-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qc2IQrLqe3GkJbH2HLPa719Z/e1FcB4bV2rxlM3iauI0oEMvw9lTEb0BmZ8kkq5M M7WLnUJp/KkWm2kkq4KIlA== 0000891092-02-000929.txt : 20020807 0000891092-02-000929.hdr.sgml : 20020807 20020806204847 ACCESSION NUMBER: 0000891092-02-000929 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANAREN MICROWAVE INC CENTRAL INDEX KEY: 0000006314 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 160928561 STATE OF INCORPORATION: NY FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-06620 FILM NUMBER: 02721096 BUSINESS ADDRESS: STREET 1: 6635 KIRKVILLE RD CITY: EAST SYRACUSE STATE: NY ZIP: 13057 BUSINESS PHONE: 3154328909 MAIL ADDRESS: STREET 1: 6635 KIRKVILLE ROAD CITY: EAST SYRACUSE STATE: NY ZIP: 13057 FORMER COMPANY: FORMER CONFORMED NAME: MICRONETICS INC DATE OF NAME CHANGE: 19721103 10-K 1 e13706_10k.txt FORM 10-K 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. 2 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. 3 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 4 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 5 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 6 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. 7 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. 8 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. 9 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 10 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 11 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. 12 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. 13 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. 14 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 Anaren Microwave, Inc. Incentive Stock Option Plan for Key Employees (11) 10.9 Anaren Microwave, Inc. Stock Option Plan (12) 10.10 Employment Agreement, dated as of February 29, 2000, between the Company and Thomas J. Passaro, Jr. (13) 10.11 Form of Change of Control Agreements dated March 15, 2002 with Joseph Porcello, Mark Burdick, Timothy Ross, Stanley Slingerland and Gert Thygesen 10.12 Employment Agreement, dated as of April 25, 2002, between the Company and Rutger Theunissen 10.13 Employment Agreement, dated as of August 31, 2001, between the Company and Raymond C. Simione 21 Subsidiaries of the Company 23 Consent of KPMG LLP - ---------- (1) (A) Restated Certificate of Incorporation of the Company, filed on August 11, 1967, is incorporated herein by reference to Exhibit 3(a) to Company's Registration Statement on Form S-1 (Registration No. 2-42704); (B) Amendment, filed on December 19, 1980, is incorporated herein by reference to Exhibit 4.1(ii) to the Company's Registration Statement on Form S-2 (Registration No. 2-86025); (C) Amendment, filed on March 18, 1985, is incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended June 30, 1987; (D) Amendment, filed on December 14, 1987, is incorporated herein by reference to Exhibit 4(a)(iv) to the Company's Registration Statement on Form S-8 (Registration No. 33-19618); (E) Amendment, filed on April 8, 1999, is incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended June 30, 1999; (F) Amendment, filed on February 8, 2000, is incorporated herein reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3 (Registration No. 333-31460) filed with the Securities and Exchange Commission on March 2, 2000; and (G) Amendment, filed on November 22, 2000, is incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q (Commission File No. 0-6620) for the three months ended December 31, 2000. 40 (2) Incorporated herein reference to Exhibit 4.2 to the Company's Registration Statement on Form S-3 (Registration No. 333-31460) filed with the Securities and Exchange Commission on March 2, 2000. (3) Incorporated herein reference to Exhibit 4.3 to the Company's Registration Statement on Form S-3 (Registration No. 333-31460) filed with the Securities and Exchange Commission on March 2, 2000. (4) Incorporated herein by reference to Exhibits 4.1 and 4.2 to the Company's Registration Statement on Form 8-A (Commission File No. 0-6620) filed with the Securities and Exchange Commission on April 26, 2001. (5) Incorporated herein by reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K (Commission File No. 0-6620) for the fiscal year ended June 30, 2001. (6) Incorporated herein by reference to Exhibit 4(b) to the Company's Registration Statement on Form S-8 (Registration No. 33-19618). (7) Incorporated herein by reference to Appendix A to the Company's definitive proxy statement for its 1998 annual meeting of the shareholders (Commission File No. 0-6620), filed with the Securities and Exchange Commission on September 25, 1998. (8) Incorporated herein by reference to Appendix B to the Company's definitive proxy statement for its 1998 annual meeting of the shareholders (Commission File No. 0-6620), filed with the Securities and Exchange Commission on September 25, 1998. (9) Incorporated herein by reference to Exhibit 10.13 to the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 1997. (10) Incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the three months ended December 31, 2001. (11) Incorporated herein by reference to Appendix A to the Company's definitive proxy statement for its 2000 annual meeting of the shareholders (Commission File No. 0-6620), filed with the Securities and Exchange Commission on September 18, 2000. (12) Incorporated herein by reference to Appendix B to the Company's definitive proxy statement for its 2000 annual meeting of the shareholders (Commission File No. 0-6620), filed with the Securities and Exchange Commission on September 18, 2000. (13) Incorporated herein by reference to Exhibit 10.10 to the Company's Annual Report Form 10-K (Commission File No. 0-6620) for the fiscal year ended June 30, 2000. 41 Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Anaren Microwave, Inc. /s/ Lawrence A. Sala -------------------------------------- Name: Lawrence A. Sala Title: President and Chief Executive Officer Date: August 6, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
- -------------------------------------------------------------------------------------------------------------------- Signature Title Date - -------------------------------------------------------------------------------------------------------------------- President, Chief Executive Officer and August 6, 2002 -------------------------- Lawrence A. Sala Chairman of the Board, Director (Principal Executive Officer) - -------------------------------------------------------------------------------------------------------------------- Vice President of Finance and Treasurer August 6, 2002 -------------------------- Joseph E. Porcello (Principal Financial and Accounting Officer) - -------------------------------------------------------------------------------------------------------------------- Chief Technical Officer, August 6, 2002 -------------------------- Carl W. Gerst, Jr. Vice Chairman of the Board and Director - -------------------------------------------------------------------------------------------------------------------- Director August 6, 2002 -------------------------- Herbert I. Corkin - -------------------------------------------------------------------------------------------------------------------- Director August 6, 2002 -------------------------- Dale F. Eck - -------------------------------------------------------------------------------------------------------------------- Director August 6, 2002 -------------------------- Matthew S. Robison - -------------------------------------------------------------------------------------------------------------------- Director August 6, 2002 -------------------------- David Wilemon - --------------------------------------------------------------------------------------------------------------------
42 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Consolidated Financial Statements June 30, 2002 and 2001 (With Independent Auditors' Report Thereon) ANAREN MICROWAVE, INC. AND SUBSIDIARIES Consolidated Financial Statements Index Page Independent Auditors' Report 1 Consolidated Balance Sheets as of June 30, 2002 and 2001 2 Consolidated Statements of Income for the years ended June 30, 2002, 2001, and 2000 3 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended June 30, 2002, 2001, and 2000 4 Consolidated Statements of Cash Flows for the years ended June 30, 2002, 2001, and 2000 5 Notes to Consolidated Financial Statements 6 Independent Auditors' Report The Board of Directors Anaren Microwave, Inc.: We have audited the consolidated financial statements of Anaren Microwave, Inc. and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Anaren Microwave, Inc. and subsidiaries as of June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP Syracuse, New York August 5, 2002 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 2002 and 2001 Assets 2002 2001 ------------ ------------ Current assets: Cash and cash equivalents $ 12,565,424 11,748,542 Securities available for sale (note 4) 3,820,942 -- Securities held to maturity (note 4) 98,955,299 108,557,983 Receivables, less allowance for doubtful accounts of $529,000 and $195,000 in 2002 and 2001, respectively 13,106,583 11,504,168 Inventories (note 5) 20,119,433 18,566,977 Accrued interest receivable 1,206,396 1,304,877 Refundable income taxes -- 53,804 Prepaid expenses 941,691 569,242 Deferred income taxes (note 19) 1,356,294 956,759 Other current assets 188,482 1,156,158 ------------ ------------ Total current assets 152,260,544 154,418,510 Securities held to maturity (note 4) 9,564,558 11,725,960 Property, plant, and equipment, net (note 6) 26,592,375 18,805,901 Goodwill (note 3) 30,715,861 23,410,534 Deferred income taxes (note 19) -- 263,348 Patent, net of accumulated amortization of $215,613 and $143,742 in 2002 and 2001, respectively (note 1) 359,353 431,223 Other intangible assets, net of accumulated amortization of $356,390 at June 30, 2002 2,093,610 -- ------------ ------------ $221,586,301 209,055,476 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 5,046,048 2,985,793 Accrued expenses (note 7) 2,766,350 2,966,258 Income taxes payable 530,857 938,984 Customer advance payments 244,831 767,790 Other current liabilities (note 9) 185,725 65,000 ------------ ------------ Total current liabilities 8,773,811 7,723,825 Deferred income taxes (note 19) 1,357,359 -- Postretirement benefit obligation (note 18) 1,440,085 1,391,496 Other liabilities (note 9) 461,808 486,380 ------------ ------------ Total liabilities 12,033,063 9,601,701 ------------ ------------ Commitments and concentrations (notes 20, 21, and 22) Stockholders' equity: Common stock, $0.01 par value. Authorized 200,000,000 shares (notes 11 and 16); issued 25,636,442 and 25,496,238 in 2002 and 2001, respectively 256,364 254,962 Additional paid-in capital 168,901,645 166,051,341 Unearned compensation (note 14) (1,086,669) (1,723,377) Retained earnings 47,082,597 39,643,487 Accumulated other comprehensive loss (note 15) (828,061) -- ------------ ------------ 214,325,876 204,226,413 Less cost of 3,177,822 treasury shares 4,772,638 4,772,638 ------------ ------------ Total stockholders' equity 209,553,238 199,453,775 ------------ ------------ $221,586,301 209,055,476 ============ ============ See accompanying notes to consolidated financial statements. 2 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Consolidated Statements of Income Years ended June 30, 2002, 2001, and 2000
2002 2001 2000 ------------ ------------ ------------ Net sales $ 73,568,319 84,825,275 60,171,836 Cost of sales 51,369,597 52,526,584 35,074,116 ------------ ------------ ------------ Gross profit 22,198,722 32,298,691 25,097,720 ------------ ------------ ------------ Operating expenses: Marketing 7,255,465 6,584,090 5,433,627 Research and development 6,282,846 5,022,882 3,815,862 General and administrative 8,105,264 8,392,118 4,394,099 Restructuring (note 8) -- 688,337 -- Fire related (note 2) 711,400 -- -- ------------ ------------ ------------ Total operating expenses 22,354,975 20,687,427 13,643,588 ------------ ------------ ------------ Operating income (loss) (156,253) 11,611,264 11,454,132 ------------ ------------ ------------ Other income (expense): Interest expense (149,257) (159,506) (65,999) Other, primarily interest income 3,932,376 7,162,210 3,315,666 ------------ ------------ ------------ Total other income 3,783,119 7,002,704 3,249,667 ------------ ------------ ------------ Income before income taxes 3,626,866 18,613,968 14,703,799 Income tax expense (benefit) (note 19) (405,000) 6,400,000 5,063,000 ------------ ------------ ------------ Income before extraordinary item 4,031,866 12,213,968 9,640,799 Extraordinary item - gain on acquisition (note 2) 3,407,244 -- -- ------------ ------------ ------------ Net income $ 7,439,110 12,213,968 9,640,799 ============ ============ ============ Basic net income per common and common equivalent share: Income before extraordinary item $ 0.18 0.55 0.54 Extraordinary item - gain on acquisition 0.15 -- -- ------------ ------------ ------------ Net income $ 0.33 0.55 0.54 ============ ============ ============ Diluted net income per common and common equivalent share: Income before extraordinary item $ 0.17 0.52 0.50 Extraordinary item - gain on acquisition 0.15 -- -- ------------ ------------ ------------ Net income $ 0.32 0.52 0.50 ============ ============ ============ Shares used in computing net income per common and common equivalent share: Basic 22,322,546 22,133,585 17,977,782 Diluted 23,089,553 23,455,244 19,299,460
See accompanying notes to consolidated financial statements. 3 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity and Comprehensive Income Years ended June 30, 2002, 2001, and 2000
Common stock Additional Comprehensive ------------ paid-in Unearned Income Amount capital compensation ------------- ------------ ------------ ------------ Balance at June 30, 1999 $196,631 37,338,383 -- Net income -- -- -- Stock options exercised (note 13) 4,698 1,459,929 -- Tax benefit from exercise of stock options (note 19) -- 2,513,788 -- Issuance of restricted stock (note 14) 720 893,280 (894,000) Amortization of unearned compensation (note 14) -- -- 170,288 Issuance of stock in connection with acquisition (note 2) 705 1,743,962 -- Sale of common stock (note 11) 46,890 112,147,825 -- Dividends to stockholders (note 12) -- -- -- -------- ------------ ---------- Balance at June 30, 2000 249,644 156,097,167 (723,712) Net income -- -- -- Purchase of treasury stock -- -- -- Stock options exercised (note 13) 5,009 2,882,102 -- Tax benefit from exercise of stock options (note 19) -- 5,375,231 -- Issuance of restricted stock (note 14) 309 1,524,791 (1,525,100) Amortization of unearned compensation (note 14) -- -- 525,435 Stock options granted for services (note 13) -- 172,050 -- -------- ------------ ---------- Balance at June 30, 2001 254,962 166,051,341 (1,723,377) Comprehensive income (loss): Net income $7,439,110 -- -- -- Other comprehensive income (loss): Foreign currency translation adjustment 687,667 -- -- -- Minimum pension liability adjustment, net of tax of $54,737 (106,254) -- -- -- Unrealized loss on securities available-for-sale (1,409,474) -- -- -- ---------- Other comprehensive loss (828,061) -- -- -- ---------- Total comprehensive income 6,611,049 ========== Stock options exercised (note 13) 445 398,273 -- Tax benefit from exercise of stock options (note 19) 460,672 -- Issuance of stock in connection with acquisition (note 2) 957 1,754,452 -- Stock options granted in connection with acquisition (note 2) -- 218,724 -- Amortization of unearned compensation (note 14) -- -- 636,708 Stock options granted for services (note 13) -- 18,183 -- -------- ------------ ---------- Balance at June 30, 2002 256,364 168,901,645 (1,086,669) ======== ============ ========== Accumulated other Treasury stock Total Retained comprehensive -------------- stockholders' earnings loss (note 15) Amount equity ------------ -------------- -------------- ------------ Balance at June 30, 1999 17,791,467 -- $ (3,480,983) 51,845,498 Net income 9,640,799 -- -- 9,640,799 Stock options exercised (note 13) -- -- -- 1,464,627 Tax benefit from exercise of stock options (note 19) -- -- -- 2,513,788 Issuance of restricted stock (note 14) -- -- -- -- Amortization of unearned compensation (note 14) -- -- -- 170,288 Issuance of stock in connection with acquisition (note 2) -- -- -- 1,744,667 Sale of common stock (note 11) -- -- -- 112,194,715 Dividends to stockholders (note 12) (2,747) -- -- (2,747) ------------ ------------ ------------ ------------ Balance at June 30, 2000 27,429,519 -- (3,480,983) 179,571,635 Net income 12,213,968 -- -- 12,213,968 Purchase of treasury stock -- -- (1,291,655) (1,291,655) Stock options exercised (note 13) -- -- -- 2,887,111 Tax benefit from exercise of stock options (note 19) -- -- -- 5,375,231 Issuance of restricted stock (note 14) -- -- -- -- Amortization of unearned compensation (note 14) -- -- -- 525,435 Stock options granted for services (note 13) -- -- -- 172,050 ------------ ------------ ------------ ------------ Balance at June 30, 2001 39,643,487 -- (4,772,638) 199,453,775 Comprehensive income (loss): Net income 7,439,110 -- -- 7,439,110 Other comprehensive income (loss): Foreign currency translation adjustment -- -- -- -- Minimum pension liability adjustment, net of tax of $54,737 -- -- -- -- Unrealized loss on securities available-for-sale -- -- -- -- Other comprehensive loss -- (828,061) -- (828,061) Total comprehensive income Stock options exercised (note 13) -- -- -- 398,718 Tax benefit from exercise of stock options (note 19) -- -- -- 460,672 Issuance of stock in connection with acquisition (note 2) -- -- -- 1,755,409 Stock options granted in connection with acquisition (note 2) -- -- -- 218,724 Amortization of unearned compensation (note 14) -- -- -- 636,708 Stock options granted for services (note 13) -- -- -- 18,183 ------------ ------------ ------------ ------------ Balance at June 30, 2002 47,082,597 (828,061) $ (4,772,638) 209,553,238 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. 4 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 2002, 2001, and 2000
2002 2001 2000 ------------ ------------ ------------ Cash flows from operating activities: Net income $ 7,439,110 12,213,968 9,640,799 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of plant and equipment 3,844,834 2,775,594 1,768,234 Amortization of intangibles 428,261 1,624,913 245,667 Provision for doubtful accounts 334,000 140,000 -- Deferred income taxes (1,863,179) (347,025) (120,900) Unearned compensation 636,708 525,435 170,288 Tax benefit from exercise of stock options 460,672 5,375,231 2,513,788 Extraordinary gain on acquisition (3,407,244) -- -- Changes in operating assets and liabilities, net of business acquisitions: Receivables 272,979 836,617 (3,722,212) Refundable income taxes 53,804 636,925 (56,360) Inventories 159,164 (4,184,124) (2,527,080) Accrued interest receivable 486,484 816,173 (1,537,683) Prepaid expenses (372,449) 89,550 (399,468) Insurance receivable 10,749,113 -- -- Other assets 1,004,493 (607,052) (137,428) Accounts payable 62,622 (3,376,398) 179,239 Income taxes payable (408,127) 315,553 151,241 Accrued expenses (2,286,370) 537,628 169,792 Customer advance payments (522,959) 165,833 253,503 Postretirement benefit obligation (112,402) 66,518 46,409 Other liabilities 96,153 (947,222) 138,923 ------------ ------------ ------------ Net cash provided by operating activities 17,055,667 16,658,117 6,776,752 ------------ ------------ ------------ Cash flows from investing activities: Capital expenditures (9,809,078) (7,975,512) (6,022,444) Net (purchases) sales of marketable debt and equity securities 6,533,670 13,517,619 (113,820,158) Purchase of businesses, net of cash acquired (note 2) (12,073,362) (17,818,476) (7,510,093) ------------ ------------ ------------ Net cash used in investing activities (15,348,770) (12,276,369) (127,352,695) ------------ ------------ ------------ Cash flows from financing activities: Payments on notes and line of credit (1,976,400) (407,864) (383,026) Stock options exercised 398,718 2,887,111 1,464,627 Proceeds from sale of common stock, net (note 11) -- -- 112,194,715 Purchase of treasury stock -- (1,291,655) -- Dividends to stockholders (note 12) -- -- (2,747) ------------ ------------ ------------ Net cash provided by (used in) financing activities (1,577,682) 1,187,592 113,273,569 ------------ ------------ ------------ Effect of exchange rates 687,667 -- -- ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 816,882 5,569,340 (7,302,374) Cash and cash equivalents at beginning of year 11,748,542 6,179,202 13,481,576 ------------ ------------ ------------ Cash and cash equivalents at end of year $ 12,565,424 11,748,542 6,179,202 ============ ============ ============
See accompanying notes to consolidated financial statements. 5 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 (1) Summary of Significant Accounting Policies (a) Principles of Consolidation The consolidated financial statements include the accounts of Anaren Microwave, Inc. and its wholly owned subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated in consolidation. (b) Operations The Company is engaged in the design, development, and manufacture of microwave components, assemblies, and subsytems which receive and analyze radar signals and other microwave transmissions. Its primary products include devices and systems used in the wireless communications, satellite communications, and defense electronics markets. (c) Sales Recognition The Company generally recognizes sales at the time products are shipped to customers. 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. (d) Cash Equivalents Cash equivalents of $9,608,324 and $11,668,663 at June 30, 2002 and 2001, respectively, consist of certificates of deposit and money market instruments having maturities of three months or less. Cash equivalents are stated at cost which approximates fair value. (e) Marketable Securities The Company classifies its securities as either available for sale or held to maturity, as the Company does not hold any securities considered to be trading. Held to maturity securities are those debt securities for which the Company has the positive intent and the ability to hold until maturity. All other securities not included in held to maturity are classified as available for sale. Held to maturity securities are recorded at amortized cost. Available for sale securities are recorded at fair value. Unrealized holding gains and losses, net of the related tax affect, on available for sale securities are excluded from earnings and are reported as accumulated other comprehensive income or loss until realized. A decline in the fair value of any available for sale or held to maturity security, that is deemed other than temporary, is charged to earnings resulting in the establishment of a new cost basis for the security, and dividend and interest income are recognized when earned. (Continued) 6 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 (f) Inventories Inventories are stated at the lower of cost or market, cost being determined on a first-in, first-out basis. Work-in-process inventories related to fixed-price contracts are stated at the accumulated cost of material, labor, and manufacturing overhead, less the estimated cost of units delivered. (g) Property, Plant, and Equipment Property, plant, and equipment are stated at cost. Depreciation of land improvements and buildings is calculated by the straight-line method over an estimated service life of 25 years. Machinery and equipment are depreciated primarily by the straight-line method based on estimated useful lives of 5 to 10 years. (h) Goodwill Prior to the adoption of SFAS 142, as discussed in note 3, long-lived assets, such as property, plant, and equipment, goodwill and other intangibles were evaluated for impairment when events or changes in circumstances indicated that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When such impairment existed, the related assets were written down to their fair value. Upon adoption of SFAS 142, effective July 1, 2001, goodwill is tested annually for impairment 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 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. No impairment losses were recorded through June 30, 2002. (i) Patent During fiscal 1999, the Company purchased a patent for $325,000 and 150,000 stock options which were subsequently exercised in fiscal 2000. The stock options were valued at $249,965 as discussed in note 12. The patent is being amortized on a straight-line basis over its remaining life of 8 years. (j) Net Income Per Share Basic income per share is based on the weighted average number of common shares outstanding. Diluted income per share is based on the weighted average number of common shares outstanding, as well as dilutive potential common shares which, in the Company's case, comprise shares issuable under the stock option and restricted stock plans described in notes 13 and 14. The weighted average number of common shares utilized in the calculation of the diluted income per share does not include antidilutive shares aggregating 1,126,550 and 886,976 at June 30, 2002 and 2001, respectively. The treasury stock method is used to calculate dilutive shares which reduces the gross number of dilutive shares by the number of shares purchasable from the proceeds of the options assumed to be exercised. (Continued) 7 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 The weighted average number of common shares outstanding for the basic income per share calculation was 22,322,546, 22,133,585, and 17,977,782 for 2002, 2001, and 2000, respectively. For diluted earnings per share purposes, these balances increased by 767,000, 1,321,659, and 1,321,678 shares for 2002, 2001, and 2000, respectively, due to the effect of common equivalent shares which were issuable under the Company's stock option and restricted stock plans. (k) Research and Development Costs Research and development costs are charged to expense as incurred. (l) Income Taxes The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates. (m) Financial Instruments The Company's financial instruments, which include cash and cash equivalents, receivables, and accounts payable, are stated at cost which approximates fair value at June 30, 2002 and 2001. The Company's available for sale equity securities are stated at their fair value, as determined by quoted market prices an June 30, 2002. The Company's marketable debt securities are stated at amortized cost, and their fair values, as determined by quoted market prices, are presented in note 4. (n) Stock-based Compensation The Company measures compensation expense for its stock option-based employee compensation plans using the intrinsic value method and has provided pro forma disclosures of the effect on net income and net income per share as if the fair value-based method had been applied in measuring compensation expense. Upon issuance of shares of stock pursuant to the Company's Restricted Stock Program, an unearned compensation charge equivalent to the market value of the shares on the date of grant is charged to stockholders' equity and is amortized over the related share restriction period. (o) Use of Estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. (Continued) 8 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 (p) Recent Pronouncements In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 is required for adoption for fiscal years beginning after June 15, 2002. The Company has reviewed the provisions of SFAS 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 (FASB) issued Statement of Financial Accounting Standards No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets. (SFAS 144). SFAS 144 addresses financial accounting and reporting for the impairment of long-lived assets and for long-lived assets to be disposed of. SFAS 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 SFAS 144, and believes that upon adoption, the Statement will not have a significant effect on its consolidated financial statements. 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. (q) Reclassifications Certain 2001 amounts have been reclassified to conform with the 2002 presentation. (Continued) 9 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 (2) Acquisitions On February 29, 2000, the Company acquired all of the outstanding stock of RF Power Components, Inc (RF Power). RF Power is based in Bohemia, New York, and is primarily engaged in the manufacture of electronic products, including power resistors, attenuators and couplers. The transaction was accounted for using the purchase method of accounting for business combinations and accordingly, the results of operations of RF Power have been included in the Company's consolidated financial statements since the date of acquisition. The purchase price was $7,749,294 in cash, including direct acquisition costs, and 70,552 shares of the Company's common stock with an aggregate value of $1,744,667. The purchase price was allocated in the net assets acquired and liabilities assumed based upon respective fair market values. The fair market values of plant and equipment were determined by an independent valuation which also validated the non existence of any identifiable intangible assets. The excess consideration over such fair values is recorded as goodwill and is being amortized on a straight-line basis over 15 years. The allocation of the purchase price to the assets acquired and liabilities assumed follows: Cash ........................ $ 239,201 Accounts receivable ......... 1,520,752 Inventories ................. 1,473,123 Prepaid expenses ............ 34,966 Refundable income taxes ..... 172,523 Plant and equipment ......... 478,599 Deposits and other assets ... 369,193 Deferred income taxes ....... 331,434 Accounts payable ............ (1,291,342) Accrued expenses ............ (300,687) Line of credit indebtedness.. (383,026) Other liabilities ........... (971,679) Goodwill .................... 7,820,904 ----------- $ 9,493,961 =========== On July 31, 2000, the Company acquired substantially all the net assets of Ocean Microwave Corporation (Ocean). Ocean was based in Neptune, New Jersey, and was primarily engaged in the design and manufacture of isolator and circulator components. The acquired Ocean business is conducted from the Company's subsidiary, Anaren Power Products, Inc. (APPI). The transaction was accounted for using the purchase method of accounting for business combinations and, accordingly, the results of operations of APPI have been included in the Company's consolidated financial statements since the date of acquisition. The purchase price was $17,990,526, including direct acquisition costs (note 13), which was allocated to the net assets acquired and liabilities assumed based upon respective fair market values. The fair market values of plant and equipment were determined by an independent valuation which also validated the nonexistence of any identifiable intangible assets. The excess consideration over such fair values is recorded as goodwill and was assigned to the Company's Wireless segment. The allocation of the purchase price to the assets acquired and liabilities assumed follows: Accounts receivable $ 1,488,092 Inventories 1,997,728 Plant and equipment 269,390 Other assets 42,485 Accounts payable (2,531,384) Accrued expenses (184,389) Notes payable (407,864) Goodwill 17,316,468 ------------ $ 17,990,526 ============ 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 multi-layer stripline technology. Whereas the Company's multi-layer stripline 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 the Amitron's technology will enable it to significantly increase its current addressable markets. The transaction was accounted for using the purchase method of accounting for business combinations and, accordingly, the results of operations of Amitron have been included in the Company's consolidated financial statements since the date of acquisition. (Continued) 10 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 The aggregate purchase consideration for Amitron was $11,693,256, consisting of cash of $9,919,664 (including cash direct acquisition costs), noncash direct acquisition costs in the form of stock options for services of $18,183 and 95,704 shares of the Company's common stock with an aggregate value of $1,755,409. The purchase price was allocated to the net assets acquired and liabilities assumed based upon respective fair market values. The fair market values of plant and equipment and identifiable intangible assets were determined by an independent valuation. The indentifiable intangible assets aggregating $2,450,000 with a weighted average useful life of approximately seven years include customer base of $1,350,000 (six-year weighted average useful life), favorable lease of $600,000 (ten-year weighted average useful life), trade name of $320,000 (three-year weighted average useful life), and noncompetition agreements of $180,000 (five-year weighted average useful life). The excess consideration over such fair values is recorded as goodwill and was assigned to the Company's Wireless segment. The allocation of the purchase consideration to the assets acquired and liabilities assumed follows: Cash $ 12,844 Accounts receivable 1,309,618 Other receivables 2,258 Inventories 1,081,360 Plant and equipment 1,822,230 Other assets 36,818 Accounts payable (228,751) Accrued expenses (430,448) Loans payable (716,154) Net deferred tax liability (951,846) Intangible assets 2,450,000 Goodwill 7,305,327 ------------ $ 11,693,256 ============ 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 microwave circuits. 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 in Europe, increase its dollar content in high power applications and provide customers with a higher level of vendor security with a second manufacturing facility. Anaren Europe has recently completed the rebuilding of its factory due to a fire that occurred in July 2001. The transaction was accounted for using the purchase method of accounting for business combinations and, accordingly, the results of operations of Anaren Europe have been included in the Company's consolidated financial statements since the date of acquisition. The purchase consideration for Anaren Europe was $3,869,823 in cash, including direct acquisition costs, and Company stock options with an aggregate fair value of $218,724. The fair values of Anaren Europe's assets acquired and liabilities assumed exceeded the purchase consideration and the negative goodwill served to reduce the fair value of purchased equipment to zero with the remaining excess recognized as an extraordinary gain. (Continued) 11 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 The allocation of the purchase consideration to the assets acquired, liabilities assumed, and extraordinary gain follows: Cash $ 1,703,281 Accounts receivable 899,776 Insurance receivable 10,749,113 Other receivables 385,745 Inventories 630,260 Accounts payable (1,768,882) Accrued expenses (1,656,014) Notes payable (856,978) Long term debt (403,268) Net deferred tax liability (2,187,242) Extraordinary gain (3,407,244) ------------ $ 4,088,547 ============ The Anaren Europe fire loss in July 2001 was subject to property, casualty and business interruption insurance. As of December 31, 2001, the Company settled the insurance claim and an insurance receivable aggregating $10,749,113 is reflected in the allocation of the Anaren Europe purchase price as of October 1, 2001. During the year ended June 30, 2002, Anaren Europe recognized incremental outsourcing costs aggregating $555,120 in cost of sales, and fire related cleaning and remediation expenses of $711,400 in operating expenses. The following unaudited pro forma financial information presents the combined results of operations of the Company, RF Power, Ocean, Amitron and Anaren Europe as if the acquisitions took place as of July 1, 1999. The pro forma information includes certain adjustments, including the amortization of goodwill and intangibles, reduction of interest income, and certain other adjustments, together with the related income tax effects. The pro forma financial information does not necessarily reflect the results of operations that would have occurred had the Company, RF Power, Ocean, Amitron and Anaren Europe constituted a single entity during such periods. Years ended ---------------------------------------------- June 30, 2002 June 30, 2001 June 30, 2000 ------------- ------------- ------------- (unaudited) (unaudited) (unaudited) Net sales $75,900,631 106,745,701 95,124,100 Insurance recoveries 15,999,972 -- -- Net income 12,874,677 11,948,196 8,629,746 Earnings per share: Basic .57 .53 .47 Diluted .55 .50 .44 For purposes of the pro forma financial information, the July 2001 Anaren Europe fire loss insurance recoveries have been reflected in operations versus the recognition as a pre-acquisition contingency in the purchase price allocation as previously discussed. The pro forma information reflects insurance recoveries of $15,999,972 for the year ended June 30, 2002. (Continued) 12 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 The pro forma information reflects no goodwill amortization for the year ended June 30, 2002 due to the adoption of SFAS 142, Goodwill and Intangible Assets, by the Company. The pro forma information does reflect goodwill amortization aggregating $1,649,245 and $1,675,823 for the years ended June 30, 2001 and 2000, respectively, related to acquisitions which occurred prior to the adoption of SFAS 142. (3) Adoption of Accounting Pronouncements In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations" which supersedes APB Opinion No. 16, "Business Combinations". SFAS No. 141 eliminates the pooling-of-interests method of accounting for business combinations and modifies the application of the purchase accounting method. The elimination of the pooling-of-interests method is effective for transactions initiated after June 30, 2001. The remaining provisions of SFAS No. 141 are effective for transactions accounted for using the purchase method that are completed after June 30, 2001. The Company adopted SFAS No 141 during the first quarter of fiscal 2002 (effective July 1, 2001). Adoption of the Statement did not have an impact on the Company, as the Company has not historically had pooling-of-interest transactions and business combinations subsequent to June 30, 2001 (note 2) were accounted for under the purchase method. During the first quarter of fiscal 2002 (effective July 1, 2001), the Company adopted Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Intangible Assets", which supercedes APB Opinion No. 17, "Intangible Assets". SFAS No. 142 eliminates the current requirement to amortize goodwill and indefinite-lived intangible assets, addresses the amortization of intangible assets with a defined life and addresses the impairment testing and recognition of goodwill and intangible assets. The following information describes the impact that the adoption of SFAS No. 142 had on the Company for the fiscal years ended June 30: Intangible Assets: Intangible assets as of June 30, 2002 are as follows: Gross Carrying Accumulated Amount Amortization -------------- ------------- Patent $ 574,966 $215,613 Customer Base 1,350,000 187,500 Trade Name 320,000 88,890 Non-Competition Agreements 180,000 30,000 Favorable Lease 600,000 50,000 ---------- -------- Total $3,024,966 $572,003 ========== ======== Intangible asset amortization expense for the years ended June 30, 2002, 2001, and 2000 aggregated $428,261, 71,871 and $71,871 respectively. Amortization expense related to intangible assets for the next five years is as follows: Year Ending June 30, 2003 $499,539 2004 $499,539 2005 $410,645 2006 $392,871 2007 $362,879 Goodwill: The changes in the carrying amount of goodwill for the years ended June 30 are as follows: Fiscal Fiscal Fiscal 2002 2001 2000 ------ ------ ------ Goodwill as of July 1 $23,410,534 $ 7,647,108 -- Goodwill acquired 7,305,327 17,316,468 7,820,904 Goodwill amortization -- (1,553,042) (173,796) ----------- ----------- ----------- Goodwill as of June 30 $30,715,861 $23,410,534 $ 164,108 =========== =========== =========== In connection with the adoption of SFAS 142, the Company completed the transitional impairment assessment within six months from the date of adoption as allowed by the Standard. As a result of the impairment assessment, no goodwill impairment was found and no current asset write down is required. The impact that the adoption of SFAS 142 had on net income and earnings per share for the years ended June 30 are presented as follows: 2002 2001 2000 --------- ---------- --------- Net income 7,439,110 12,213,968 9,640,799 Add back Goodwill amortization -- 1,553,042 173,796 --------- ---------- --------- Adjusted net income 7,439,110 13,767,010 9,814,595 ========= ========== ========= Basic earnings per share: Net income $0.33 $0.55 $0.54 Goodwill amortization -- 0.07 0.01 ----- ----- ----- Adjusted net income $0.33 $0.62 $0.55 ===== ===== ===== Diluted earnings per share: Net income $0.32 $0.52 $0.50 Goodwill amortization -- 0.07 0.01 ----- ----- ----- Adjusted net income $0.32 $0.59 $0.51 ===== ===== ===== (4) Securities The amortized cost and fair value of securities are as follows:
June 30, 2002 ---------------------------------------------------------- Gross Gross Amortized unrealized unrealized Fair cost gains losses value ------------ ------------ ------------ ------------ Securities available for sale: Common stock $ 5,230,416 -- (1,409,474) 3,820,942 ------------ ------------ ------------ ------------ Total securities available for sale $ 5,230,416 -- (1,409,474) 3,820,942 ============ ============ ============ ============ Securities held to maturity: Municipal bonds $ 62,223,440 175,344 -- 62,398,784 Corporate bonds 20,800,237 18,566 -- 20,818,803 Zero coupon bonds 1,496,180 1,869 -- 1,498,049 Tax free auction securities 24,000,000 -- -- 24,000,000 ------------ ------------ ------------ ------------ Total securities held to maturity $108,519,857 195,779 -- 108,715,636 ============ ============ ============ ============
(Continued) 13 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000
June 30, 2001 ---------------------------------------------------------- Gross Gross Amortized unrealized unrealized Fair cost gains losses value ------------ ------------ ------------ ------------ Municipal bonds $ 56,719,914 120,478 -- 56,840,392 Commercial paper 976,483 824 -- 977,307 Corporate bonds 19,527,093 224,451 -- 19,751,544 Medium and short-term notes 4,991,859 36,741 -- 5,028,600 Euro dollar bonds 10,418,904 87,683 -- 10,506,587 Zero coupon bonds 4,939,275 7,200 -- 4,946,475 Tax free auction securities 17,600,262 (262) 17,600,000 Asset backed securities 5,110,153 39,892 -- 5,150,045 ------------ ------------ ------------ ------------ Total $120,283,943 517,269 (262) 120,800,950 ============ ============ ============ ============
Marketable debt securities are classified as either current or long-term assets in the accompanying consolidated balance sheets based upon their maturity dates. 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 negotiated acquisition of Celeritek or take other actions to effect such a potential transaction, as more fully described in Anaren's Schedule 13D filing. (5) Inventories Inventories at June 30 are summarized as follows: 2002 2001 ----------- ----------- Component parts $ 9,086,987 9,995,712 Work-in-process 6,179,545 4,497,996 Finished goods 4,852,901 4,073,269 ----------- ----------- $20,119,433 18,566,977 =========== =========== (Continued) 14 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 (6) Property, Plant, and Equipment Components of property, plant, and equipment at June 30 consist of the following: 2002 2001 ----------- ----------- Land and land improvements $ 1,595,821 1,595,821 Buildings and improvements 12,022,768 9,095,944 Machinery and equipment 47,720,881 39,213,503 Construction in process 236,028 155,899 ----------- ----------- 61,575,498 50,061,167 Less accumulated depreciation and amortization 34,983,123 31,255,266 ----------- ----------- $26,592,375 18,805,901 =========== =========== (7) Accrued Expenses Accrued expenses at June 30 consist of the following: 2002 2001 ---------- ---------- Compensation $1,045,085 989,499 Commissions 573,325 790,609 Restructuring (note 8) -- 307,843 Accrued pension cost (note 17) 535,874 401,032 Other 612,066 477,275 ---------- ---------- $2,766,350 2,966,258 ========== ========== (8) Restructuring In May 2001, the Company committed to a plan for the relocation of its Anaren Power Products, Inc. subsidiary to its Syracuse, New York headquarters to be completed in June 2001. In connection with this plan, as of June 30, 2001, the Company recognized restructuring charges as follows: Employee termination benefits $297,443 Noncancelable lease obligation 216,116 Leasehold and equipment impairment 174,778 -------- $688,337 ======== (Continued) 15 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 Employee termination benefits related to the announced termination of approximately 60 salaried and hourly employees. Such costs included severance payments and costs associated with the accelerated vesting of employee vacation benefits. The noncancelable lease obligation is reflected based upon estimated discounted noncancelable cash outlays, including estimated broker commissions to sublease. Leasehold and equipment impairment charges related to abandoned assets were reflected as a reduction of the related assets. As of June 30, 2001, cash payments of $205,716 were made relating to the employee termination benefits, leaving a restructuring accrual of $307,843 at June 30, 2001 (note 7). As of June 30, 2002, the restructuring accrual was $0 as the remaining restructuring cash outlays were made during the current year. (9) Other Liabilities Other liabilities as of June 30 consist of the following: 2002 2001 -------- -------- Deferred compensation 526,808 551,380 Other 120,725 -- -------- -------- 647,533 551,380 Less current portion 185,725 65,000 -------- -------- $461,808 486,380 ======== ======== During fiscal 1998, the Company implemented a deferred compensation plan for one employee. Under the plan, the Company will pay $65,000 annually for fifteen years upon the employee's retirement or, in the event of death, to the employee's beneficiary. During fiscal 2002, the employee was deceased and the annual compensation is being paid to the former employee's beneficiary. (10) Long-term Debt The Company has a $10,000,000 unsecured working capital revolving line of credit bearing interest at prime (4.75% at June 30, 2002) through December 31, 2006. The terms of the revolving line of credit require maintenance of a minimum tangible net worth, ratio of cash flow to current maturities, and leverage ratio, as defined. There were no borrowings against the line of credit in fiscal 2002 and 2001. Cash payments for annual fees relating to maintaining the line of credit were $37,500, $37,500, and $38,779 during fiscal 2002, 2001, and 2000, respectively. (11) Common Stock During the third and fourth quarters of fiscal 2000, the Company completed the sale of an additional 4,689,000 shares of its common stock in a public offering for $112,194,715, net of issuance costs. (Continued) 16 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 On December 2, 2000, the Company's shareholders approved an amendment to the Certificate of Incorporation to increase the total number of shares of common stock from 25,000,000 to 200,000,000. (12) Stock Split On February 19, 2000, the Company's board of directors authorized a 3 for 2 stock split in the form of a stock dividend paid on June 12, 2000 to shareholders of record on May 12, 2000. The issuance of cash in lieu of fractional shares has been reflected as a cash dividend and charged to retained earnings during fiscal 2000. On November 2, 2000, the Company's board of directors authorized a two for one stock split in the form of a stock dividend paid on November 27, 2000 to shareholders of record on November 17, 2000. All share and per share data in these consolidated financial statements and footnotes have been retroactively restated as if the stock splits had occurred as of the earliest period presented. (13) Stock Option Plans Under the Company's Key Employee Incentive Stock Option Plan (Key Employee Plan), 2,050,200 shares of common stock were reserved for the granting of options to eligible employees. Options are granted at a price not less than fair market value of shares at the date of grant, become exercisable 20% six months from the date of grant and 20% per year thereafter, and must be exercised within ten years of the date of grant. In November 2000, the Company established the Company-Wide Stock Option Plan (Company-Wide Plan) reserving 1,000,000 shares of common stock for the granting of incentive stock options to eligible employees. All Company employees are eligible to participate in the Company-Wide Plan in any given fiscal year, except for employees who have been granted options under the Key Employee Plan in any given fiscal year. Options are granted at a price not less than the fair market value of shares at the date of grant, become exercisable 36 months from the date of grant, and must be exercised within five years of the date of grant. The Company also has a Non-Statutory Stock Option Plan (NSO) which allows for the granting of options to Board members and nonemployees. Under the Plan, 500,000 shares of common stock were reserved for the granting of options at prices to be determined by the Board (options granted to Board members may not be less than the fair market value on the date of grant). Options become exercisable immediately and must be exercised within five years of the date of grant. In connection with the acquisition of Ocean as discussed in note 2, the Company issued 5,000 NSO's to a nonemployee for services provided in brokering the transaction. The stock options were valued at $172,050 using the Black-Scholes model as of November 2, 2000 (the date of grant), became exercisable on the date of grant, and must be exercised within five years of the date of grant. The option value is included with Ocean direct acquisition costs. (Continued) 17 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 Information for the three years ended June 30, 2002 with respect to these plans are as follows:
Shares ------------------------------------------------------------------ Weighted ISO average ----------------------------- exercise Key Employee Company-Wide NSO Other Total Option price price ------------ ------------ ------- ------- --------- -------------- ----------- Outstanding at June 30, 1999 1,532,100 -- 132,000 150,000 1,814,100 $0.46 to 8.36 4.00 Issued 680,500 -- 112,500 -- 793,000 7.65 to 54.00 14.29 Exercised (372,300) -- (97,500) -- (469,800) 0.46 to 8.67 3.12 Canceled (64,200) -- -- -- (64,200) 2.17 to 7.04 4.38 --------- ------- ------- ------- --------- -------------- ----- Outstanding at June 30, 2000 1,776,100 -- 147,000 150,000 2,073,100 0.46 to 54.00 8.13 Issued 625,500 45,900 80,000 -- 751,400 14.70 to 62.44 50.40 Exercised (331,900) -- (19,000) (150,000) (500,900) 0.46 to 13.42 5.78 Canceled (19,500) (2,900) -- -- (22,400) 4.63 to 53.00 21.81 --------- ------- ------- ------- --------- -------------- ----- Outstanding at June 30, 2001 2,050,200 43,000 208,000 -- 2,301,200 1.38 to 62.44 22.31 Issued 506,850 98,300 87,500 -- 692,650 12.63 to 19.21 16.43 Exercised (18,500) -- (26,000) -- (44,500) 1.38 to 12.42 8.96 Expired -- -- (13,000) -- (13,000) 19.21 to 53.00 45.20 Canceled (368,300) (9,400) (65,000) -- (442,700) 12.42 to 53.00 48.51 --------- ------- ------- ------- --------- -------------- ----- Outstanding at June 30, 2002 2,170,250 131,900 191,500 -- 2,493,650 1.38 to 62.44 ========= ======= ======= ======= ========= ============== Shares exercisable at June 30, 2002 841,180 -- 191,500 -- 1,032,680 1.38 to 62.44 Shares available for grant at June 30, 2002 1,251,250 868,100 238,000 -- 2,357,350
The following table summarizes significant ranges of outstanding and exercisable options at June 30, 2002:
Options outstanding Options exercisable - --------------------------------------------------------------- --------------------------- Weighted average Weighted Weighted Range of remaining average average exercise prices Shares life in years exercise price Shares exercise price - --------------- --------- ------------- -------------- ---------- -------------- $ 1.00 to 5.00 359,700 3.92 2.12 347,700 2.06 5.01 to 15.00 1,459,100 6.69 10.89 552,000 9.32 15.01 to 40.00 398,050 7.89 22.37 68,560 24.58 40.01 to 65.00 276,800 7.50 53.14 64,420 53.19 --------- --------- 2,493,650 1,032,680 ========= =========
(Continued) 18 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 The per share weighted average fair value of stock options granted during fiscal years 2002, 2001, and 2000 was $11.37, $32.74, and $28.73, respectively. The fair value of options at the date of the grant was estimated using the Black-Scholes model with the following assumptions for the respective fiscal year: 2002 2001 2000 ------ ------ ------ Expected option life - key employee plan 5 5 5 Expected option life - company-wide plan 3 -- -- Weighted average risk-free interest rate 4.00% 6.00% 6.00% Weighted average expected volatility 92.00% 74.00% 69.00% Expected dividend yield 0.00% 0.00% 0.00% Stock-based compensation costs would have reduced pretax income by $9,183,657, $7,830,825, and $3,034,635 in fiscal 2002, 2001, and 2000, respectively ($8,837,767, $7,474,580, and $2,884,865 after tax and $0.40, $0.33, and $0.16 per share in fiscal 2002, 2001, and 2000, respectively) if the fair values of options granted in that year had been recognized as compensation expense on a straight-line basis over the vesting period of the grant. The pro forma effect on net income for fiscal 2002, 2001, and 2000 is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to fiscal 1996. (14) Restricted Stock Program As of June 30, 2002 and 2001, the Company has issued shares aggregating 102,976 under its Restricted Stock Program. The shares of restricted stock vest over a period of 42 to 48 months. For the years ended June 30, 2002 and 2001, the Company recognized compensation expense associated with the lapse of restrictions aggregating $636,708 and $525,435, respectively. (15) Accumulated Other Comprehensive Income (Loss) The cumulative balance of each component of accumulated other comprehensive income (loss) is as follows:
Unrealized Foreign currency Minimum pension gain/(loss) on Accumulated other translation liability securities comprehensive adjustment adjustment available for sale income (loss) ---------------- --------------- ------------------- ----------------- Balances at June 30, 2001 $ -- -- -- -- Current period change 687,667 (106,254) (1,409,474) (828,061) -------- -------- ---------- -------- Balances at June 30, 2002 $687,667 (106,254) (1,409,474) (828,061) ======== ======== ========== ========
(Continued) 19 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 (16) Shareholder Protection Rights Plan In April 2001, the board of directors adopted a Shareholder Protection Rights Plan. The plan provides for a dividend distribution of one right on each outstanding share of the Company's stock, distributed to shareholders of record on April 27, 2001. The rights will be exercisable and will allow the shareholders to acquire common stock at a discounted price if a person or group acquires 20% or more of the outstanding shares of common stock. Rights held by persons who exceed the 20% threshold will be void. In certain circumstances, the rights will entitle the holder to buy shares in an acquiring entity at a discounted price. The board of directors may, at its option, redeem all rights for $0.001 per right at any time prior to the rights becoming exercisable. The rights will expire on April 27, 2011, unless earlier redeemed, exchanged or amended by the Board. (17) Employee Benefit Plans The Company has a noncontributory defined benefit pension plan covering substantially all of its employees. Effective August 15, 2000 the plan was closed for new participants. Benefits under this plan generally are based on the employee's years of service and compensation. The following table presents the changes in the defined benefit pension plan and the fair value of the Plan's assets for the years ended June 30:
2002 2001 2000 ----------- ----------- ----------- Change in benefit obligation: Benefit obligation at beginning of year $ 6,562,855 5,908,615 6,087,651 Service cost 213,839 204,440 198,174 Interest cost 469,017 437,762 403,830 Actuarial loss (gain) 281,005 237,835 (619,854) Benefits paid (249,356) (225,797) (161,186) ----------- ----------- ----------- Benefit obligation at end $ 7,277,360 6,562,855 5,908,615 =========== =========== =========== Change in plan assets: Fair value of plan assets at beginning of year $ 6,237,552 5,744,994 5,626,769 Actual return on plan assets (85,062) 718,355 241,093 Employer contributions 203,824 -- 38,318 Benefits paid (249,356) (225,797) (161,186) ----------- ----------- ----------- Fair value of plan assets at end of year $ 6,106,958 6,237,552 5,744,994 =========== =========== =========== Funded status $(1,170,402) (325,303) (163,621) Unrecognized net loss (gain) 743,618 (155,335) (155,534) Unrecognized net obligation existing at initial application 9,463 18,929 28,395 Unrecognized prior service cost 42,438 60,677 78,916 Adjustment required to recognize minimum liability (160,991) -- -- ----------- ----------- ----------- Accrued pension cost (note 7) $ (535,874) (401,032) (211,844) =========== =========== ===========
(Continued) 20 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 Components of net periodic pension cost for the years ended June 30 are as follows:
2002 2001 2000 --------- --------- --------- Service cost $ 213,839 204,440 198,174 Interest cost 469,017 437,762 403,830 Actual return on plan assets 85,062 (718,355) (241,093) Amortization of prior service cost 18,239 18,239 18,239 Deferral of gain (loss) (617,948) 237,636 (230,093) Amortization of net obligation at transition 9,466 9,466 9,466 --------- --------- --------- Net periodic pension cost $ 177,675 189,188 158,523 ========= ========= ========= Weighted average assumptions: Discount rate at year-end 7.00% 7.25% 7.50% Rate of increase in compensation levels at year end 4.00% 4.00% 4.00% Expected return on plan assets during the year 8.50% 8.50% 8.50%
Plan assets consist principally of equity securities, and U.S. government and corporate obligations. The Company maintains a voluntary contributory salary savings plan to which participants may contribute up to 15% of their total compensation. The Company's matching contribution is 50% (75% effective August 2000) of the participants' contribution up to a maximum of 5% of the participants' compensation. During fiscal 2002, 2001, and 2000, the Company contributed $550,094, $491,550, $249,324, respectively, to this plan. The Company maintains a profit sharing plan which provides an annual contribution by the Company based upon a percentage of operating earnings, as defined. Eligible employees are allocated amounts under the profit sharing plan based upon their respective earnings, as defined. Contributions under the plan were approximately $549,693, $300,390, and $331,000 in fiscal 2002, 2001, and 2000, respectively. While the Company intends to continue this plan, it reserves the right to terminate or amend the Plan at any time. (18) Postretirement Benefits The Company provides medical coverage for current and future eligible retirees of the Company plus their eligible dependents. Employees generally become eligible for retiree medical coverage by retiring from the Company after attaining at least age 55 with 15 years of service (active employees at June 27, 1993 were eligible by retiring after attaining at least age 55 with 10 years of service). Retirees at June 27, 1993 pay approximately $30 per month for health care coverage and the Company is responsible for paying the remaining costs. For this group, any increase in health care coverage costs for retired employees will be shared by the Company and retirees on a fifty-fifty basis, while any increase in coverage costs for retiree dependents will be totally paid by the retirees. For eligible employees retiring after June 26, 1993, the Company contributes a fixed dollar amount towards the cost of the medical plan. Any future cost increases for the retiree medical program for these participants will be charged to the retiree. (Continued) 21 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 The following table presents the changes in the postretirement benefit obligation and the funded status of the Plan at June 30:
2002 2001 2000 ----------- ----------- ----------- Benefit obligation at beginning of year $ 1,528,610 1,213,601 1,363,290 Service cost 46,969 43,040 28,845 Interest cost 111,832 105,780 87,539 Plan participants' contributions 39,816 39,274 32,601 Actuarial loss (gain) 143,554 248,491 (196,098) Benefits paid (150,028) (121,576) (102,576) ----------- ----------- ----------- Benefit obligation at end of year $ 1,720,753 1,528,610 1,213,601 =========== =========== =========== Fair value of plan assets $ -- -- -- =========== =========== =========== Funded status (1,720,753) (1,528,610) (1,213,601) Unrecognized actuarial loss (gain) 280,668 137,114 (111,377) ----------- ----------- ----------- Accrued postretirement benefit cost $(1,440,085) (1,391,496) (1,324,978) =========== =========== ===========
Net periodic postretirement benefit cost includes the following components: 2002 2001 2000 -------- -------- -------- Service cost $ 46,969 43,040 28,845 Interest cost 111,832 105,780 87,539 -------- -------- -------- Net periodic postretirement benefit cost $158,801 148,820 116,384 ======== ======== ======== The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.00%, 7.25%, and 7.5%, at the end of fiscal 2002, 2001, and 2000, respectively. For measurement purposes, the annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed to be 5.0% for 2002, 2001, and 2000; the rate is assumed to remain at 5.0% thereafter. The health care cost trend rate assumption may have a significant effect on the amounts reported. A one-percentage point change in assumed health care cost trend rates would have the following effects: 1% increase 1% decrease ----------- ----------- Effect on total of service and interest cost components $ 3,154 (4,729) Effect on postretirement benefit obligation 43,501 (65,230) (Continued) 22 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 (19) Income Taxes The following table presents the Domestic and Foreign components of income (loss) before income taxes and extraordinary item and the expense (benefit) for income taxes from continuing operations: Years ended June 30, 2002 2001 2000 ----------- ------------ ------------ Income (loss) before income taxes and extraordinary item: Domestic $ 7,947,190 18,613,968 14,703,799 Foreign (4,320,324) -- -- ----------- ------------ ------------ $ 3,626,866 18,613,968 14,703,799 =========== ============ ============ Income tax expense (benefit) consists of: Current: Federal 1,407,316 6,151,164 5,053,669 State and local 74,230 595,861 130,231 Foreign -- -- -- ----------- ------------ ------------ Total current $ 1,481,546 6,747,025 5,183,900 =========== ============ ============ Deferred: Federal (306,857) (333,599) (180,715) State and local 4,793 (13,426) 59,815 Foreign (1,584,482) -- -- ----------- ------------ ------------ Total deferred $(1,886,546) (347,025) (120,900) =========== ============ ============ Total income taxes $ (405,000) 6,400,000 5,063,000 =========== ============ ============ (Continued) 23 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 A reconciliation of the expected consolidated income tax expense, computed by applying the U.S. Federal corporate income tax rate of 34% to income before income taxes and extraordinary item, to income tax expense (benefit), is as follows:
2002 2001 2000 ----------- ----------- ----------- Expected consolidated income tax expense $ 1,233,134 6,328,749 4,999,292 State taxes, net of Federal benefit 52,156 384,407 125,430 Nontaxable interest income (867,624) (815,095) (265,708) Nondeductible goodwill -- 177,276 59,092 Export tax benefits (238,000) -- -- Research credits (591,038) -- -- Other, net 6,372 324,663 144,894 ----------- ----------- ----------- $ (405,000) 6,400,000 5,063,000 =========== =========== ===========
The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities at June 30, 2002 and 2001 are presented below: 2002 2001 ----------- ----------- Deferred tax assets: Inventories $ 1,082,273 619,956 Deferred compensation 246,063 230,377 Retirement benefits 86,086 74,939 Postretirement benefits 547,232 528,768 Restricted stock 506,323 264,375 Nondeductible reserves 176,700 261,865 Federal and state tax credit carryforwards 710,734 605,664 Foreign and state net operating loss carryforwards 2,439,857 79,580 Other 21,674 43,345 ----------- ----------- Total deferred tax assets 5,816,942 2,708,869 ----------- ----------- Deferred tax liabilities: Plant and equipment, principally due to differences in depreciation (2,875,725) (1,488,762) Intangible assets including goodwill (923,451) -- Reinvestment reserve (2,073,568) -- ----------- ----------- Net deferred tax liabilities (5,872,744) (1,488,762) ----------- ----------- Net deferred taxes $ (55,802) 1,220,107 =========== =========== Under the income tax law of the Netherlands, the gain related to the insurance claim on the assets of Anaren Europe destroyed in the fire (as discussed at Note 2) can be deferred until replacement assets are acquired by Anaren Europe. At June 30, 2002, Anaren Europe has not replaced all of the destroyed assets and has a "reinvestment reserve" deferred tax liability related to the remaining deferred gain. At the time the replacement assets are acquired, the deferred gain will reduce the income tax basis in the replacement assets. (Continued) 24 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 In addition to the net deferred taxes above, at June 30, 2002 the Company has recorded a deferred tax asset of $54,737 relating to a minimum pension liability and the associated tax benefit has been recorded in stockholders' equity. At June 30, 2002, the Company has net unrealized losses on securities available-for-sale of $1,409,474. If realized, these losses would be characterized for income tax purposes as capital losses, which may only be used to offset capital gains. As a result of this limitation, management does not believe it is more likely than not the Company will be able to utilize the capital losses and therefore no tax benefit has been recorded in stockholders' equity. 2002 2001 ----------- ----------- Presented as: Current deferred tax asset $ 1,356,294 956,759 Long-term deferred tax asset (liability) (1,357,359) 263,348 ----------- ----------- $ (1,065) 1,220,107 =========== =========== In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income, with the exception of the deferred tax asset related to the net unrealized losses on securities available for sale as discussed above, management believes it is more likely than not the Company will realize the benefits of the remaining deferred tax assets. At June 30, 2002, the Company has Federal and State credit carryforwards of $997,220, the majority of which expire at various dates from 2015 through 2022. At June 30, 2002, the Company has foreign net operating losses of $6,944,946 which may be carried forward indefinitely. At June 30, 2002, the Company has a state net operating loss carryforward of $699,376 which expires in 2007. The tax benefit associated with the exercise of stock options and disqualifying dispositions by employees reduced taxes payable by $460,672, $5,375,231, and $2,513,788 in fiscal 2002, 2001, and 2000, respectively. Such benefits are reflected as additional paid-in capital. Cash payments for income taxes (net of refunds received) were $1,387,200, $419,316, and $2,575,231 in fiscal 2002, 2001, and 2000, respectively. (20) Segment and Related Information Segments The Company operates predominately in the wireless communications, satellite communications and space and defense electronics markets. The Company's two reportable segments are the wireless group and the space and defense group. These segments have been determined based upon the nature of the products and services offered, customer base, technology, availability of discrete internal financial information, homogeneity of products, and delivery channel, and are consistent with the way the Company organizes and evaluates financial information internally for purposes of making operating decisions and assessing performance. (Continued) 25 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 The wireless segment designs, manufactures and markets commercial products used mainly by the wireless communications market. The space and defense segment of the business designs, manufactures and markets specialized products for the radar and satellite communications markets. The revenue disclosures for the Company's reportable segments depict products that are similar in nature. The following table reflects the operating results of the segments consistent with the Company's internal financial reporting process. The following results are used in part, by management, both in evaluating the performance of, and in allocating resources to, each of the segments:
Space and Corporate and Wireless defense unallocated Consolidated ----------- ---------- ------------- ------------ Net sales: 2002 $47,497,015 26,071,304 -- 73,568,319 2001 61,709,080 23,116,195 -- 84,825,275 2000 38,806,936 21,364,900 -- 60,171,836 Operating income (loss): 2002 (7,872,292) 7,716,043 -- (156,249) 2001 6,550,461 5,060,803 -- 11,611,264 2000 8,372,808 3,081,324 -- 11,454,132 Goodwill and intangible assets: June 30, 2002 33,168,824 -- -- 33,168,824 June 30, 2001 23,858,758 -- -- 23,858,758 Identifiable assets:* June 30, 2002 19,147,586 14,096,923 155,708,568 188,953,077 June 30, 2001 17,617,672 12,453,474 155,125,572 185,196,718 Depreciation:** 2002 2,662,683 1,182,151 -- 3,844,834 2001 1,629,113 1,146,481 -- 2,775,594 2000 944,061 824,173 -- 1,768,234 Goodwill and intangibles amortization:*** 2002 428,261 -- -- 428,261 2001 1,624,913 -- -- 1,624,913 2000 245,667 -- -- 245,667
(Continued) 26 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 * Segment assets primarily include receivables, inventories, and property, plant, and equipment related to business acquisitions. The Company does not segregate other assets on a products and services basis for internal management reporting and, therefore, such information is not presented. Assets included in corporate and unallocated principally are cash and cash equivalents, marketable debt securities, other receivables, prepaid expenses, deferred income taxes, and property, plant and equipment not specific to business acquisitions. ** Depreciation expense related to acquisition - specific property, plant, and equipment is included in the segment classification of the acquired business. Depreciation expense related to non business combination assets is allocated departmentally based on an estimate of capital equipment employed by each department. Depreciation expense is then further allocated within the department as it relates to the specific business segment impacted by the consumption of the capital resources utilized. Due to the similarity of the property, plant, and equipment utilized, the Company does not specifically identify these assets by individual business segment for internal reporting purposes. *** Amortization of goodwill prior to the adoption of SFAS 142 and identifiable intangible assets arising from business combinations, and patent amortization, is allocated to the segments based on the segment classification of the acquired or applicable operation. Geographic Information Net sales by geographic region are as follows: Other foreign Consolidated United States Canada countries net sales ------------- --------- ------------- ---------- 2002 $51,922,978 1,752,361 19,892,980 73,568,319 2001 63,223,230 4,232,851 17,369,194 84,825,275 2000 45,251,267 5,471,193 9,449,376 60,171,836 Customers In 2002, sales to one customer (approximately $11,791,000, related to the space and defense electronics segment) exceeded 10% of consolidated net sales. In 2001, sales to two customers (approximately $13,012,000, relating to the wireless segment, and approximately $9,422,000, related to the space and defense electronics segment) exceeded 10% of consolidated net sales. In 2000, sales to two customers (approximately $10,300,000, relating to the wireless segment, and $7,000,000, relating to the space and defense electronics segment) exceeded 10% of consolidated net sales. (Continued) 27 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 (21) Commitments The Company is obligated under operating leases for three buildings. Future minimum payments under the noncancelable operating leases for the next five years and thereafter are summarized as follows: Year ending June 30: 2003 $ 994,409 2004 725,890 2005 615,265 2006 591,439 2007 429,886 Thereafter 2,666,202 ---------- 6,023,091 Less sublease income 399,930 ---------- $5,623,161 ========== Rent expense for the years ended June 30, 2002, 2001, and 2000 was $811,294, $616,422, and $427,890, respectively. Rent expense for fiscal 2002, 2001, and 2000 was offset by sublease income of $376,678, $367,566, and $329,698, respectively. (22) Concentrations The Company and others, which are engaged in supplying defense-related equipment to the United States Government (the Government), are subject to certain business risks peculiar to the defense industry. Sales to the Government may be affected by changes in procurement policies, budget considerations, changing concepts of national defense, political developments abroad, and other factors. Sales to the Government accounted for approximately 15%, 9%, and 13% of consolidated net sales in fiscal 2002, 2001, and 2000, respectively. While management believes there is a high probability of continuation of the Company's current defense-related programs, it continues to reduce its dependence on sales to the Government through development of its commercial electronics business. (Continued) 28 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000 (23) Quarterly Financial Data (Unaudited) The following table sets forth certain unaudited quarterly financial information for the years ended June 30, 2002 and 2001:
2002 quarter ended ------------------------------------------------------------- Sept. 30 Dec. 31 March 31 June 30 ----------- ---------- ---------- ---------- Net sales $15,001,191 17,244,979 19,821,239 21,500,910 Cost of sales 9,870,138 12,777,227 13,450,520 15,271,712 Income (loss) before extraordinary item 1,374,484 (351,643) 996,328 2,012,696 Extraordinary item - gain on acquisition -- 3,407,244 -- -- Net income 1,374,484 3,055,601 996,328 2,012,696 Net income (loss) per common and common equivalent share: Basic income (loss) per share: Income (loss) before extraordinary item 0.06 (0.02) 0.04 0.09 Extraordinary item - gain on acquisition -- 0.15 -- -- Net income 0.06 0.13 0.04 0.09 Diluted income (loss) per share: Income (loss) before extraordinary item 0.06 (0.02) 0.04 0.09 Extraordinary item - gain on acquisition -- 0.15 -- -- Net income 0.06 0.13 0.04 0.09
(Continued) 29 ANAREN MICROWAVE, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 2002, 2001, and 2000
2001 quarter ended ----------------------------------------------------- Sept. 30 Dec. 31 March 31 June 30 ----------- ---------- ---------- ---------- Net sales $22,223,974 25,188,261 21,716,061 15,696,978 Cost of sales 13,397,703 15,117,855 14,042,456 9,968,570 Net income 3,981,086 4,294,505 2,751,806 1,186,570 Net income per common and common equivalent share: Basic 0.18 0.19 0.12 0.05 Diluted 0.17 0.18 0.12 0.05
Income per share amounts for each quarter are required to be computed independently. As a result, their sum does not necessarily equal the total year income per share amounts. 30 EX-10.11 3 e13706ex10_11.txt CHANGE OF CONTROL AGREEMENT Exhibit 10.11 CHANGE OF CONTROL AGREEMENT This CHANGE OF CONTROL AGREEMENT is dated as of ______________ between ANAREN MICROWAVE, INC., a New York Corporation ("Anaren"), and ____________________________ ("Employee"). The term "Anaren" shall mean all of its subsidiaries, whether directly or indirectly owned. Recitals A. Employee is currently employed by Anaren in a senior management capacity. B. Anaren desires to retain the services of Employee and to induce Employee to remain with Anaren. C. In consideration of the agreements of the parties contained in this Agreement, and intending to be legally bound by the terms of this Agreement, the parties agree as follows: Terms 1. Term of Agreement. The term of this Agreement shall be for the period from the date of the Agreement to June 30, 2006 and shall automatically expire effective June 30, 2006, unless otherwise renewed by the parties. 2. Change of Control. (a) Subject to the limitations described in paragraphs 2(d), (e), (f) and (g), if Employee's employment by Anaren shall cease for any reason, but not including Employee's voluntary termination or Employee's termination for "cause" (as defined in paragraph 3), within 1 year following a "Change of Control" that occurs during the term of this Agreement, Anaren shall: (i) Pay to Employee an aggregate severance benefit equal to (A) 100 percent of Employee's then current Base Annual Salary, plus (B) an amount equal to the management incentive bonus paid to Employee in the year previous to the year during which the "Change of Control" occurs; and (ii) Treat as immediately exercisable all options granted by Anaren to Employee to acquire Anaren common stock that are not exercisable or that have not been exercised, so as to permit Employee to purchase the balance of Anaren stock not yet purchased until the end of the exercise period provided in the original grant of the option right; and (iii) Treat as immediately vested all restricted Anaren stock, if any, held by Employee; and (iv) Provide Employee with continuation of life and health insurance benefits, under the same terms and conditions that Anaren provides such insurance to its active employees, until payments under paragraph 2(a)(i) above have been paid in full. (b) The severance benefit payable under paragraph 2(a)(i) above shall be payable in substantially equal installments over a period of twelve months. (c) Upon expiration of the period described in paragraph 2(a)(iv), Employee (and Employee's qualified beneficiaries) shall be eligible to commence COBRA continuation benefits. (d) In no event shall the aggregate of all amounts paid to or value received by Employee following a "Change of Control" (whether paid or received pursuant to this paragraph 2 or otherwise) exceed the maximum aggregate amount or value that could be paid to, or received by, Employee without such aggregate amount being treated as a "parachute payment" within the meaning of Internal Revenue Code Section 280G. (e) Anaren shall not be obligated to provide or continue the payments specified in paragraph 2(a)(i) above, if Anaren, within the one-year period following such Change of Control, provides Employee, and Employee accepts, a position within Anaren's organization of comparable responsibility and compensation. Anaren shall allow Employee to maintain such alternative position for a period of not less than one year from the date of acceptance. (f) Payments made and benefits provided pursuant to this paragraph 2 shall be subject to withholding for income, employment and other similar taxes Anaren may be required to withhold. (g) As a condition to Anaren's obligation to provide the payments and benefits pursuant to this paragraph 2, Employee must first execute a General Release, that releases and discharges Anaren from all claims of any type arising out of Employee's employment or the termination of his employment. (h) For purposes of paragraph 2(a), a "Change of Control," shall be deemed to have occurred if: (i) any "person," including a "group" as determined in accordance with the Section 13(d)(3) of the Securities Exchange Act of 1934 ("Exchange Act"), is or becomes the beneficial owner, directly or indirectly, of securities of Anaren representing 30% or more of the combined voting power of Anaren's then outstanding securities; (ii) as a result of, or in connection with, any tender offer or exchange offer, merger or other business combination (a "Transaction"), the persons who were directors of Anaren before the Transaction shall cease to constitute a majority of the Board of Directors of Anaren or any successor; (iii) Anaren is merged or consolidated with another corporation and as a result of the merger or consolidation less than 70% of the outstanding voting securities of the surviving or resulting corporation shall then be owned in the aggregate by the former stockholders of Anaren, other than (A) affiliates within the meaning of the Exchange Act, or (B) any party to the merger or consolidation; (iv) a tender offer or exchange offer is made and consummated for the ownership of securities of Anaren representing 30% or more of the combined voting power of Anaren's then outstanding voting securities; (v) Anaren transfers substantially all of its assets to another corporation which is not controlled by Anaren; or (vi) Any tender offer or exchange offer, merger or other business combination not approved by two-thirds of the members of the Board of Directors in office immediately prior to such event. 3. Termination "For Cause". (a) Notwithstanding any contrary provision contained in paragraph 2, Anaren may terminate this Agreement "for cause" (defined below) at any time, effective upon receipt by Employee of written notice of termination. Upon termination of employment "for cause," Employee shall be entitled only to the salary due Employee from Anaren to the date of receipt by Employee of written notice of termination. (b) Termination "for cause" for purposes of this Agreement shall include, but not be limited to, any of the following: (i) any act of fraud or the commission of a felony; or (ii) breach of duty or obligation to Anaren or receipt of financial or other economic profit or gain as a result of or in any way arising out of Employee's position with Anaren and failure to account to Anaren for such profits or other gains; (iii) disclosure of confidential or private Anaren information or aiding a competitor of Anaren (or any affiliate of Anaren) to the detriment of Anaren (or any affiliate of Anaren); or (iv) the employees unreasonable neglect or refusal to perform the material duties of his position or intentional material damage to the business of Anaren. 4. Covenants. (a) Confidentiality. Employee shall not, without the prior written consent of Anaren, disclose or use in any way, either during his employment by Anaren or thereafter, except as required in the course of his employment by Anaren, any confidential business or technical information or trade secrets acquired in the course of Employee's employment by Anaren. Employee acknowledges and agrees that it would be difficult to fully compensate Anaren for damages resulting from the breach or threatened breach of the foregoing provision and, accordingly, that Anaren shall be entitled to temporary preliminary injunctions and permanent injunctions to enforce this provision. Anaren's right to obtain injunctive relief shall not, however, diminish Anaren's right to claim and recover damages. Employee commits to use his best efforts to prevent the publication or disclosure of any trade secret or any confidential information concerning the business or finances of Anaren or Anaren's subsidiaries, or any of its or their dealings, transactions or affairs which may come to Employee's knowledge in the pursuance of its duties on behalf of Anaren. (b) No Competition. Employee's employment is subject to the condition that during the term of his employment and for a period of twelve (12) months from the date of the termination of his employment (the "Date of Termination") Employee shall not, directly or indirectly, own, manage, operate, control or participate in the ownership, management, operation or control of or be connected as an officer, employee, partner, director, individual proprietor, lender, consultant or otherwise, or have any financial interest in, or aid or assist anyone else in the conduct of any entity or business ("a Competitive Operation") which principal business directly competes with Anaren on the Date of Termination. Ownership by Employee of not more than 5% of the voting stock of any publicly held corporation shall not constitute a violation of this paragraph. (c) Termination of Payments. Upon the breach by Employee of any covenant under this paragraph 4, Anaren may offset and/or recover from Employee immediately any and all of the severance compensation paid to Employee under subparagraph 2(a)(1) hereof in addition to any and all other remedies available to Employer under law or in equity. 5. Miscellaneous. (a) Notices. Any and all notices with respect to this Agreement shall be sufficient if furnished personally in writing or sent by certified mail, return receipt requested, to the last known address or other address designated by the parties to this Agreement. (b) Entire Agreement; Release From Prior Agreements. This Agreement represents the entire agreement between the parties and specifically supersedes any and all oral or written agreements previously entered into by the parties, and each party releases the other party of all obligations and liabilities with respect to any prior employment agreements between the parties. (c) Governing Law. This Agreement, having been made and duly executed within the State of New York, shall be construed and governed in accordance with and pursuant to New York law. (d) Waiver. In the event that any breach of this Agreement by Employee or Anaren is waived by act or failure to act, such waiver shall not constitute a waiver of any subsequent breach by either party. (e) Severability. If any provision of this Agreement shall be held invalid or unenforceable, such invalidity or unenforceability shall affect only that particular provision and shall not affect or render invalid or unenforceable any other provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not a part of the Agreement. (f) Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of the successors, assigns, legal representatives and heirs of the parties. (g) Arbitration and Fees. Any dispute between the parties relating to the terms of this Agreement, or any interpretation, construction or enforcement hereof, shall first be submitted to non-binding arbitration in Syracuse, New York in accordance with the rules and regulations of the American Arbitration Association then in effect. Each party shall be responsible for its own costs and expenses in pursuing non-binding arbitration, and any arbitration fees or costs shall be shared equally between the parties. However, if Employee is a party in an arbitration to collect payments due pursuant to this Agreement and prevails in collecting payments due in the arbitration or settlement of the arbitration, Anaren shall reimburse Employee for reasonable attorneys' fees incurred by Employee in connection with such arbitration. IN WITNESS WHEREOF, the parties have signed this Agreement after full opportunity to read and discuss the provisions of the Agreement, and both parties voluntarily assent to this Agreement with full understanding of its provisions. EMPLOYEE ---------------------------------- (Name of Employee) ANAREN MICROWAVE, INC. By: ------------------------------- Lawrence A. Sala President & CEO EX-10.12 4 e13706ex10_12.txt EMPLOYMENT AGREEMENT RE: RUTGER THEUNISSEN Exhibit 10.12 EMPLOYMENT AGREEMENT - -------------------- Between: 1. ANAREN EUROPE B.V. , a private company with limited liability incorporated under the laws of the Netherlands, registered at Almelo (nr.06085670) with its principal office at Almelo, hereinafter: "the Company", hereby duly represented by Mr. Mark Burdick , 2. RUTGER THEUNISSEN, born at Eindhoven, the Netherlands, residing at Roffart 8, 1083 CJ Amsterdam, The Netherlands, hereinafter: "Mr. Theunissen"; Whereas: (A) The Company is entitled according to the articles of association of the Company ("the Articles of Association") to enter into this Agreement; (B) The general meeting of shareholders has appointed Mr. Theunissen as Managing Director in their meeting on the signing date of this Agreement. It has been agreed as follows: Article 1 - Function and duration 1.1 With effect from April 22, 2002 Mr. Theunissen will enter into an employment agreement with the Company as Managing Director ("Statutair Directeur") of the Company, under acceptance of the powers and obligations set forth in the Articles of Association. 1.2 The employment agreement is for an indefinite period of time. 1.3 The notice period for termination of the employment shall be two months for Mr. Theunissen and four months for the Company. 1.4 Notice of termination must be given in writing by the end of the current month. Article 2 - Duties 2.1 Mr. Theunissen shall exercise all such powers and duties as the Articles of Association, the Supervisory Board respectively the general meeting of shareholders of the Company may determine. During the employment agreement Mr. Theunissen undertakes faithfully to serve the Company and to use his utmost endeavours to promote its interests and to devote the whole of his time, attention and abilities during normal business hours to its affairs. 2.2 During the employment agreement Mr. Theunissen shall not without prior written consent of the general meeting of shareholders of the Company directly or indirectly in any capacity be engaged or interested in any other business, trade or occupation. 2.3 Mr. Theunissen shall keep proper records of his activities as Managing Director for review by the general meeting of shareholders of the Company. 2.4 Mr. Theunissen shall need prior written approval from the general meeting of shareholders respectively the Supervisory Board for the decisions as mentioned in article 12 of the Articles of Association and per the resolutions by the Supervisory Board. 2.5 Mr. Theunissen shall follow all reasonable instructions from the general meeting of shareholders. Article 3 - Remuneration 3.1 The base annual salary is 100,000.00 Euro payable in equal monthly instalments by the end of the month. 3.2 The holiday bonus ("vakantiegeld") is 8% payable pro rata in the month May of each year. At Mr. Theunissen's option, 13 "ATV" days may be taken in lieu of the 8% holiday bonus. Mr. Theunissen may in effect "purchase" anywhere from 1 to 13 ATV days per year at 0.6154% per ATV day. This must be determined in advance on an annual basis. 3.3 The base salary is subject to annual increase based on the Company's results and Mr. Theunissen's personal performance, as determined by the general meeting of shareholders at their sole discretion. The first increase will not be before 1 June 2003. 3.4 Mr. Theunissen is eligible for a Management Performance Bonus. This Bonus shall be 20% of the Base Salary, and will consist of 10 % Corporate respectively 10% Company Goals. The Company Goals will be defined annually, for the first time in June 2002. The Performance Bonus shall be specified in a separate Regulation. 3.5 Mr. Theunissen is entitled to one initial Bonus of 30,000.00 Euro, consisting of 15,000.00 Euro paid at commencement of the employment, an additional 15,000.00 Euro is payable if and after one year of employment. Article 4 - Stock Options 4.1 Mr. Theunissen is entitled to an initial grant of 10,000 options to purchase shares in Anaren Microwave, Inc. with possible additional grants as part of annual performance and salary reviews. Details of this grant will be included in a separate prospectus. 2 Article 5 - Holidays 5.1 In addition to the Dutch Public Holidays, Mr. Theunissen is entitled to 25 working days holiday per annum at full salary. 5.2 No "A.T.V."-days will apply to Mr. Theunissen, unless elected pursuant to Article 3.2 above. Article 6 - Company Car and Mobile Phone 6.1 The Company shall provide Mr. Theunissen at its expense with a leased car with a value not to exceed 35,000.00 Euro or 900 Euro/month lease. Any costs due to a car value above 35,000.00 Euro or 900 Euro/month lease shall be borne by Mr. Theunissen. 6.2 The Company shall provide Mr. Theunissen with a mobile phone, all costs borne by the Company. Article 7 - Pension, Insurance 7.1 The Company shall contribute 67% of the premium for the old age pension for Mr. Theunissen Euro, 33% of the premium will be contributed by Mr. Theunissen. A maximum contribution amount and further details to be included in a separate pension letter which will subsequently be signed by both parties. 7.2 The Company shall contribute 50% of the premium for the private medical insurance for Mr. Theunissen and his family either as part of the collective insurance plan of the Company or of an individual insurance plan of Mr. Theunissen, the other 50% to be borne by Mr. Theunissen. Article 8 - Expenses 8.1 Mr. Theunissen shall receive a fixed representation allowance of 150.00 Euro net per month for general out-of-pocket company related expenses, if and in so far as permitted by the Tax Authorities, failing which the allowance shall be reduced accordingly without compensation to Mr. Theunissen. 8.2 In addition to out -of-- pocket business related expenses the Company shall reimburse to Mr. Theunissen all travel, accommodation and related costs incurred by him, as documented by him. 8.3 The Company will bear all of his moving and storage expenses and temporary housing for up to 90 days. The Company will contract directly with the moving service. In addition an amount of 5,445.00 Euro will be provided by the Company to cover any incidental furnishing expenses. 3 Article 9 - Duty of Secrecy, non-competition and relation clause 9.1 Mr. Theunissen is obliged, both during the term and after termination of the employment agreement to observe strict secrecy regarding all matters relating to the Company and any of its business and the businesses of Anaren Microwave, Inc. and its affiliated subsidiaries. At any time Mr. Theunissen will refrain from any expression about the Company and its affiliates that can have a negative influence on the image of the Company and its affiliates and he will make an effort to refrain third parties from such expressions. 9.2 Without prior written approval of the Company Mr. Theunissen is prohibited during the period of this employment agreement and for a period of 2 years after the termination of the employment agreement to carry out any business, directly or indirectly, that is competitive with or similar to the businesses the Company, Anaren Microwave, Inc. and its affiliated subsidiaries carries on world wide, or to have a financial interest in or for, to work for or on behalf of such business, whether or not as an employee in such business, either reimbursed or not. 9.3 Without prior written approval of the Company Mr. Theunissen is prohibited for a period of 2 years after the termination of the employment agreement to, in any way, approach candidates of the Company and its affiliates that are registered with the Company and its affiliates during a period of two years preceding the termination of this employment agreement, irrespective of whether these candidates have, directly or indirectly, entered into a contract with a client of the Company and its affiliates. 9.4 Without prior written approval of the Company Mr. Theunissen is prohibited during the period of this employment agreement and for a period of 2 years after the termination of the employment agreement, whether for his/her own account or for the benefit of third parties, or otherwise, to perform activities for clients of the Company, Anaren Microwave, Inc. and its affiliates, as far as these activities can be deemed to be activities similar to the activities the Company and its affiliates performed for these clients. For this purpose, clients of the Company and its affiliates are natural persons and legal entities, including entities affiliated with them or controlled by them, that are or have been clients of the Company and its affiliates at any time during a period of two years preceding the termination of this employment agreement. 9.5 In the event Mr. Theunissen does not comply with any of the stipulations in articles 9.1, 9.2, 9.3 or 9.4, he will forfeit a penalty instantly claimable, without the right of compensation, suspension and discounting, of 50,000.00 Euro, increased with 2,500.00 Euro for each day his non-compliance continues, thereby not affecting the Company's right to claim full compensation, all with costs and interests. 4 Article 10 - Inventions 10.1 Mr. Theunissen declares that all ideas and inventions at any time during the employment agreement will be made in favour of the Company and that the Company will be the sole owner of the rights in connection of these inventions. 10.2 The salary of Mr. Theunissen mentioned under article 3 of this agreement includes any possible reimbursement for these inventions so that Mr. Theunissen shall have no claim for a separate reimbursement for this. Article 11 - Miscellaneous 11.1 Upon termination of the employment agreement for whatever reason Mr. Theunissen shall deliver to the Company forthwith all its belongings, including without limitation, electronic or other records, files, documents, credit cards and other materials or data of the Company without retention of any copy. 11.2 This agreement is construed in accordance with and shall be governed exclusively by Dutch law. All disputes arising in connection with this contract shall be brought before a competent Court in the Netherlands. 11.3 This agreement shall be in the English Language only. ___________________________ _____________________________ Anaren Europe B.V. R. Theunissen by: Mark Burdick 5 EX-10.13 5 e13706ex10_13.txt EMPLOYMENT AGREEMENT RE: RAYMOND SIMIONE Exhibit 10.13 EMPLOYMENT AGREEMENT This sets forth the Employment Agreement ("Agreement") made effective as of August 31, 2001 between Anaren Microwave, Inc. ("Employer"), a New York corporation with its principal place of business at 6635 Kirkville Road, East Syracuse, New York 13057, and Raymond Simione ("Mr. Simione" or "Employee"), an individual currently residing at 18 Camelot Rd., Windham, New Hampshire 03087. RECITALS A. Amitron, Inc. ("Amitron") is based in North Andover, Massachusetts and is in the business of manufacturing multi-layer ceramic micro-electronic circuits (the "Business"). B. Mr. Simione co-founded Amitron and currently serves as its President and Chief Operating Officer. C. Anaren intends to purchase the outstanding stock of Amitron. D. Anaren desires to retain Mr. Simione in its employment to continue to oversee and manage Amitron's business operations. E. In entering into this Agreement, Anaren desires to ensure Mr. Simione's continued employment after Anaren purchases the outstanding stock of Amitron and to reinforce and encourage the continued dedication of Mr. Simione to Amitron and to Anaren. TERMS IN CONSIDERATION of the mutual covenants and representations contained herein, and other good and valuable consideration, receipt of which is acknowledged, the parties agree as follows: 1. Employment. (a) Term. Employer shall employ Employee, and Employee shall continue to serve, as President of Amitron and as a Vice President of Employer for a period commencing on August 31, 2001 and ending on June 30, 2006 ("Period of Employment"), subject to earlier termination as provided in this Agreement. (b) Salary. During the period August 31, 2001 through November 1, 2002, Employer shall pay Employee base salary at an annual rate of $183,000 ("Base Salary"). Employee's Base Salary for the period November 2, 2002 through November 1, 2003 and for each succeeding 12 month period through June 30, 2006, shall be determined by Mark Burdick, Employer's Vice President and General Manager, subject to approval by Employer's Board of Directors, but shall not be set below $183,000 annually. Employee's Base Salary is payable in accordance with Amitron's regular payroll procedures for executive employees. (c) Title/Office Location. Employee shall retain the title of President of Amitron, Inc. and shall also be a Vice President of Employer reporting directly to Mark Burdick, Employer's Vice President and General Manager. At all times during the Period of Employment, Employee's office shall be located at Amitron's offices which shall not be located more than forty (40) miles from North Andover, Massachusetts or Mr. Simione's principal residence. In the event Amitron's offices are relocated beyond the geographic boundaries provided for in this paragraph, and Mr. Simione elects not to continue his employment, Mr. -2- Simione will be entitled to severance pay and the other fringe benefits provided for in paragraph 1(e) below for eighteen (18) months, but in no case shall severance pay and benefits be provided for any period beyond the time period Mr. Simione would have received had Amitron's offices not been relocated. (d) Incentive Bonuses. Employee shall be eligible for annual incentive bonuses, beginning with Employer's fiscal year 2002 pursuant to the terms of the Management Incentive Plan which has been approved by the Board of Directors of Employer to cover key management personnel of Employer. Employee's target bonus shall be 30% of his Base Salary. Incentive awards shall be based on a combination of corporate and Amitron's performance measured against pre-established goals. (e) Severance Pay. Upon Employee's termination at any time after the expiration of the Period of Employment, Employee shall be entitled to be paid, as severance compensation, six months of the Base Salary in effect at that time. Payments required pursuant to the preceding sentence shall be paid in accordance with Amitron's regular payroll procedures. For any period during which Employee's Base Salary is continued as severance compensation, Employee shall be eligible to continue to participate in Amitron's group health benefit and group short and long term disability and term life insurance plans and Employer's 401(k) and other benefit plans as if Employee was an active, full time employee. Employee's right to "COBRA" continuation coverage shall commence the month following the end of the period during which Employee received severance compensation and continued health benefits. 2. Duties During The Period Of Employment. (a) Employee shall have full responsibility, subject to the reasonable direction of Mr. Burdick and Employer's President and CEO for the management of all aspects -3- of Amitron's Business, and the discharge of such other duties and responsibilities to Employer as may from time to time be reasonably assigned to Employee which duties and responsibilities shall be commensurate and appropriate for Employee's position as President of Amitron and Vice President of Anaren. Employee shall devote his full working time and reasonable best efforts to the business and affairs of Amitron and Employer, in accordance with his senior management position, except during any period of illness or incapacity; provided, however, that nothing herein shall preclude Employee from spending reasonable amount of time consulting with the management of Amitron-West, Inc. d/b/a Laser Processing Technology ("LPT") consistent with Employee's past experience and his equity ownership position in LPT, and to engage in charitable or community activities, provided that such activities on behalf of LPT or any charity or civic organization collectively do not unreasonably interfere with the performance of his duties under this Agreement. 3. Fringe Benefits. (a) Benefit Plans. During the period of employment, Employee will continue to be eligible to participate in any Amitron or Employer sponsored pension benefit plans (as determined and defined under Section 3(2) of the Employee Retirement Income Security Act of 1974 as amended), Amitron's paid group life insurance plans, medical plans, dental plans, short term and long term disability plans, business travel insurance programs and other fringe benefit programs maintained by Amitron for the benefit of its executive employees. Participation in any of Amitron's benefit plans and programs shall be based on, and subject to satisfaction of, the eligibility requirements and other conditions of such plans and programs. Employee shall also be eligible to receive annual stock option grants pursuant to Employer's Incentive Stock Option Plan. It is anticipated that Amitron's current 401(k) plan will be merged -4- with Anaren's 401(k) plan on or about January 1, 2002, and at that time, Mr. Simione will be eligible to participate in Anaren's 401(k) plan. (b) Expenses. Upon submission to Amitron of vouchers or other required documentation, Employee shall be reimbursed for Employee's actual out-of-pocket travel and other expenses reasonably incurred and paid by Employee in connection with Employee's duties. (c) Automobile Expenses. Amitron shall pay Employee on or about September 4, 2001, a one time lump sum payment of Twenty Thousand Dollars ($20,000) in lieu of an automobile expense allowance after the date of this Agreement. (d) Other Benefits. During the Period of Employment, Employee shall be entitled to receive paid vacation of 4 weeks during each calendar year and any holidays that may be provided to all employees of Amitron. For the balance of calendar year 2001, Employee shall be entitled to three (3) weeks of paid vacation. 4. Stock Options. (a) Concurrent with execution of this Agreement, Employer shall grant to Employee, ten thousand (10,000) stock options with an exercise price equal to the closing price of Employer's stock at the close of business on the date immediately proceeding the grant date pursuant to Employer's Qualified Incentive Stock Option Plan. The aforementioned Stock Options shall vest at a rate of twenty (20%) percent per year and shall be exercisable by Employee upon vesting. (b) Future grants. Employer's President and CEO shall request annually of the Compensation Committee of the Board of Directors of Employer that Employee be granted additional Employee stock options to purchase shares of common stock of Employer. -5- It is understood, however, that the Board of Directors maintains total discretion as to all future option grants. 5. Termination. The Period of Employment shall be subject to termination prior to June 30, 2006 as follows: (a) Termination Upon Death. The Period of Employment shall terminate upon Employee's death. In the event this Agreement is terminated as a result of Employee's death, Employer shall continue payments of Employee's Base Salary for a period of ninety (90) days following Employee's death to the beneficiary designated by Employee on the "Beneficiary Designation Form" attached to this Agreement as Appendix A. Employer shall treat as immediately fully vested and exercisable all unexpired stock options held by Employee that are not exercisable or that have not been exercised, so as to permit the beneficiary to purchase the balance of Employer's common stock not yet purchased pursuant to said options until the end of the one year period that follows Employee's date of death. (b) Termination Upon Disability. Employer may terminate this Agreement upon Employee's disability. For the purpose of this Agreement, Employee's inability to perform Employee's regular duties by reason of physical or mental illness or injury for a period of twenty-six (26) successive weeks ("Disability Period") shall constitute "Disability." The determination of Disability shall be made by a physician selected by Employer and a physician selected by Employee; provided, however, that if the two physicians so selected shall disagree, the determination of Disability shall be submitted to Arbitration in accordance with the rules of the American Arbitration Association, and the decision of the Arbitrator shall be binding on both parties. -6- (i) During the Disability Period, Employee shall be entitled to 100% of Employee's Base Salary, reduced by any other benefits to which Employee may be entitled for the disability period on account of such disability, including, but not limited to, benefits provided under Massachusetts Compensation law. (ii) Upon termination pursuant to this Disability provision, Employer shall treat as immediately fully vested and exercisable all unexpired stock options held by Employee that are not exercisable or that have not been exercised, so as to permit the Employee to purchase the balance of Employer common stock not yet purchased pursuant to said options until the end of the one year period following Employee's termination due to Disability. (c) Termination for Cause. Employer may terminate Employee's employment immediately for "Cause" by written notice to Employee. For purpose of this Agreement, termination shall be for "Cause" if the termination results from any of the following events: (i) material and willful breach by Employee of this Agreement which is not cured by Employee within 10 days after receipt of written notice of such breach specifying the nature of such breach in detail; -7- (ii) misappropriating any funds or property of Amitron or Employer, or attempting to obtain any personal benefit from any transaction to which Amitron or to Employee's knowledge, Employer is a party or from any transaction with any third party in which Employee has an interest which is adverse to the interest of Amitron or to Employee's knowledge, Employer, unless in either case, Employee shall have first obtained the written consent of the Employer's Vice President and General Manager (but excluding any bona fide, arm's length transaction between LPT and Amitron pursuant to any contractual arrangements between Amitron and LPT existing as of the date of this Agreement); (iii) conviction of felony; or (iv) documented repeated failure to follow the reasonable, written instructions of Employer's Vice President and General Manager after prior written warning. Notwithstanding any other term or provision of this Agreement to the contrary, if Employee's employment is terminated for "Cause", Employee shall forfeit all rights to receive future payments and benefits otherwise provided pursuant to this Agreement; provided, however, that Base Salary will be paid to Employee through the date of termination. -8- (d) Termination by Employer for Reasons Other Than Cause. In the event Employer terminates Employee for reasons "Other Than Cause", Employee shall be entitled to: (i) the greater of (A) severance pay determined in accordance with the provisions of Section 1(e) of this Agreement, or (B) Employee's regular Base Salary for the balance of the Period of Employment had the Period of Employment not been terminated; (ii) continued participation in Amitron's group health benefit and group short and long term disability insurance plans and Employer's 401(k) and other benefit plans, as if Employee was an active, full time employee for the severance pay period described above, with "COBRA" continuation coverage to commence the month following the end of the period during which Employee receives severance compensation and continued health benefits. (iii) exercise all unexpired stock options held by Employee that are not exercisable or that have not been exercised, so as to permit the Employee to purchase the balance of Employer common stock not yet purchased pursuant to said options until the end of the one year period following Employee's termination; and -9- (iv) receipt of the payments and benefits provided in paragraphs (i) and (ii) above is expressly conditioned on Employee executing a complete general release in favor of Employer, Amitron, and their officers and directors, in their individual and representative capacities, (collectively "the Releasees") which will provide a total bar against all claims against the respective Releasees related to Employee's employment and the termination of that employment. 6. Withholding. Employer shall deduct and withhold from compensation and benefits provided under this Agreement all legally required taxes and any benefit contributions required by law. 7. Covenants. (a) Confidentiality. Employee shall not, without the prior written consent of Employer, disclose or use in any way, either during his employment by Employer or thereafter, except as required in the course of his employment by Employer, any confidential business or technical information or trade secrets (collectively "proprietary information") acquired in the course of Employee's employment by Amitron or by Employer. Employee acknowledges and agrees that it would be difficult to fully compensate Employer for damages resulting from the breach or threatened breach of the foregoing provision and, accordingly, that Employer shall be entitled to temporary preliminary injunctions and permanent injunctions to enforce this provision. Employer's right to obtain injunctive relief shall not, however, diminish Employer's right to claim and recover damages. Employee commits to use his reasonable efforts commensurate with his position to prevent the publication or disclosure of any trade secret or -10- any proprietary information concerning the business or finances of Employer or Employer's subsidiaries or affiliates, or any of its or their dealings, transactions or affairs which may come to Employee's knowledge in the pursuance of its duties on behalf of Employer, provided, however, that the foregoing covenants in this Section 7(a) shall not apply to any proprietary information which (i) becomes generally available to the public or the industries of Amitron and Employer other than as a result of a disclosure thereof by Employee in violation of this Agreement; (ii) was or becomes available to the Employee from a source other than Employer or Amitron, which source, if a third party, is under no legal or contractual restraint on his or its disclosure thereof to Employee; or (iii) which Employee is obligated to disclose in accordance with any applicable law or pursuant to any lawful subpoena. If Employee is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any proprietary information, it is agreed that Employee will provide Employer with prompt notice of such request(s) so that Employer may seek an appropriate protective order and if unsuccessful in obtaining a protective order by the time employee is compelled to disclose any proprietary information, the Employer shall be deemed to waive Employee's compliance with the provisions of this Section 7(a). (b) Upon execution of this Agreement, Employee will properly execute a copy of Employer's Confidential and Proprietary Information Agreement (attached as Exhibit B). (c) No Competition. (i) During the Period of Employment and for the time period specified in Section 7(c)(ii) below, Employee shall not, directly or indirectly, own, manage, operate, control or -11- participate in the ownership, management, operation or control of or be connected as an officer, employee, partner, director, individual proprietor, lender, consultant or otherwise, or have any financial interest in, or aid or assist anyone else in the conduct of any entity or business which is engaged in (A) any business which is competitive with the business of Amitron as it is now conducted or which may hereafter be conducted by Amitron during the Period of Employment or (B) in any business now conducted by Employer or hereafter conducted by Employer during the Period of Employment, provided that Employee has been materially involved in such business conducted by the Employer or has had access to confidential information with respect to such business of the Employer ("a Competitive Operation"). (ii) The foregoing obligations of Employee under Section 7(c)(i) shall cease and terminate, and be of no further force and effect on the later of (A) August 31, 2006, (B) the last day on which Employee receives severance pay in accordance with the provisions of this Agreement or (C) the expiration of two (2) years after the date of the termination of Employee's employment unless the reason is -12- without cause, in which case one (1) year after the date of termination. (iii) It is expressly understood that Employee currently is an equity owner of LPT and Employee from time to time consults with LPT's management on various operational and business related issues. It is additionally understood that LPT is engaged in the laser services industry, providing laser drilling and ceramic machining services, including, but not limited to, CO(2) laser processing (cutting and drilling), high temperature annealing, automated inspection, laser coating to protect material surfaces and optical alignment (all of the foregoing being hereafter referred to as the "Excluded Business"). It is further understood that the "Excluded Business" does not include the manufacture or selling of thick film ceramic circuits or components. Notwithstanding anything to the contrary contained herein, none of the provisions set forth in this Section 7(c) shall in any manner be deemed to preclude, prohibit or restrict in any manner Employee (a) during and after Employee's employment with Employer, from owning any equity interest in, or acting as a director of the Excluded Business and (b) after the termination of Employee's employment, engaging in any services of any -13- nature on behalf of the Excluded Business or engaging in any other business which may be in the future conducted by LPT provided that such future business do not constitute a Competitive Operation. (iv) Ownership by Employee of not more than 2% of the voting stock of any publicly held corporation shall not constitute a violation of this paragraph. (v) Employee agrees that the foregoing obligations of Employee under this Section 7(c) are entered into by Employee in conjunction with Employer's purchase of the outstanding stock of Amitron, and that the scope and breath of the above covenant not to compete is fair and reasonable and shall therefore be enforceable. (d) Termination of Payments. Upon the breach by Employee of any covenant under this paragraph 7, Employer may offset any damages, including but not limited to attorneys' fees awarded by the final non-appealable decree or order of an arbitrator pursuant to paragraph 14 below by reason of such breach against any and all severance benefits payable to Employee under paragraph 1(e) hereof in addition to any and all other remedies available to Employer under law or in equity. 8. Notices. Any notice which may be given hereunder shall be sufficient if in writing and mailed by certified mail, return receipt requested, to Employee at his residence, and to Employer at P.O. Box 178, 6635 Kirkville Road, E. Syracuse, New York 13057 or at such other addresses as either Employee or Employer may, by similar notice, designate. -14- 9. Rules, Regulations and Policies. Employee shall abide by and comply with all of the material rules, regulations, and policies of Employer, which are not inconsistent with this Agreement, including without limitation Employer's policy of strict adherence to, and compliance with, any and all requirements of the Securities and Exchange Commission and the NASDAQ. 10. No Prior Restrictions. Employee affirms and represents that Employee is under no obligation to any former employer or other third party which is in any way inconsistent with, or which imposes any restriction upon, the employment of Employee by Employer, or Employee's undertakings under this Agreement. 11. Return of Employer's Property. After Employee has received notice of termination or at the end of the term of this Agreement whichever first occurs, Employee shall immediately return to Employer all documents and other property in his possession belonging to Amitron. 12. Construction and Severability. The invalidity of any one or more provisions of this Agreement or any part thereof, all of which are inserted conditionally upon their being valid in law, shall not affect the validity of any other provisions to this Agreement; and in the event that one or more provisions or any part thereof contained herein shall be invalid, as determined by a court of competent jurisdiction, this instrument shall be construed as if such invalid provisions had not been inserted, and further provided that with respect to the duration of the "no competition" covenants in Section 7, if a court of competent jurisdiction deems any period provided in Section 7 as "excessive", the parties intend that the applicable provision will remain valid and enforceable for whatever period the court deems appropriate. -15- 13. Governing Law. This Agreement was executed and delivered in New York and shall be construed and governed in accordance with the laws of the State of New York, without regard to its conflicts of law principles. 14. Disputes. The exclusive forum to resolve any dispute involving the interpretation or application of this Agreement shall be to binding arbitration pursuant to the rules and procedures of the American Arbitration Association to be held in Syracuse New York except that the "non-prevailing" party shall be liable to pay the costs and reasonable attorney's fees of the prevailing party. To the extent that the parties can not agree as to who the "non prevailing" party is, the Arbitrator shall retain jurisdiction exclusively to decide that issue. The Arbitrator shall have no jurisdiction or authority to add to, detract from or alter in any way the provisions of this Agreement. The award rendered by the Arbitrator shall be final, and judgment may be entered upon it in accordance with applicable law in any New York court having jurisdiction. 15. Assignability and Successors. This Agreement may not be assigned by Employee or Employer, except that this Agreement shall be binding upon, and shall inure to the benefit of the successor of Employer through merger, acquisition of all or substantially all the assets of Employer, or corporate reorganization. 16. Miscellaneous. (a) This Agreement constitutes the entire understanding and agreement between the parties with respect to Employee's employment with Employer and shall supersede all prior understandings and agreements. (b) This Agreement cannot be amended, modified or supplemented in any respect, except by a subsequent written agreement entered into by the parties. -16- (c) The services to be performed by Employee are special and unique; it is agreed that any breach of this Agreement by Employee shall entitle Employer (or any successor or permitted assigns of Employer), in addition to any other legal remedies available to it, to apply to any court of competent jurisdiction to enjoin such breach. (d) The provisions of paragraph 7 and any other provisions of this Agreement that by their terms survive the termination of this Agreement or Period of Employment shall survive the termination of this Agreement. 17. Counterparts. This Agreement may be executed in counterparts, which together shall constitute one in the same instrument. Dated: ANAREN MICROWAVE, INC. By: -------------------------------------- Lawrence A. Sala President and CEO Dated: -------------------------------------- Raymond Simione -17- APPENDIX A BENEFICIARY DESIGNATION FORM Pursuant to the Employment Agreement between ANAREN MICROWAVE, INC. and RAYMOND SIMIONE dated as of ________ ____, 2001 ("Agreement"), I, Raymond Simione hereby designate ___________________________, my spouse, as the beneficiary of amounts payable upon my death in accordance with paragraph 5 of the Agreement. My beneficiary's current address is the same as mine. Dated: -------------------- -------------------------------------- Raymond Simione - ------------------------- Witness -18- EX-23 6 e13706ex23.txt INDEPENDENT AUDITORS' CONSENT Exhibit 23 Independent Auditor's Consent The Board of Directors Anaren Microwave, Inc.: We consent to incorporation by reference in the Registration Statements (No. 33-36761, No. 333-03193, No. 333-70397, No. 333-70427, No. 333-50390, and No. 333-50392) on Form S-8 and Registration Statement (No. 333-70422) on Form S-3 Anaren Microwave, Inc. of our report dated August 5, 2002, relating to the consolidated balance sheets of Anaren Microwave, Inc. and subsidiaries as of June 30, 2002 and June 30, 2001, and the related consolidated statements of income, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended June 30, 2002, which report appears in the June 30, 2002 annual report on Form 10-K of Anaren Microwave, Inc. Syracuse, New York August 5, 2002 EX-99.1 7 e13706ex99_1.txt CERTIFICATION Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Anaren Microwave, Inc. (the "Company") on Form 10-K for the fiscal year ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lawrence A. Sala, President, Chief Executive Officer and Chairman of the Board of Directors of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Lawrence A. Sala - -------------------- Lawrence A. Sala President, Chief Executive Officer and Chairman of the Board August 6, 2002 EX-99.2 8 e13706ex99_2.txt CERTIFICATION Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Annual Report of Anaren Microwave, Inc. (the "Company") on Form 10-K for the fiscal year ended June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph E. Porcello, Vice President, Finance and Treasurer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Joseph E. Porcello Joseph E. Porcello Vice President, Finance and Treasurer August 6, 2002 -----END PRIVACY-ENHANCED MESSAGE-----