company since 1968. Mr. Gerst has served as Chief Technical Officer and Vice
Chairman of the Board since May 1995 and served as Treasurer from May 1992 to
November 2001. Mr. Gerst previously served as Executive Vice President of the
Company from its 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 the Company in 1981 and has served as Vice
President of Technology since September 2000. He previously served as Vice
President, Operations since April 1995 and as Operations Manager of the Company
from 1992 until 1995 and as 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 the Company in 1977 and has served as Vice
President, Finance, since May 1995 and Treasurer since November 2001. He
previously served as the Company's 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.
Mark P. Burdick has been with the Company since 1978 and has served as
Vice President and General Manager since September, 2000. He served as Vice
President and General Manager, Wireless Group since November 1999, as Business
Unit Manager -- Commercial Products from 1994 to 1999, and as Group Manager for
Defense Radar Countermeasure Subsystems from 1991 to 1994. Mr. Burdick holds a
bachelor of science in electrical engineering from the Rochester Institute of
Technology, and a Master's of Business Administration from the University of
Rochester.
Timothy P. Ross has been with the Company since 1982 and has served as
Vice President -- Business Development since September, 2000. He served as Vice
President and General Manager, Space and Defense Group, of the Company since
November 1999. Mr. Ross served as Business Unit Manager -- Satellite
Communications of the Company from 1995 to 1999 and as a Program Manager from
1988 to 1995. Mr. Ross holds an associate's degree in engineering science, a
bachelor of science in electrical engineering from Clarkson University, and a
Master's in Business Administration from the University of Rochester.
Thomas J. Passaro, Jr. joined the Company in February 2000 in connection
with the acquisition of RF Power. He serves as a Vice President of the Company
and as President of RF Power. Mr. Passaro, a co-founder of RF Power, served as
its President from June 1998 to February 2000 and as its Vice President from
1988 to June 1998.
21
Raymond C. Simione joined the Company in August 2001 with the acquisition
of Amitron. He serves as a Vice President of the Company and as President of
Amitron. Mr. Simione was one of the founders of Amitron in 1985 and has served
as its President since the founding. Mr. Simione holds an associate degree in
electrical engineering from Lowell Technical Institute and a bachelor of science
in industrial engineering from Merrimac College.
Rutger Theunissen joined the Company in May 2002 as the Managing Director
of Anaren Europe, The Netherland subsidiary acquired by the Company as of
October 1, 2001. Prior to joining Anaren, Mr. Theunissen was a strategic
purchaser for Philips Electronics from 1996 to 1998 and the Global Purchasing
Manager for Philips Electronics from 1998 to 2000. Mr. Theunissen holds a
bachelor's degree in chemical technology from the Delft University of Technology
and a Master's in Business Administration from INSEAD in France.
Stanley S. Slingerland joined the Company in 1980 and has served as Vice
President, Human Resources since November 1996. He previously served as Human
Resource Manager of the Company until 1996. Mr. Slingerland holds a bachelor's
degree from Hope College. Effective July 12, 2002, Mr. Slingerland retired from
the Company.
Each executive officer is elected annually by the Board of Directors of
the Company and serves at the pleasure of the Board.
22
PART II
Item 5. Market For the Company's Common Stock and Related Stockholder Matters
The common stock of the Company is quoted on The Nasdaq National Market
under the symbol "ANEN." The following table sets forth the range of quarterly
high and low sales prices reported on The Nasdaq National Market for the
Company's common stock for the quarters indicated. Quotations represent prices
between dealers and do not include retail mark-ups, mark- downs or commissions.
Prices set forth below have been adjusted to reflect a two-for-one stock split
effectuated in the form of a stock dividend paid on November 27, 2000.
Fiscal 2002 Fiscal 2001
Quarter Quarter
----------------------------------------------- -------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
High $26.010 $19.330 $19.630 $16.100 $71.375 $77.000 $66.500 $25.490
Low $15.000 $13.500 $11.920 $7.640 $31.500 $34.625 $11.438 $10.000
The Company had approximately 423 holders of record of its common stock at
August 2, 2002.
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain earnings, if any, to support the
development of its business and does not anticipate paying cash dividends for
the foreseeable future. Payment of future dividends, if any, will be at the
discretion of the Board of Directors after taking into account various factors,
including the Company's financial condition, operating results and current and
anticipated cash needs. Although there are no direct restrictions on payments of
cash dividends under the Company's bank credit facility, the Company is required
to maintain a certain level of tangible net worth. This requirement may restrict
the ability of the Company to pay cash dividends in the future.
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data set forth below with respect to
the Company's statements of income for each of the years in the three year
period ended June 30, 2002, and with respect to the balance sheets at June 30,
2001 and 2002, are derived from the consolidated financial statements that have
been audited by KPMG LLP, independent auditors, which are included elsewhere in
this Annual Report on Form 10-K, and are qualified by reference to such
consolidated financial statements. The statements of income data for the years
ended June 30, 1998 and June 30, 1999, and the balance sheet data at June 30,
1998, June 30, 1999 and June 30, 2000, are derived from audited consolidated
financial statements not included in this Annual Report on Form 10-K. The
following selected financial data should be read in conjunction with the
consolidated financial statements for the Company and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
operations included elsewhere herein.
23
Years Ended
June 30, June 30, June 30, June 30, June 30,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(In thousands, except per share data)
Statement of Income Data:
Net sales $ 73,568 $ 84,825 $ 60,172 $ 45,739 $ 37,449
Cost of sales 51,369 52,527 35,074 27,711 23,571
-------- -------- -------- -------- --------
Gross profit 22,199 32,298 25,098 18,028 13,878
-------- -------- -------- -------- --------
Operating expenses:
Marketing 7,256 6,584 5,434 4,177 3,998
Research and development 6,283 5,023 3,816 2,835 1,380
General and administrative 8,105 8,392 4,394 3,220 2,873
Restructuring -- 688 -- -- --
Fire related 711 -- -- -- --
-------- -------- -------- -------- --------
Total operating expenses 22,355 20,687 13,644 10,232 8,251
-------- -------- -------- -------- --------
Operating income (loss) (156) 11,611 11,454 7,796 5,627
-------- -------- -------- -------- --------
Other income (expense):
Interest expense (149) (159) (66) (38) (82)
Other, primarily interest income 3,932 7,162 3,316 1,396 922
-------- -------- -------- -------- --------
Total other income 3,783 7,003 3,250 1,358 840
-------- -------- -------- -------- --------
Income before income taxes
and extraordinary item 3,627 18,614 14,704 9,154 6,467
Income taxes (405) 6,400 5,063 2,204 2,330
-------- -------- -------- -------- --------
Income before extraordinary item 4,032 12,214 9,641 6,950 4,137
Extraordinary item-gain on acquisition 3,407
-------- -------- -------- -------- --------
Net income $ 7,439 $ 12,214 $ 9,641 $ 6,950 $ 4,137
======== ======== ======== ======== ========
Basic earnings per share:
Net income before extraordinary item $ .18 $ .55 $ .54 $ .42 $ .28
Extraordinary item - gain on acquisition .15 -- -- -- --
-------- -------- -------- -------- --------
Net income $ .33 $ .55 $ .54 $ .42 $ .28
======== ======== ======== ======== ========
Diluted earnings per share:
Net income before extraordinary item $ .17 $ .52 $ .50 $ .40 $ .26
Extraordinary item - gain on acquisition .15 -- -- -- --
-------- -------- -------- -------- --------
Net income $ .32 $ .52 $ .50 $ .40 $ .26
======== ======== ======== ======== ========
Shares used in computing net earnings per share:
Basic 22,323 22,134 17,978 15,566 14,952
Diluted 23,090 23,455 19,299 17,310 15,711
24
Years Ended
June 30, June 30, June 30, June 30, June 30,
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
(In thousands, except per share data)
Balance Sheet Data:
Cash and cash equivalents $ 12,565 $ 11,748 $ 6,179 $ 13,482 $ 11,249
Working capital 143,487 146,677 106,271 39,053 38,965
Total assets 221,586 209,055 189,696 58,467 50,903
Long-term debt, less current installments -- -- -- -- --
Stockholders' equity 209,553 199,454 179,572 51,845 45,506
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the consolidated
financial statements and the notes thereto appearing elsewhere in this Form
10-K. The following discussion, other than historical facts, contains
forward-looking statements that involve a number of risks and uncertainties. The
Company's results could differ materially from those anticipated in these
forward-looking statements as a result of various factors, including factors
described elsewhere in this Annual Report on Form 10-K.
Overview
The Company designs, develops, and markets integrated microwave
components, assemblies, and subsystems for the wireless communications,
satellite communications, and defense electronics markets. The Company uses its
proprietary Multi-Layer Stripline technology to generate compact, lightweight,
and cost-effective products for use in these markets. The Company offers its
integrated assemblies and high-end subsystems to leading wireless communications
equipment manufacturers such as Ericsson, Motorola, Lucent Technologies, and
Nortel Networks and to satellite communications companies such as Boeing, Inc.
and Lockheed Martin.
The Company operates predominantly in the wireless communications,
satellite communications, and defense electronics markets. The two reporting
segments of the Company 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 the Company organizes and evaluates financial
information internally for making operating decisions and assessing performance.
The Company generally recognizes sales at the time products are shipped to
customers, provided that persuasive evidence of an arrangement exists, the sales
price is fixed or easily determinable, collectibility is reasonably assured and
title and risk of loss have passed to the
25
customer. Title and the risks and rewards of ownership of products are generally
transferred at the time of shipment. Payments received from customers in advance
of products delivered are recorded as customer advance payments until earned. A
small percentage of sales are derived from long-term fixed-price contracts for
the sale of large space and defense electronics products. Sales and estimated
profits under long-term contracts are recognized using the percentage of
completion method of accounting on a units-of-delivery basis. Profit estimates
are revised periodically based upon changes in sales value and costs at
completion. Any losses on these contracts are recognized in the period in which
such losses are determined.
Effective July 1, 2001, the Company adopted Financial Accounting Standard
Board (FASB) Statement No. 141 - Business Combinations and Statement No. 142 -
Goodwill and Other Intangibles. As a result of the adoption of these new
standards and in conjunction with the completion of goodwill impairment reviews
by an outside appraisal firm, the Company ceased amortization of the goodwill
recorded as part of its previous acquisition transactions. If the Company had
discontinued amortization of goodwill at the beginning of the first quarter of
the prior fiscal year (2001), net earnings and basic and diluted earnings per
share would have been increased by $1,553,042 or $.07 per share for the year
ended June 30, 2001.
On August 31, 2001, the Company acquired all of the outstanding capital
stock of Amitron, Inc. Amitron is based in North Andover, Massachusetts and is
primarily engaged in the design and manufacture of ceramic components and
circuits for the medical, telecommunications and defense electronics markets.
The aggregate purchase consideration was $11,693,256, consisting of cash of
$9,919,664 (including cash direct acquisition costs), non-cash direct
acquisition costs in the form of stock options for service of $18,183, and
95,704 shares of the Company's common stock with an aggregate value of
$1,755,409. The acquisition was accounted for under the purchase method of
accounting for business combinations.
Effective October 1, 2001 the Company acquired all of the outstanding
capital stock of The 5M Company Europe, B.V., a manufacturer of microwave
circuits based in Almelo, The Netherlands. The Company's name was subsequently
changed to Anaren Europe, B.V. Anaren Europe's manufacturing technology is
similar to the Company's Multi-Layer Stripline technology. This manufacturing
technology utilizes a unique metal backing technology which offers both cost and
performance advantages for high power applications. The aggregate purchase
consideration for this transaction was $4,088,547, consisting of cash of
$3,869,823 (including direct acquisition costs), and Company stock options with
an aggregate fair value of $218,724. The acquisition was accounted for under the
purchase method of accounting for business combinations.
In January 2002, Anaren Europe completed the reconstruction of its factory
due to a fire in July 2001, which partially destroyed this facility. As of July
2002, Anaren Europe's facility is fully operational and the Company is actively
engaged in rebuilding its customer base. As a result of the fire, Anaren Europe
received an insurance settlement through its property and business interruption
insurance policies of approximately $16.0 million in December 2001 to offset
expenses incurred in out-sourcing production, cleaning the facility and
equipment and repairing equipment damaged but not destroyed in the fire, and to
recognize the replacement cost to be received for inventory and equipment
destroyed by the fire.
26
As a result of the fire and the subsequent insurance claim, the value of
Anaren Europe's assets at the time of purchase was significantly higher than the
consideration paid by Anaren. This situation resulted in significant negative
goodwill being generated by the transaction, which, under current accounting
convention, was first offset by writing down the acquired long-lived assets to
zero and then by recognizing an "extraordinary gain" of $3,407,000, or $0.15 per
share, in the second quarter ended December 31, 2001.
In March 2002, the Company, through a newly created subsidiary, Anaren
Communication Suzhou Co., Ltd., signed a three-year lease for a 12,300 square
foot manufacturing facility in Suzhou Industrial Park in Suzhou, China. The
Company has hired a General Manager for the facility and additional staffing
began in early July 2002. The Company presently expects to begin light
manufacturing and assembly at this location during the second quarter of fiscal
2003. It is anticipated that this facility will serve all of the Company's Asian
customers and will concentrate on producing more labor intensive products.
Additionally, it is expected that the Company will use this location to
facilitate procurement of raw materials in China, when possible, for the
Company's other subsidiaries.
Results of Operations
The following table sets forth the percentage relationships of certain
items from the Company's consolidated statements of operations as a percentage
of net sales for the periods indicated:
Years Ended June 30,
--------------------------
2002 2001 2001
---- ---- ----
Net sales ..................................... 100.0% 100.0% 100.0%
Cost of sales ................................. 69.8 61.9 58.3
----- ----- -----
Gross profit .................................. 30.2 38.1 41.7
----- ----- -----
Operating expenses:
Marketing ................................ 9.9 7.8 9.0
Research and development ................. 8.5 5.9 6.3
General and administrative ............... 11.0 9.9 7.3
Restructuring ............................ -- 0.8 --
Fire related ............................. 1.0 -- --
----- ----- -----
Total operating expenses ............. 30.4 24.4 22.6
----- ----- -----
Operating income .............................. (0.2) 13.7 19.1
----- ----- -----
Other income (expense):
Interest expense ......................... (0.2) (0.2) (0.1)
Other, primarily interest income ......... 5.3 8.4 5.5
----- ----- -----
Total other income ................... 5.1 8.2 5.4
----- ----- -----
Income before income taxes and
extraordinary item .......................... 4.9 21.9 24.5
Income taxes .................................. (0.6) 7.5 8.4
----- ----- -----
Net income before extraordinary item % ........ 5.5% 14.4% 16.1%
Extraordinary item - gain on acquisition ...... 4.6 -- --
----- ----- -----
Net income .................................... 10.1% 14.4% 16.1%
===== ===== =====
27
The following table sets forth the Company's net sales by industry segment
for the periods indicated:
Years Ended June 30,
--------------------
2002 2001 2000
---- ---- ----
(In thousands)
Wireless ....................... $47,497 $61,710 $38,807
Space & Defense ................ 26,071 23,115 21,365
------- ------- -------
$73,568 $84,825 $60,172
======= ======= =======
Year Ended June 30, 2002 Compared to Year Ended June 30, 2001
Net Sales. Net sales decreased $11.2 million, or 13.3%, to $73.6 million for the
year ended June 30, 2002 compared to $84.8 million for the previous year. This
decrease was caused by a 23.0% drop in Wireless sales, which was partially
offset by a 12.8% rise in sales of Space and Defense products.
The $14.2 million decrease in sales of Wireless products, which consist of
standard surface mount components and custom subassemblies for use in building
wireless base station equipment, was caused by a rapid downturn in capital
expenditures for wireless infrastructure equipment which began in the latter
part of fiscal 2001. This downturn resulted in numerous reductions in customer
demand forecasts and delivery push outs beginning in March 2001 and continuing
through fiscal 2002. This market downturn has affected all of the Company's
Wireless product lines and has most severely affected sales of Wireless standard
components. The downturn in Wireless market sales was somewhat offset by the
inclusion of $8.4 million in sales in fiscal 2002 from Anaren Europe and
Amitron, the Company's fiscal 2002 acquisitions. Although delivery push outs
have stopped and the Company saw a $2.7 million increase in Wireless sales from
quarter two to quarters three and a $1.6 million increase from quarter three to
quarter four, the worldwide Wireless market downturn is expected to continue for
an uncertain period.
Space and Defense products consist of custom components and assemblies for
communication satellites and defense radar countermeasures subsystems for the
military. Sales in the Space and Defense group rose $3.0 million, or 12.8%, in
fiscal 2002, compared to the prior fiscal year. This increase in shipments
resulted from factory production shipments for the Boeing Spaceway program. This
satellite program, which entered full factory production in the fourth quarter
of fiscal 2001, is expected to place Space and Defense shipments in the $7.0 -
$7.5 million range, quarterly, through the remainder of calendar 2002.
Gross Profit. Cost of sales consists primarily of engineering design costs,
material, material fabrication costs, assembly costs and test costs. Gross
profit for fiscal 2002 was $22.2 million (30.2% of net sales), down from $32.3
million (38.1% of net sales) for the prior year. The decrease in gross margin
resulted from the decline in sales volume, which caused under absorption of
factory overhead compared to the previous year. Presently, the Company expects
gross margins to remain at or below current levels in fiscal 2003 and not to
improve significantly without an increase in sales volume, both domestically and
at Anaren Europe in The Netherlands.
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 10.1% to $7.3
million (9.9% of net sales) for fiscal 2002 from
28
$6.6 million (7.8% of net sales) for fiscal 2001. Marketing expenses increased
due to the addition of new east and west coast marketing offices and the
additional marketing expenses associated with the Company's acquired businesses,
Amitron and Anaren Europe, which amounted to approximately $1.0 million in
fiscal 2002.
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 25.1% to
$6.3 million (8.5% of net sales) in fiscal 2002 from $5.0 million (5.9% of net
sales) for fiscal 2001. Research and development expenditures are supporting
further development of wireless infrastructure products and new wireless
networking product opportunities with a renewed emphasis on developing new
standard surface mount wireless products. Despite the current wireless market
downturn, the Company does not expect to reduce its current research and
development efforts in the near term and is presently working on a number of new
standard wireless products.
General and Administrative. General and administrative expenses consist of
employee related expenses, professional services, goodwill (in fiscal 2001) and
intangible amortization, travel related expenses and other corporate costs.
General and administrative expenses decreased 3.4% to $8.1 million (11.0% of net
sales) for fiscal 2002 from $8.4 million (9.9% of net sales) for fiscal 2001.
General and administrative expenses have decreased primarily due to the adoption
of FASB Statement No. 142 which eliminated the amortization of goodwill starting
in the first quarter of fiscal 2002. The elimination of goodwill reduced general
and administrative expenses by $1.6 million in the current year compared to last
year. This elimination of goodwill amortization was partially offset by an
increase in identifiable intangible amortization of $356,000 in fiscal 2002
associated with the Company's acquisition of Amitron. Additionally, general and
administrative expense for fiscal 2002 includes ten months and nine of expense
for Amitron and Anaren Europe, respectively, which amounted to approximately
$2.0 million in the aggregate.
Operating Income. Operating income decreased $11.8 million to an operating loss
of $156,000 (0.2% of net sales) for fiscal 2002, from an operating profit of
$11.6 million (13.7% of net sales) for fiscal 2001. On a reporting segment
basis, the Wireless operating loss was $7.9 million for fiscal 2002, down 219.0%
or $14.5 million from $6.6 million operating income in fiscal 2001. The
principal reason for the decrease in Wireless operating income in fiscal 2002
compared to fiscal 2001 was the 23.0% decrease in wireless sales year over year
due to the large decrease in Wireless base station equipment demand worldwide,
which began in the last half of fiscal 2001 and continues at the present time.
The large decline in sales levels in the Wireless segment resulted in
significant under absorption of fixed overhead within the group during the
current fiscal year. Additionally, operating income in the Wireless sector was
further decreased by the $4.4 million operating loss at Anaren Europe in fiscal
2002 due to the fire recovery costs and the low level of sales caused by the
fire.
Space and Defense operating income rose $2.7 million, or 52.5%, for fiscal 2002
compared to fiscal 2001. This increase resulted from a $3.0 million rise in
Space and Defense revenues year over year, due to the Spaceway Program entering
full production at the end of fiscal year 2001.
29
This increase in revenue resulted in better absorption of fixed overhead in
fiscal 2002 compared to the previous year. Additionally, cost reduction and
efficiency efforts in this segment were successful in reducing the overall cost
of operations in fiscal 2002 compared to the prior year.
Other Income. Other income is primarily interest income received on invested
cash balances and income from debt extinguishment due to leased equipment
destroyed in the Anaren Europe July 2001 fire. Other income decreased 45.1% to
$3.9 million (5.3% of net sales) for the year ended June 30, 2002 from $7.2
million (8.4% of net sales) for the same period last year. This decrease was
caused mainly by the decline in market interest rates over the last 12 months
brought about by reductions in the Federal Fund rates, and the use of
approximately $12.1 million in cash to complete the acquisitions of Amitron and
Anaren Europe. Interest income will fluctuate based on the level of interest
rates and the level of investible cash balances. During the fourth quarter of
fiscal 2002, the Company recorded an other income item amounting to
approximately $194,000 representing the remaining principal balance on a
capitalized lease obligation which was no longer payable by the Company. The
equipment leased by the Company was destroyed in the July 2001 fire.
Interest Expense: Interest expense primarily represents loan interest,
commitment fees and interest incurred on certain deferred obligations. Interest
expense for fiscal 2002 was $149,000 (0.2% of net sales) compared to $160,000
(0.2% of net sales) for fiscal 2001.
Income Taxes. The tax benefit for fiscal 2002 was $405,000 ((0.6)% of net
sales). This compared to tax expense of $6.4 million (7.5% of net sales) for
fiscal 2001, representing an effective tax rate of 34.4%. During the fourth
quarter, the Company finalized an analysis of certain available research credits
and export tax benefits and recorded a tax benefit of $857,000. In addition, the
Company's effective tax rate decreased as a direct result of the increased
proportion of federally exempt state municipal bond income in relation to income
before taxes. Going forward the Company's effective tax rate will be impacted by
the levels of tax credits, export tax benefits, nontaxable interest income and
the income/loss generated by the foreign subsidiaries in relation to income
before taxes.
Extraordinary gain. The extraordinary gain in fiscal 2002 of $3.4 million (4.6%
of net sales) resulted from the purchase of Anaren Europe. As a result of the
fire and the subsequent insurance settlement, the value of the Anaren Europe
assets at the time of purchase was significantly higher than the consideration
paid by Anaren. This situation resulted in significant negative goodwill being
generated by the transaction, which, under current accounting convention, was
first offset by writing down the acquired fixed assets to zero and then by
recognizing an "extraordinary gain" of $3,407,000, or $0.15 per share, in the
second quarter of fiscal 2002.
30
Year Ended June 30, 2001 (Fiscal 2001) Compared to Year Ended June 30, 2000
(Fiscal 2000)
Net Sales. Net sales for fiscal 2001 were $84.8 million, up 41.0% over net sales
of $60.2 million in fiscal 2000. The increase was the result of a 59.0% rise in
Wireless sales and an 8.2% increase in shipments of Space and Defense products.
The increase in the sale of Wireless products amounted to $22.9 million and
reflects mainly the addition of sales the Company's two acquisitions, Anaren
Power Products and RF Power, whose combined sales were $24.1 million for fiscal
2001. Wireless product sales growth, after adjusting for these acquisitions, was
approximately 12.4%, or $4.1 million, in fiscal 2001 compared to the prior year
sales.
During the latter part of fiscal 2001, the Company saw a rapid downturn in
expenditures for capital infrastructure by service providers. This resulted in
an increasing number of reductions in customer demand forecasts and delivery
pushouts beginning toward the end of February 2001 and continuing through June
2001. This severe market downturn had a negative impact on all of the Company's
Wireless product lines that continues at present.
Sales in the Space and Defense group rose $1.8 million, or 8.2%, in fiscal 2001
compared to the prior fiscal year. This small increase in shipments resulted
from the first pre-production engineering hardware shipments and initial
production shipments for the Boeing Spaceway program. This program, which had
been in an engineering design phase for the preceding year and a half, entered
full factory production in the fourth quarter of fiscal 2001.
Gross Profit. Gross profit for fiscal 2001 was $32.3 million (38.1% of net
sales), up $7.2 million from $25.1 million (41.7% of net sales) for fiscal 2000.
Gross profit increased significantly due to the absolute increase in sales in
fiscal 2001 compared to fiscal 2000. The rise in sales volume did not result in
further improvement in gross margin as a percent of sales, year over year, as
the gross margin at the Company's new subsidiaries, which provided the majority
of the fiscal 2001 sales growth, were below those of its main plant operations
in East Syracuse, New York. Additionally, gross profit improvement was further
hindered by the decline in shipments in the second half of fiscal 2001 due to
the downturn in capital spending for wireless infrastructure equipment. In light
of the lower sales levels, the Company took action to consolidate its
operations, reduced its personnel levels by over 25.0% from their peak in
February 2001, and decreased other indirect costs.
Marketing. Marketing expenses increased 21.1% to $6.6 million (7.8% of net
sales) for fiscal 2001 from $5.4 million (9.0% of net sales) for fiscal 2000.
This increase was a result of the continuing expansion of the marketing and
sales organization to support the Company's expanding commercial markets, as
well as eleven and eight months of expense for Anaren Power Products and RF
Power, respectively, not included in fiscal 2000 expenses.
Research and Development. Research and development expenses increased 31.6% to
$5.0 million (5.9% of net sales) in fiscal 2001 from $3.8 million (6.3% of net
sales) for fiscal 2000. Research and development expenditures expanded to
support further development of wireless infrastructure products and new
broadband fixed wireless product opportunities. The inclusion of Anaren Power
Products and RF Power in the Company's research and development expense in
fiscal 2001 accounted for approximately $438,000 in additional expenses.
31
General and Administrative. General and administrative expenses increased 91.0%
to $8.4 million (9.9% of net sales) for fiscal 2001 from $4.4 million (7.3% of
net sales) for fiscal 2000. General and administrative expenses increased due to
the hiring of additional personnel to support the Company's corporate
acquisition activity, a rise in professional fees due to the Company's growth,
and amortization of goodwill expense related to acquisitions. Additionally, the
fiscal 2001 expense includes 11 and eight months general and administrative
expense for Anaren Power Products and RF Power, respectively, not included in
fiscal 2000.
Restructuring. Restructuring expense consists of severance pay, vacation pay,
abandoned equipment and leasehold impairment charges and accrued noncancellable
lease obligation expenses related to the closure of Anaren Power Products' New
Jersey facility and relocation of its operations to East Syracuse, New York.
Restructuring expenses were $688,000 (0.8% of net sales) in fiscal 2001 compared
to no restructuring expense in fiscal 2000.
Operating Income. Operating income increased 1.3% to $11.6 million (13.7% of net
sales) for fiscal 2001, compared to $11.5 million (19.1% of net sales) for
fiscal 2000. On a reporting segment basis Wireless operating income was $6.6
million for fiscal 2001, down 21.4% from $8.4 million for fiscal 2000. The main
reason for the decline in Wireless operating income was the sudden drop in
worldwide demand for wireless infrastructure equipment which resulted in a
severe decline in Company Wireless sales in the latter part of fiscal 2001.
These significantly lower sales levels, coupled with the restructuring charge
related to the closing of Anaren Power Products' New Jersey facility and
relocation of its ferrite production to the Company's East Syracuse, New York
facility, caused steep declines in Wireless operating income which culminated in
a Wireless operating loss in the fourth quarter.
Space and Defense operating income rose 64.2% to $5.1 million in fiscal 2001,
compared to $3.1 million in fiscal 2000. This increase resulted from a $1.9
million rise in revenue for this segment in fiscal 2001, as well as a much more
profitable product mix for fiscal 2001 compared to the previous fiscal year
which allowed the Company to ship more product with a lower head count within
the segment.
Interest Expense. Interest expense for fiscal 2001 was $160,000 (0.2% of net
sales) compared to $66,000 (0.1% of net sales) for fiscal 2000. The increase in
interest expense was caused by the addition of interest bearing obligations of
RF Power.
Other Income. Other income increased 116.0% to $7.2 million (8.4% of net sales)
for fiscal 2001 from $3.3 million (5.5% of net sales) for fiscal 2000 due to the
income received on the $112 million of net proceeds raised through the Company's
follow-on offering completed in April 2000.
Income Taxes. Income tax expense for fiscal 2001 was $6.4 million (7.5% of net
sales), representing an effective tax rate of 34.4%. This compared to $5.1
million (8.4% of net sales) for fiscal 2000, also representing an effective tax
rate of 34.4%.
32
Critical Accounting Policies
The methods, estimates and judgments management uses in applying the Company's
most critical accounting policies have a significant impact on the results
reported in the Company's financial statements. The U.S. Securities and Exchange
Commission has defined the most critical accounting policies as the ones that
are most important to the portrayal of Anaren's financial condition and results,
and requires management to make the most difficult and subjective judgments,
often as a result of the need to make estimates of matters that are inherently
uncertain. Based on this definition, the Company's most critical policies
include: valuation of accounts receivable, which impacts general and
administrative expense; valuation of inventory, which impacts cost of sales and
gross margin; the assessment of recoverability of goodwill and other intangible
assets, which impacts write-offs of goodwill and intangibles; and accounting for
income taxes, which impacts valuation allowance and the effective tax rate.
Management reviews the estimates, including, but not limited to, allowance for
doubtful accounts, inventory reserves and income tax valuations on a regular
basis and makes adjustments based on historical experiences, current conditions
and future expectations. The reviews are performed regularly and adjustments are
made as required by current available information. The Company believes these
estimates are reasonable, but actual results could differ from these estimates.
The Company states inventories at the lower of cost or market, using a standard
cost methodology to determine the cost basis for the inventory. This method
approximates actual cost on a first-in-first-out basis. The recoverability of
inventories is based on the types and levels of inventory held, forecasted
demand, pricing, competition and changes in technology. The Company's accounts
receivable represent those amounts, which have been billed to our customers but
not yet collected. The Company analyzes various factors including historical
experience, credit worthiness of customers and current market and economic
conditions. The allowance for doubtful accounts balance is established based on
the portion of those accounts receivable which are deemed to be potentially
uncollectible. Changes in judgments on these factors could impact the timing of
costs recognized.
The Company records valuation allowances to reduce deferred tax assets when it
is more likely than not that some portion of the amount may not be realized. The
Company evaluates the need for valuation allowances on a regular basis and
adjust as needed. These adjustments, when made, would have an impact on the
Company's financial statements in the period that they were recorded.
33
Intangible assets with estimable useful lives are amortized to their residual
values over those estimated useful lives in proportion to the economic benefit
consumed.
Goodwill is tested annually for impairment by the Company at the reporting unit
level, by comparing the fair value of the reporting unit with its carrying
value. Valuation methods for determining the fair value of the reporting unit
include reviewing quoted market prices and discounted cash flows. If the
goodwill is indicated as being impaired (the fair value of the reporting units
is less than the carrying amount), the fair value of the reporting unit is then
allocated to its assets and liabilities in a manner similar to a purchase price
allocation in order to determine the implied fair value of the reporting unit
goodwill. This implied fair value of the reporting unit goodwill is then
compared with the carrying amount of the reporting unit goodwill and, if it is
less, the Company would then recognize an impairment loss.
The projection of future cash flows for the goodwill impairment analysis
requires significant judgments and estimates with respect to future revenues
related to the assets and the future cash outlays related to those revenues.
Actual revenues and related cash flows or changes in anticipated revenues and
related cash flows could result in changes in this assessment and result in an
impairment charge. The use of different assumptions could increase or decrease
the related impairment charge.
Liquidity and Capital Resources
Net cash provided by operations for the years ended June 30, 2002 and 2001 were
$17.1 million and $16.7 million, respectively. The positive cash flow from
operations in both fiscal 2002 and 2001 was due to the net income attained in
both years and, in fiscal 2002, to the large amount of cash received in the
second and third quarters ($10.7 million) from the Anaren Europe insurance
settlement. Additionally, the increase in cash generated by operations in fiscal
2001 was augmented by $5.4 million generated by tax benefits related to the
exercise of stock options by employees compared to $461,000 in fiscal 2002.
Net cash used in investing activities in fiscal 2002 consists of funds used to
purchase capital equipment and cash used to purchase the capital stock of
Amitron in August 2001 and Anaren Europe in October 2001. Capital equipment
placed in service amounted to $9.8 million, including $5.8 million at Anaren
Europe, in the year ended June 30, 2002 compared to $8.0 million in the
previous fiscal year. Additionally, the Company expended $9.9 million in cash to
purchase all the capital stock of Amitron. Funds for this transaction were
obtained through the proceeds of matured marketable debt securities in the
amount of $13.3 million. In October 2001, the Company expended $3.9 million in
cash to purchase the capital stock of Anaren Europe. Funds for this transaction
came from the Company's operating cash account. Additionally, the Company
expended $5.2 million in fiscal 2002 to purchase common stock of Celeritek, Inc.
Funds for these purchases came from the Company's operating cash account.
The majority of the cash used in investing activities in fiscal 2001 was the
$17.9 million used to purchase the assets of Ocean Microwave, Inc. Funds for
this transaction were obtained through the proceeds of matured marketable debt
securities in the amount of $18.5 million.
34
Net cash used by financing activities was $1.6 million in fiscal 2002 and
consisted of $2.0 million used to pay off loans of Amitron and Anaren Europe,
reduced by $399,000 generated from the exercise of stock options. In the prior
year funds generated by financing activities amounted to $1.2 million and
consisted of $2.9 million generated through the exercise of stock options, and
$408,000 used to pay off loans of Ocean Microwave which were assumed as part of
the asset purchase.
Additionally, during the fourth quarter of fiscal 2001, $1.3 million was used to
repurchase 117,000 shares of the Company's common stock. The purchases were made
under a 2.0 million share repurchase program authorized by the Board of
Directors. No repurchases of the Company's shares took place in fiscal 2002.
The Company has a credit facility providing an unsecured $10 million working
capital revolving line of credit bearing interest at the LIBOR interest rate
plus one hundred twenty-five basis points and maturing December 31, 2006. 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
applicable loan agreement. The Company believes that it was in compliance with
all restrictions and covenants at June 30, 2002. At June 30, 2002, $0 was
outstanding under the credit facility. The Company believes that its cash
requirements for the foreseeable future will be satisfied by currently invested
cash balances, expected cash flows from operations, and funds available under
the credit facility.
Disclosures About Contractual Obligations and Commercial Commitments
Accounting standards require disclosure concerning the Company's obligations and
commitments to make future payments under contracts, such as debt and lease
agreements, and under contingent commitments, such as debt guarantees. The
Company's obligations and commitments are as follows:
Less
Total Than 1 Yr. 2 - 3 Yrs. 4 - 5 Yrs. Over 5 Yrs.
----- ---------- ---------- --------- ----------
Payment Due by Period
---------------------
Contractual obligations
- -----------------------
Long term debt $ -- $ -- $ -- $ -- $ --
Operating leases - facilities 6,023,091 994,409 1,341,155 1,021,325 2,666,202
Deferred compensation 526,808 65,000 130,000 130,000 201,808
Lines of credit -- -- -- -- --
Recent Accounting Pronouncements
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations." FASB 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. FASB 143 is required for adoption for fiscal
years beginning after June 14, 2002. The Company has reviewed the provisions of
FASB 143, and believes that upon adoption, the Statement will not have a
significant effect on its consolidated financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets." FASB 144 addresses financial accounting and
reporting for the impairment of long-lived assets and for long-lived assets to
be disposed of. FASB 144 is required for adoption for fiscal years beginning
after December 15, 2001 and interim periods within those fiscal years. The
Company has reviewed the provisions of FASB 144, and believes that upon
adoption, the Statement will not have a significant effect on its consolidated
financial statements.
35
In April 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS
145). SFAS 145 is required for adoption for fiscal years beginning after May 15,
2002, with early adoption of the provisions related to the rescission of
Statement 4 encouraged. The Company has reviewed the provisions of SFAS 145, and
believes that upon adoption, the Statements will not have a significant effect
on its consolidated financial statements.
In July 2002, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 146, Accounting for Restructuring Costs
(SFAS 146). SFAS 146 applies to costs associated with an exit activity
(including restructuring) or with a disposal of long-lived assets. Those
activities can include eliminating or reducing product lines, terminating
employees and contracts, and relocating plant facilities or personnel. Under
SFAS 146, a company will record a liability for a cost associated with an exit
or disposal activity when that liability is incurred and can be measured at fair
value. SFAS 146 will require a company to disclose information about its exit
and disposal activities, the related costs, and changes in those costs in the
notes to the interim and annual financial statements that include the period in
which an exit activity is initiated and in any subsequent period until the
activity is completed. SFAS 146 is effective prospectively for exit or disposal
activities initiated after December 31, 2002, with earlier adoption encouraged.
Under SFAS 146, a company may not restate its previously issued financial
statements and the new Statement grandfathers the accounting for liabilities
that a company had previously recorded under EITF Issue 94-3.
Quantitative and Qualitative Disclosures About Market Risk
The following discusses the Company's 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. Results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including
factors described elsewhere in this Annual Report on Form 10K.
As of June 30, 2002, the Company had cash, cash equivalents and marketable
securities of $124.9 million, of which approximately $108.5 million consisted of
highly liquid investments in marketable debt securities and $3.8 million
consisted of marketable equity securities. The marketable debt securities at
date of purchase normally have maturities between one and 18 months, are exposed
to interest rate risk and will decrease in value if market interest rates
increase. A hypothetical decrease in market interest rate of 10.0% from June 30,
2002 rates, or 0.3%, would have reduced net income and cash flow by
approximately $328,000, or $0.014 per share for the year. Due to the relatively
short maturities of the securities and its ability to hold those investments to
maturity, the Company does not believe that an immediate decrease in interest
rates would have a significant effect on its financial condition or results of
operations. Over time, however, declines in interest rates will reduce the
Company's interest income.
The Company currently owns equity investments held for sale with a market value
of approximately $3.8 million. Fluctuations in market value of these securities
are charged to stockholders' equity monthly. A theoretical 10.0% decline in
market value of these securities would result in a $380,000 reduction in
stockholders' equity.
All of the Company's sales from its domestic U.S. subsidiaries to foreign
customers are denominated in United States dollars and, accordingly are not
exposed to foreign currency exchange risk. Sales of the Company's Netherlands
subsidiary, Anaren Europe, are denominated in Euros to European customers and
United States dollars to U.S. customers. Sales to U.S. customers by Anaren
Europe denominated in United States dollars would be subject to currency
exchange losses. At present, due to the fire at Anaren Europe, sales of that
subsidiary to U.S. customers in U.S. dollars subject to possible currency losses
are less than $100,000 per quarter and thus any possible losses due to currency
fluctuations would not be material to the operating results of the Company until
such time as Anaren Europe's sales increase significantly.
36
Item 8. Financial Statements and Supplementary Data
The financial statements and financial statement schedules called for by this
Item are provided under "Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K," which information is incorporated herein by reference.
The unaudited supplementary financial information required by this Item is
contained in note 23 to the consolidated financial statements of the Company
which are included elsewhere in this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
37
PART III
Item 10. Directors and Executive Officers of Registrant
Information required by this Item concerning directors of the Company is
contained in the Company's proxy statement filed with respect to the 2002 Annual
Meeting of Shareholders and is incorporated by reference herein. The information
regarding executive officers of the Company required by this Item is included in
Item 4A hereof.
Item 11. Executive Compensation
Information required by this Item is contained in the Company's proxy
statement filed with respect to the 2002 Annual Meeting of Shareholders and is
incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this Item is contained in the Company's proxy
statement filed with respect to the 2002 Annual Meeting of Shareholders and is
incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions
Information required by this Item is contained in the Company's proxy
statement filed with respect to the 2002 Annual Meeting of Shareholders and is
incorporated by reference herein.
38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. and 2. Financial Statements and Schedules:
Reference is made to the Index of Financial Statements
hereinafter contained
3. Exhibits:
Reference is made to the list of Exhibits hereinafter
contained
(b) Current Reports on Form 8-K:
The Company was not required to file a Current Report on Form
8-K during the quarter ended June 30, 2002.
(c) Exhibits:
Index to Exhibits
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation, as amended (1)
3.2 Restated By-Laws (2)
4.1 Specimen Certificate of Common Stock (3)
4.2 Shareholder Protection Rights Agreement dated as of April 20,
2001, between the Company and American Stock Transfer & Trust
Company, including forms of Rights Certificate and Election to
Exercise (4)
10.1 Employment Agreement, dated as of July 1, 2001, between the
Company and Lawrence A. Sala (5)
10.2 Pension Plan and Trust (6)
10.3 Anaren Microwave, Inc. Incentive Stock Option Plan, as
amended (7)
10.4 Anaren Microwave, Inc. 1989 Non-statutory Stock Option Plan,
as amended (8)
10.5 Credit Facility Agreement, dated as of December 23, 1997,
between the Company and Manufacturers and Traders Trust
Company, together with the Revolving Credit Note dated
December 23, 1997 executed by the Company in favor of
Manufacturers and Traders Trust Company (9)
39
10.8 Amendment dated January 1, 2002 to Credit Facility Agreement,
dated as of December 23, 1997, between the Company and
Manufacturers and Traders Trust Company. (10)
10.8