-----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, K20f6C41IpADTiGl0Is5+Na5OnrBTOGI0qhLVKlGlFQRpv4A0LkycjebTxxsj3XL pGR+CgHu0kwTIEGpim6D6g== 0000891092-05-000206.txt : 20050207 0000891092-05-000206.hdr.sgml : 20050207 20050207120550 ACCESSION NUMBER: 0000891092-05-000206 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050207 DATE AS OF CHANGE: 20050207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANAREN 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06620 FILM NUMBER: 05579564 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-Q 1 e20391_10q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2004 ----------------- __ 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, INC. (Exact name of registrant as specified in its Charter) New York 16-0928561 -------- ---------- (State of incorporation) (I.R.S Employer Identification No.) 6635 Kirkville Road East Syracuse, New York 13057 ----------------------- ----- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code: 315-432-8909 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by Check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No __ The number of shares of Registrant's Common Stock outstanding on February 4, 2005 was 19,613,783. ANAREN, INC. INDEX PART I - FINANCIAL INFORMATION Page No. ------------------------------ -------- Item 1. Financial Statements Consolidated Condensed Balance Sheets as of 3 December 31, 2004 and June 30, 2004 (unaudited) Consolidated Condensed Statements of Earnings 4 for the Three Months Ended December 31, 2004 and 2003 (unaudited) Consolidated Condensed Statements of Earnings 5 for the Six Months Ended December 31, 2004 and 2003 (unaudited) Consolidated Condensed Statements of Cash Flows 6 for the Six Months Ended December 31, 2004 and 2003 (unaudited) Notes to Consolidated Condensed Financial 7 Statements (unaudited) Item 2. Management's Discussion and Analysis 16 of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 28 Item 4. Controls & Procedures 28 PART II - OTHER INFORMATION - --------------------------- Item 2. Unregistered sales of equity securities and use of proceed 28 Item 4. Submission of Matters to a Vote of Security Holders 29 Item 6. Exhibits 29 Officer Certifications 30 - 34 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements ANAREN, INC. AND SUBSIDIARIES Consolidated Condensed Balance Sheets December 31, 2004 and June 30, 2004 (Unaudited)
December 31, 2004 June 30, 2004 ----------------- ------------- Assets ------ Current assets: Cash and cash equivalents $ 11,571,034 $ 23,303,263 Securities available for sale (note 3) -- 2,961,710 Securities held to maturity (note 3) 61,390,210 59,076,923 Receivables, less allowance of $171,008 and $145,500, respectively 12,967,049 13,812,853 Inventories (note 4) 18,958,510 16,608,055 Interest and other receivables 885,081 1,040,838 Deferred income taxes 1,061,682 1,037,103 Prepaid expenses 863,998 995,590 Other current assets 267,334 230,784 ------------ ------------ Total current assets 107,964,898 119,067,119 ------------ ------------ Securities held to maturity (note 3) 30,904,428 35,113,068 Property, plant and equipment, net (note 5) 25,942,384 21,342,554 Goodwill 30,715,861 30,715,861 Other intangible assets, net of accumulated amortization of $2,185,290 at December 31, 2004 and $1,781,080 at June 30, 2004 (note 1) 839,676 1,243,886 ------------ ------------ Total assets $196,367,247 $207,482,488 ============ ============ Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 4,982,021 $ 7,198,252 Accrued expenses (note 6) 2,238,456 3,092,370 Income taxes payable 1,560,116 1,331,895 Customer advance payments 274,070 411,486 Other current liabilities (note 8) 332,334 295,784 ------------ ------------ Total current liabilities 9,386,997 12,329,787 Deferred income taxes 2,080,125 1,584,251 Postretirement benefit obligation 2,713,520 2,762,992 Other liabilities (note 8) 513,125 441,190 ------------ ------------ Total liabilities 14,693,767 17,118,220 ------------ ------------ Stockholders' equity: Common stock of $.01 par value. Authorized 200,000,000 shares; issued 25,982,004 shares at December 31, 2004 and 25,950,704 at June 30, 2004 259,820 259,507 Additional paid-in capital 171,215,409 171,165,180 Unearned compensation (301,844) (95,388) Retained earnings 54,209,319 51,247,271 Accumulated other comprehensive loss 167,587 41,110 ------------ ------------ 225,550,291 222,617,680 Less cost of 6,368,221 and 5,400,026 treasury shares at December 31, 2004 and June 30, 2004, respectively 43,876,811 32,253,412 ------------ ------------ Total stockholders' equity 181,673,480 190,364,268 ------------ ------------ Total liabilities and stockholders' equity $196,367,247 $207,482,488 ============ ============
See accompanying notes to consolidated condensed financial statements. 3 ANAREN, INC. AND SUBSIDIARIES Consolidated Condensed Statements of Earnings Three Months Ended December 31, 2004 and 2003 (Unaudited) Dec. 31, 2004 Dec. 31, 2003 ------------- ------------- Net sales $23,650,022 $19,593,930 Cost of sales 16,888,850 12,952,703 ----------- ---------- Gross profit 6,761,172 6,641,227 ----------- ---------- Operating expenses: Marketing 1,860,973 1,681,384 Research and development 1,387,105 1,133,246 General and administrative 2,141,752 1,863,784 Restructuring 458,335 -- ----------- ---------- Total operating expenses 5,848,165 4,678,414 ----------- ---------- Operating income 913,007 1,962,813 Other income, primarily interest 179,714 375,735 Interest expense (9,837) (1,550) ----------- ---------- Income before income taxes 1,082,884 2,336,998 Income tax expense 102,000 746,000 ----------- ---------- Net income from continuing operations $ 980,884 $ 1,590,998 ----------- ---------- Discontinued operations: Loss from discontinued operations of Anaren Europe (note 9) -- (335,053) ----------- ---------- Net income $ 980,884 $1,255,945 =========== ========== Basic earnings per share: Income from continuing operations $0.05 $ 0.08 Income (loss) from discontinued operations $ -- (0.02) ----- ------ Net income $0.05 $ 0.06 ===== ====== Diluted earnings per share: Income from continuing operations $0.05 $ 0.07 Income (loss) from discontinued operations $ -- (0.01) ----- ------ Net income $0.05 $ 0.06 ===== ====== Shares used in computing net earnings per share: Basic 19,580,182 21,123,035 ========== ========== Diluted 20,167,087 21,887,468 ========== ========== See accompanying notes to consolidated condensed financial statements. 4 ANAREN, INC. Consolidated Condensed Statements of Earnings Six Months Ended December 31, 2004 and 2003 (Unaudited) Dec. 31, 2004 Dec. 31, 2003 ------------- ------------- Net sales $48,557,379 $37,864,603 Cost of sales 33,905,389 25,264,481 ----------- ----------- Gross profit 14,651,990 12,600,122 ----------- ----------- Operating expenses: Marketing 3,637,618 3,266,850 Research and development 3,032,182 2,555,028 General and administrative 4,243,936 3,702,183 Restructuring 458,335 -- ----------- ----------- Total operating expenses 11,372,071 9,524,061 ----------- ----------- Operating income 3,279,919 3,076,061 Other income, primarily interest 532,771 843,711 Interest expense (15,642) (4,522) ----------- ----------- Income before income taxes 3,797,048 3,915,250 Income tax expense 835,000 1,127,000 ----------- ----------- Income from continuing operations 2,962,048 2,788,250 Discontinued operations: Loss from discontinued operations of Anaren Europe (note 9) -- (1,548,398) Income tax benefit -- (1,800,000) ----------- ----------- Net income from discontinued operations -- 251,602 ----------- ----------- Net income $ 2,962,048 $ 3,039,852 =========== =========== Basic earnings per share: Income from continuing operations $0.15 $0.13 Income from discontinued operations -- 0.01 ----- ----- Net income $0.15 $0.14 ===== ===== Diluted earnings per share: Income from continuing operations $0.15 $0.13 Income from discontinued operations -- 0.01 ----- ----- Net income $0.15 $0.14 ===== ===== Shares used in computing net earnings per share: Basic 19,862,314 21,440,385 ========== ========== Diluted 20,422,625 22,120,197 ========== ========== See accompanying notes to consolidated condensed financial statements. 5 ANAREN, INC. Consolidated Condensed Statements of Cash Flows Six Months Ended December 31, 2004 and 2003 (Unaudited)
Dec. 31, 2004 Dec. 31, 2003 ------------- ------------- Cash flows from operating activities: Net income $ 2,962,048 $ 3,039,852 Net income from discontinued operations -- 251,602 ------------ ------------- Net income from continuing operations $ 2,962,048 $ 2,788,250 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,502,172 1,999,534 Amortization of intangibles 404,210 249,769 Loss on sale of equipment 67,397 -- Loss on sale of securities available for sale 342,711 -- Deferred income taxes 139,117 (89,696) Unearned compensation 113,143 143,100 Provision for doubtful accounts 25,508 75,949 Tax benefit from exercise of stock options 13,536 137,280 Changes in operating assets and liabilities, net of acquisition: Receivables 820,296 (1,928,666) Inventories (2,350,455) 262,124 Interest and other receivables 155,757 192,932 Other current assets 95,042 (199,409) Refundable income taxes -- 876,220 Accounts payable (2,216,230) (776,448) Accrued expenses (853,914) 120,719 Income taxes payable 228,221 1,127,683 Customer advance payments (137,416) 880,368 Other liabilities 108,485 6,495 Postretirement benefit obligation (49,472) 199,228 ------------ ------------- Net cash provided by operating activities from continuing operations 2,370,156 6,065,432 Net cash used in operating activities from discontinued operations -- (157,244) ------------ ------------- Net cash provided by operating activities 2,370,156 5,908,188 ------------ ------------- Cash flows from investing activities: Capital expenditures (7,329,399) (1,480,144) Proceeds from sale of securities available for sale 2,746,130 -- Proceeds from sale of equipment 160,000 -- Maturities of marketable debt securities 49,099,454 142,295,305 Purchase of marketable debt securities (47,204,097) (126,787,000) ------------ ------------- Net cash provided by (used in) investing activities from continuing operations (2,527,912) 14,028,161 Net cash provided by investing activities from discontinued operations -- 1,493,378 ------------ ------------- Net cash provided by (used in) investing activities (2,527,912) 15,521,539 ------------ ------------- Cash flows from financing activities: Stock options exercised 49,584 276,398 Purchase of treasury stock (11,623,399) (19,964,325) ------------ ------------- Net cash used in financing activities (11,573,815) (19,687,927) ------------ ------------- Effect of exchange rates (658) 37,240 Net increase (decrease) in cash and cash equivalents (11,732,229) 1,779,040 Cash and cash equivalents at beginning of period 23,303,263 11,062,662 ------------ ------------- Cash and cash equivalents at end of period $ 11,571,034 $ 12,841,702 ============ ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash Paid During the Period For: Interest $ 15,642 $ 4,522 ============ ============= Income taxes $ 472,389 $ 2,000 ============ =============
See accompanying notes to consolidated condensed financial statements. 6 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) - ---------------------------------------------------------------- The consolidated condensed financial statements are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. The consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004. The results of operations for the six months ended December 31, 2004 are not necessarily indicative of the results for the entire fiscal year ending June 30, 2005, or any future interim period. The income tax rates utilized for interim financial statement purposes for the six months ended December 31, 2004 and 2003 are based on estimates of income and utilization of tax credits for the entire year. NOTE 1: Intangible Assets INTANGIBLE ASSETS: Intangible assets as of December 31, 2004 and June 30, 2004 are as follows:
December 31 June 30 --------------------------------- -------------------------------- Gross Carrying Accumulated Gross Carrying Accumulated Amount Amortization Amount Amortization -------------- ------------ -------------- ------------ Patent $ 574,966 $ 395,290 $ 574,966 $ 359,354 Customer Base 1,350,000 750,000 1,350,000 637,500 Trade Name 320,000 320,000 320,000 302,226 Non-Competition Agreements 180,000 120,000 180,000 102,000 Favorable Lease 600,000 600,000 600,000 380,000 ---------- ---------- ---------- ---------- Total $3,024,966 $2,185,290 $3,024,966 $1,781,080 ========== ========== ========== ==========
Intangible asset amortization expense for the six month period ended December 31, 2004 and 2003 aggregated $404,210 and $249,769, respectively. Included in the amortization expense for the six months ended December 31, 2004 and fiscal year 2005 is $205,000 for acceleration of the favorable lease intangible caused by the move of the Company's Amitron facility. Amortization expense related to intangible assets for the next five years is as follows: Year Ending June 30, 2005 $ 570,643 2006 $ 332,869 2007 $ 302,879 2008 $ 37,495 2009 $ 0 7 NOTE 2: Stock-Based Compensation The Company measures compensation expense for its stock option-based employee compensation plans using the intrinsic value method. The following table sets forth the pro forma effect of these plans as if the fair value-based method had been used to measure compensation expense.
Three Months Ended Six Months Ended ---------------------------- ---------------------------- December 31 December 31 December 31 December 31 2004 2003 2004 2003 ---------- ----------- ---------- ----------- Net income, as reported $ 980,884 $ 1,255,946 $2,962,048 $ 3,039,852 Fair value-based stock based Compensation cost, net of tax 1,858,491 2,317,672 3,562,741 4,393,664 ---------- ----------- ---------- ----------- Pro forma net loss $ (877,607) $(1,061,726) $ (600,693) $(1,353,812) ========== =========== ========== =========== Net income (loss) per share: Basic $ 0.05 $ 0.06 $ 0.15 $ 0.14 Diluted $ 0.05 $ 0.06 $ 0.15 $ 0.14 Pro forma net loss per share: Pro forma basic $ (0.04) $ (0.05) $ (0.03) $ (0.06) Pro forma diluted $ (0.04) $ (0.05) $ (0.03) $ (0.06)
NOTE 3: Securities The amortized cost and fair value of securities are as follows:
December 31, 2004 ------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value ----------- ---------- ---------- ------------ Securities held to maturity: Municipal bonds $44,221,640 $ -- $(157,320) $44,064,320 Commercial paper 2,238,717 -- -- 2,238,717 Corporate bonds 10,329,963 -- (41,129) 10,288,834 Zero coupon bonds 4,575,035 -- (19,364) 4,555,671 Federal agency bonds 4,929,275 -- (14,697) 4,914,578 Tax free auction securities 26,000,008 -- (8) 26,000,000 ----------- ---------- --------- ----------- Total securities held to maturity $92,294,638 $ -- $(232,518) $92,062,120 =========== ========== ========= ===========
8
June 30, 2004 -------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value ----------- ---------- ---------- ------------ Securities available for sale: Common Stock $ 3,088,679 $ -- $(126,969) $ 2,961,710 Total securities available-for-sale $ 3,088,679 $ -- $(126,969) $ 2,961,710 Securities held to maturity: Municipal bonds $50,770,695 $ -- $(227,638) $50,543,057 Commercial paper 2,596,712 83 -- 2,596,795 Corporate bonds 5,581,257 83,188 -- 5,664,445 Zero coupon bonds 5,138,853 -- (21,952) 5,116,901 Federal agency bonds 5,052,050 9,684 (24,720) 5,037,014 Tax free auction securities 25,050,424 -- (1,024) 25,049,400 ----------- ------- --------- ----------- Total securities held to maturity $94,189,991 $92,955 $(275,334) $94,007,612 =========== ======= ========= ===========
Marketable securities are summarized as follows:
December 31, 2004 June 30, 2004 ----------------- ------------- Marketable debt securities - held-to-maturity $92,294,638 $94,189,991 Marketable equity securities - available for sale -- 2,961,710 Total 92,294,638 97,151,701 Current portion 61,390,210 62,038,633 ----------- ----------- Long term $30,904,428 $35,113,068 =========== ===========
Contractual maturities of marketable debt securities held to maturity at December 31, 2004 are summarized as follows: December 31, 2004 June 30, 2004 ------------------------- ------------------------- Fair Fair Market Market Cost Value Cost Value ----------- ----------- ----------- ----------- Within one year $61,390,210 $61,596,604 $59,076,923 $59,127,824 One year to five years 30,904,428 30,465,516 35,113,068 34,879,788 ----------- ----------- ----------- ----------- Total $92,294,638 $92,062,120 $94,189,991 $94,007,612 =========== =========== =========== =========== NOTE 4: Inventories Inventories are summarized as follows: December 31, 2004 June 30, 2004 ----------------- ------------- Component parts $ 9,738,480 $ 9,136,401 Work in process 7,882,338 6,138,068 Finished goods 2,987,371 2,349,585 ----------- ----------- $20,608,189 $17,624,054 Reserve for obsolescence (1,649,679) (1,015,999) ----------- ----------- Net inventory $18,958,510 $16,608,055 =========== =========== 9 NOTE 5: Property, Plant and Equipment Property, plant and equipment are summarized as follows: December 31, 2004 June 30, 2004 ----------------- ------------- Land and land improvements $ 2,208,073 $ 1,874,323 Buildings, furniture and fixtures 18,017,734 13,200,633 Machinery and equipment 49,795,507 48,213,982 $ 70,021,314 $ 63,288,938 ------------ ------------ Less accumulated depreciation and amortization (44,078,930) (41,946,384) ------------ ------------ $ 25,942,384 $ 21,342,554 ============ ============ NOTE 6: Accrued Expenses Accrued expenses consist of the following: December 31, 2004 June 30, 2004 ----------------- ------------- Compensation $1,082,962 $1,698,411 Commissions 395,702 386,075 Health insurance 324,522 371,010 Restructuring (note 7) 171,110 32,870 Lease buyout 45,000 350,000 Other 219,160 254,004 ---------- ---------- $2,238,456 $3,092,370 ========== ========== NOTE 7: Restructuring European Operations The following is a rollforward of the balance of restructuring charges related to operations ceased at the Company's European facility since the filing of the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004. Balance Balance June 30, Cash Non-Cash December 31, 2004 Expenditures Write-offs 2004 -------- ------------ ---------- ------------ Severance $32,870 $(32,870) $ -- $ -- ======= ======== ========== ========== 10 RF Power Components, Inc. On October 26, 2004 the Company announced its decision to merge its RF Power Components, Inc. operations into Anaren Ceramics. In doing so, the Company closed its Long Island facility and relocated the operation to the Anaren Ceramics New Hampshire location. All of RF Power's employees were either terminated or transferred to the New Hampshire facility. Costs associated with terminating 79 employees are included in the restructuring liability, as of December 31, 2004: Three months ended December 31, 2004 Balance ------------------------ Balance June 30, Costs Cash December 31, 2004 Incurred Expenditures 2004 -------- -------- ------------ ------------ Severance payments $ -- $391,575 $(270,175) $121,400 Outplacement services -- 66,760 (17,050) 49,710 -------- -------- --------- -------- $ -- $458,335 $(287,225) $171,110 ======== ======== ========= ======== NOTE 8: Other Liabilities Other liabilities consist of the following: December 31, 2004 June 30, 2004 ----------------- ------------- Deferred compensation $578,126 $506,190 Other 267,333 230,784 -------- -------- 845,459 736,974 Less current portion 332,334 295,784 -------- -------- $513,125 $441,190 ======== ======== NOTE 9: Discontinued Operations On July 10, 2003, the Company announced its decision to dispose of its Anaren Europe operation. After completing production of the remaining customer orders under contract during the first quarter of fiscal 2004, production ceased at Anaren Europe and the remaining net assets of that operation were liquidated through the sale of equipment via auction. The results of operations for Anaren Europe for the prior year have been classified as discontinued operations in the statement of earnings. Components of the loss from discontinued operations of Anaren Europe for the three months and six months ended December 31 are as follows: Three Months Ended Six Months Ended December 31 December 31 ------------------ ------------------ 2004 2003 2004 2003 ---- --------- ---- ----------- Net sales $ -- $ 17,861 $ -- $ 658,329 Expenses -- (352,914) -- (1,424,438) Loss on sale of equipment -- -- -- (782,289) ---- --------- ---- ----------- Net loss from discontinued operations $ -- $(335,053) $ -- $(1,548,398) ===== ========== ==== =========== The Company also recorded an income tax benefit of $1,800,000 related to the disposal of its Anaren Europe operations in the quarter ended September 30, 2003. 11 NOTE 10: Net Income (Loss) 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. The weighted average number of common shares utilized in the calculation of the diluted income per share does not include antidilutive shares aggregating 2,579,938 and 2,326,210 at December 31, 2004 and 2003, 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. The following table sets forth the computation of basic and fully diluted earnings per share:
Three Months Ended Six Months Ended --------------------------- --------------------------- December 31 December 31 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Numerator: Net income from continuing operations $980,884 $1,255,945 $2,962,048 $3,039,852 ======== ========== ========== ========== Denominator: Denominator for basic earnings per share: Weighted average shares outstanding 19,580,182 21,123,035 19,862,314 21,440,385 ========== ========== ========== ========== Denominator for diluted earnings per share: Weighted average shares outstanding 19,580,182 21,123,035 19,862,314 21,440,385 Common stock options and restricted stock 586,905 764,433 560,311 679,812 ---------- ---------- ---------- ---------- Weighted average shares and conversions 20,167,087 21,887,468 20,422,625 22,120,197 ========== ========== ========== ==========
NOTE 11: Components of Net Period Benefit Costs
Three Months Ended Six Months Ended ------------------------- ------------------------- December 31 December 31 2004 2003 2004 2003 --------- --------- --------- --------- Service cost $ 65,712 $ 53,216 $ 131,424 $ 106,432 Interest cost 135,206 126,190 270,412 252,380 Expected return on plan assets (134,113) (128,259) (268,226) (256,259) Amortization of prior service cost 4,560 3,774 9,120 7,548 Amortization of the net (gain) loss 27,066 4,560 54,132 9,120 --------- --------- --------- --------- Net periodic benefit cost $ 98,431 $ 59,481 $ 196,862 $ 119,221 ========= ========= ========= =========
Expected Pension Contributions Expected contributions for fiscal 2005 are $519,000 12 Estimated Future Pension Benefit Payments The following estimated benefit payments, which reflect future service, as appropriate, are expected to be paid: July 1, 2004 - June 30, 2005 ............................... $ 365,000 July 1, 2005 - June 30, 2006 ............................... 395,000 July 1, 2006 - June 30, 2007 ............................... 405,000 July 1, 2007 - June 30, 2008 ............................... 470,000 July 1, 2008 - June 30, 2009 ............................... 480,000 Years 2009 - 2013 .......................................... 2,875,000 NOTE 12: Segment Information The Company operates predominately in the wireless communications, satellite communications 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. 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 defense electronics and satellite communications markets. The revenue disclosures for the Company's reportable segments depict products that are similar in nature. 13 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 & Corporate and Wireless Defense Unallocated Consolidated -------- ------- ------------- ------------ Net sales: Three months ended: December 31, 2004 $16,006,066 $ 7,643,956 $ -- $ 23,650,022 December 31, 2003 12,993,731 6,600,199 -- 19,593,930 Six months ended: December 31, 2004 33,774,359 14,783,020 -- 48,557,379 December 31, 2003 24,520,321 13,344,282 -- 37,864,603 Operating income (loss): Three months ended: December 31, 2004 (741,875) 1,654,882 -- 913,007 December 31, 2003 792,486 1,170,327 -- 1,962,813 Six months ended: December 31, 2004 (87,950) 3,367,869 -- 3,279,919 December 31, 2003 682,678 2,393,383 -- 3,076,061 Goodwill and intangible assets: December 31, 2004 31,555,537 -- -- 31,555,537 June 30, 2004 31,959,747 -- -- 31,959,747 Identifiable assets:* December 31, 2004 20,420,663 11,675,904 132,690,564 164,787,131 June 30, 2004 19,681,543 10,884,864 144,956,334 175,522,741 Depreciation:** Three months ended: December 31, 2004 605,786 643,719 -- 1,249,505 December 31, 2003 495,099 506,470 -- 1,001,569 Six months ended: December 31, 2004 1,450,027 1,052,145 -- 2,502,172 December 31, 2003 1,058,737 940,797 -- 1,999,534 Intangibles amortization: *** Three months ended: December 31, 2004 83,219 -- -- 83,219 December 31, 2003 124,885 -- -- 124,885 Six months ended: December 31, 2004 404,210 -- -- 404,210 December 31, 2003 249,769 -- -- 249,769
* Segment assets primarily include receivables and inventories. The Company does not segregate other assets on a products and services basis for internal management reporting and, therefore, such information is not presented. Assets included in corporate and unallocated principally are cash and cash equivalents, marketable securities, other receivables, prepaid expenses, deferred income taxes, property, plant and equipment not specific to business acquisitions. 14 ** 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 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. NOTE 13: Other Postretirement Benefits On May 19, 2004, the FASB released FASB Staff Position No. FAS 106-2 "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." Net periodic benefit costs for postretirement benefits in Note 11 above do not reflect any amount associated with the federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit because the Company was unable to conclude whether the benefits provided by the plan are actuarially equivalent to Medicare Part D under the Act. The Company does not believe it will have to amend its plan to benefit from the Act, nor does it expect the Act to have a material impact on its consolidated financial position, results of operations or cash flows. 15 Item 2. 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-Q. 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 Quarterly Report on Form 10-Q. Overview The consolidated financial statements present the financial condition of the Company as of December 31, 2004 and June 30, 2004, and the consolidated results of operations and cash flows of the Company for the three months and six months ended December 31, 2004 and 2003. The Company designs, develops and markets 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. In 2004, the Company introduced new components addressing consumer wireless applications such as wireless local area networks, Bluetooth, cellular handsets and satellite telecommunications. The Company sells its products to leading wireless communications equipment manufacturers such as Ericsson, Lucent Technologies, Motorola, Nokia, Nortel Networks, and Andrew and, to satellite communications and defense electronics companies such as Boeing Satellite, I.T.T., Lockheed Martin, Northrup Grumman and Raytheon. 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 has passed to the 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. Annually, 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. In July 2003, after several restructurings, the Company announced its decision to dispose of its Anaren Europe subsidiary, due to continuing low sales levels and large operating losses. This facility ceased production during the first quarter of fiscal 2004, an auction was held and all remaining equipment was sold in September 2003. This subsidiary is accounted for as a discontinued operation in the statements of earnings for the three months and six months ended December 31, 2003 and 2004. On July 8, 2004, Teledyne Technologies Inc. and Celeritek, Inc. jointly announced that Teledyne, through its subsidiary Teledyne Wireless, Inc., had entered into an agreement to acquire Celeritek's defense electronics business. In light of this development, the Company has 16 determined that it no longer has an interest in acquiring the business or assets of, or engaging in any other form of business combination with, Celeritek. The 777,300 shares of Celeritek Common Stock beneficially owned by Anaren were disposed of during the six months ended December 31, 2004, resulting in a realized loss of $343,000. On August 3, 2004, the Company acquired a 65,000 square foot building situated on approximately 12 acres in Salem, New Hampshire for a purchase price of $5.0 million. The Company commenced the move of its Amitron operation to the new facility in September 2004 and will operate the business under the name of Anaren Ceramics, Inc., a newly created wholly owned subsidiary of the Company. This newly acquired facility will provide adequate space for anticipated future growth of that business. In conjunction with the decision to move to this new facility, the Company negotiated a buyout of the remaining lease of the North Andover facility for a one-time charge of $350,000 and accelerated amortization of the leasehold improvements and lease related intangibles amounting to $250,000 recognized in the fourth quarter of fiscal 2004 and $250,000 recognized in the first quarter of fiscal 2005. On October 26, 2004 the Company announced that in order to accelerate ceramic product growth initiatives and improve operating efficiency, it had decided to consolidate its RF Power subsidiary with the Company's Amitron subsidiary and close RF Power's facility in Bohemia, New York. This consolidation will create one organization with the depth and strength of talent and capital resources capable of achieving sustainable growth and profitability. The consolidated company, Anaren Ceramics, Inc., will operate at the Company's newly acquired Salem, NH facility, which will fully accommodate the current capacity needs of the combined entity as well as significant future growth. The move of the RF Power operation to the Salem, NH facility was completed during the second quarter ended December 31, 2004. As a result of the facility closure and move, the Company recognized one-time costs of $458,335 for severance and outplacement, $91,000 for lease cancellation and closure and $300,000 for additional inventory write-downs. Additionally, the Company expects to incur further costs totaling $150,000 in the third quarter related to integrating the RF Power operation into the Anaren Ceramics operation. It is anticipated that the consolidation and closure of the RF Power facility will reduce annual operating expenses by approximately $1.5 to $2.0 million, or approximately $0.05 to $0.07 per diluted share. Third Quarter of Fiscal 2005 Outlook Based on current Wireless market demand and the Company's present Space and Defense order backlog, the Company expects sales for the third quarter of fiscal 2005 to range between $21.0 and $23.0 million and net income per diluted share to range between $0.07 and $0.09. Results of Operations Net sales from continuing operations for the second quarter ended December 31, 2004 were $23,650,000, up 21% from sales of $19,594,000 for the second quarter of last fiscal year and down $1,257,000, or 5.0% from sales of $24,907,000 for the first quarter of fiscal 2005. Operating income for the second quarter of fiscal 2005 was $913,000 or 3.9% of sales, down $1,050,000 from $1,963,000 for the second quarter of last year. 17 The following table sets forth the percentage relationships of certain items from the Company's consolidated condensed statements of earnings as a percentage of net sales.
Three Months Ended Six Months Ended ------------------------------ ------------------------------ Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2003 ------------- ------------- ------------- ------------- Net Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 71.4% 66.1% 69.8% 66.7% ------ ------ ------ ------ Gross profit 28.6% 33.9% 30.2% 33.3% ------ ------ ------ ------ Operating expenses: Marketing 7.9% 8.6% 7.5% 8.6% Research and development 5.9% 5.8% 6.3% 6.8% General and administrative 9.0% 9.5% 8.7% 9.8% Restructuring 1.9% 0.0% 0.9% 0.0% ------ ------ ------ ------ Total operating expenses 24.7% 23.9% 23.4% 25.2% ------ ------ ------ ------ Operating income 3.9% 10.0% 6.8% 8.1% ------ ------ ------ ------ Other income (expense): Other, primarily interest income 0.7% 1.9% 1.0% 2.2% Interest expense 0.0% 0.0% 0.0% 0.0% ------ ------ ------ ------ Total other income (expense), net 0.7% 1.9% 1.0% 2.2% ------ ------ ------ ------ Income from continuing operations before income taxes 4.6% 11.9% 7.8% 10.3% Income taxes 0.4% 3.8% 1.7% 3.0% ------ ------ ------ ------ Income from continuing operations 4.2% 8.1% 6.1% 7.3% ------ ------ ------ ------ Discontinued operations: Income (loss) from discontinued operations of Anaren Europe 0.0% (1.7%) 0.0% (4.1%) Income tax benefit 0.0% 0.0% 0.0% (4.8%) ------ ------ ------ ------ Net income (loss) from discontinued operations 0.0% (1.7%) 0.0% 0.7% ------ ------ ------ ------ Net income 4.2% 6.4% 6.1% 8.0% ====== ====== ====== ======
Income from continuing operations for the second quarter of fiscal 2005 was $981,000, down $610,000, or 38.3% from income from continuing operations of $1,591,000 for the second quarter last year. The following table summarizes the Company's net sales by operating segments for the periods indicated. Amounts are in thousands. Three Months Ended Six Months Ended -------------------- -------------------- December 31 December 31 -------------------- -------------------- 2004 2003 2004 2003 ------- ------- ------- ------- Wireless $16,006 $12,994 $33,774 $24,521 Space and Defense 7,644 6,600 14,783 13,344 ------- ------- ------- ------- Total $23,650 $19,594 $48,557 $37,865 ======= ======= ======= ======= 18 Discontinued Operations. In July 2003, the Company announced its decision to dispose of its Anaren Europe operation. During the first quarter of fiscal 2004, the Company ceased production at Anaren Europe and liquidated the remaining net assets of that operation. The results of operations for Anaren Europe for the prior year second quarter has been classified as discontinued operations in the statements of earnings filed as part of this Quarterly Report on form 10-Q. Three Months Ended December 31, 2004 Compared to Three Months Ended December 31, 2003 Net sales. Net sales increased $4.1 million or 21% to $23.7 million for the second quarter ended December 31, 2004 compared to $19.6 million for the second quarter of last fiscal year. This increase resulted from a $3.0 million rise in sales of Wireless infrastructure products and a $1.1 million increase in sales of Space and Defense products. The increase in the sales of Wireless products, which consist of standard components, ferrite components and custom subassemblies for use in building wireless basestation equipment, was the result of an increase in worldwide demand for wireless basestation components over the last fifteen months, and production shipments of a new custom subassembly product for Nokia. Wireless product sales rose $3.0 million, or 23%, in the second quarter of fiscal 2005 compared to the second quarter last year, due mainly to a $4.6 million increase in shipments of custom assembly products, of which $4.2 million represented shipments to Nokia under a new contract which first entered production in the fourth quarter of last fiscal year. This increase in custom wireless product sales was off-set by a $1.6 million decline in sales of standard and ferrite wireless components in this current second quarter compared to the same quarter last year which has resulted from a slowing of demand for these products over the last six months. Current Wireless product demand for standard and ferrite components has continued to soften over the last three months and sales levels of all wireless infrastructure products, including custom subassemblies, are expected to be at or below second quarter levels for the remainder of fiscal 2005. Space and Defense products consist of custom components and assemblies for communication satellites and defense radar and countermeasure subsystems for the military. Sales in the Space and Defense group rose $1.0 million, or 16% in the second quarter of fiscal 2005 compared to the second quarter of last year. This increase consisted of a $2.1 million rise in shipments of defense products, which was partially offset by a $1.1 million decline in sales of Space products in the first quarter, year over year. Defense product shipments are rising due to the increased level of new defense business booked in fiscal 2004 which is currently entering production. Defense product bookings in fiscal 2004 were $37.7 million resulting in a book to bill ratio of 1.4 to 1.0. Space and Defense quarterly shipments are expected to be between $7.5 and $8.0 million for the remainder of fiscal 2005. Gross Profit. Cost of sales consists primarily of engineering design costs, materials, material fabrication costs, assembly costs, direct and indirect overhead, and test costs. Gross profit for the second quarter of fiscal 2005 was $6.8 million (28.6% of net sales), up $120,000 from $6.6 million (33.9% of net sales) for the same quarter of the prior year. The rise in gross margins in absolute dollars resulted from the 21% increase in sales volume in the second quarter of fiscal 2005 compared to the same period in 2004. Gross margins as a percent of sales declined 530 basis points due to a continuing shift in sales mix from higher 19 margin standard Wireless components to lower margin custom Wireless products in the current quarter compared to the second quarter last year, as well as a one-time $300,000 writedown of inventory at RF Power in conjunction with the shut down of the Bohemia, NY facility and the operation relocation to Salem, NH. 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 were $1.9 million (7.9% of net sales) for the second quarter of fiscal 2005, up 10.7% from $1.7 million (8.6% of net sales) for the second quarter of fiscal 2004. This increase is a result of higher commission expense resulting from the sales increase and rising travel and support costs due to the higher volume of business in the current year. 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 were $1.4 million (5.9% of net sales) in the second quarter of fiscal 2005, up 22.4% from $1.1 million (5.8% of net sales) for the second quarter of fiscal 2004. Research and development expenditures are supporting further development of Wireless infrastructure products and consumer component opportunities. Research and Development expenditures have increased in the second quarter of fiscal 2005 over second quarter fiscal 2004 levels due to the higher level of opportunities in the marketplace. Although quarterly research and development expenditures are expected to fluctuate based on customer funded engineering requirements in our Space and Defense group, the Company does not expect to reduce its current research and development efforts 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, and intangible amortization, travel related expenses and other corporate costs. General and administrative expenses increased 14.9% to $2.1 million (9.0% of net sales) for the second quarter of fiscal 2005 from $1.9 million (9.5% of net sales) for the second quarter of fiscal 2004. The increase resulted primarily from a one time charge to recognize the cost of buying out the RF Power Bohemia, NY facility lease and moving the operation to Salem, NH, as well as, rising administrative costs related to Sarbanes Oxley regulation compliance. Restructuring. Restructuring cost which consisted of wages, health insurance, payroll taxes and outplacement costs were $458,000 in the second quarter. These costs were related to the termination of 79 people in conjunction with the closure of the RF Power Bohemia, NY facility and the move of that operation to Salem, NH. Operating Income. Operating income declined in the second quarter of fiscal 2005 to $913,000 (3.9% of sales) from $2.0 million (10.0% of net sales) for the second quarter of fiscal 2004. On a reporting segment basis, the Wireless operating loss was $(742,000) for the second quarter of fiscal 2005, a decrease of $1.5 million from a Wireless operating income of $792,000 for the second quarter of fiscal 2004. Wireless operating income fell in the second quarter of fiscal 2005 compared to the second quarter of fiscal 2004 due to the $850,000 in one-time charges for severance, lease cancellation and inventory write-downs associated with the facility closure and move of the RF Power operation to Salem, NH. Additionally, during the second quarter of fiscal 2005 sales of higher margin standard wireless components continued to fall, dropping over $1.1 million, further negatively impacting Wireless gross and operating margins. 20 Space and Defense operating income rose $485,000 in the second quarter of fiscal 2005 to $1.7 million compared to $1.2 million in the second quarter of fiscal 2004. This increase resulted from higher sales volume in the current second quarter of fiscal 2005 compared to last year and slightly higher production efficiencies in the Space and Defense group. Interest Expense. Interest expense represents interest paid on a deferred obligation. Interest expense for the second quarter of fiscal 2005 was $10,000 compared to $2,000 for the second quarter of fiscal 2004. Other Income. Other income is primarily interest income received on invested cash balances, rental income and losses on the sale of securities available for sale and capital equipment. Other income decreased 52% to $180,000 (0.7% of net sales) for the quarter ended December 31, 2004, from $376,000 (1.9% of net sales) for the same quarter last year. This decrease was caused mainly by a $67,000 loss on the sale of capital equipment and a $321,000 loss on the sale of shares of Celeritek common stock during the second quarter, which were was partially offset by higher interest rates and $66,000 in rental income. Additionally, Company cash balances were reduced by $19.0 million at the beginning of the quarter due to the purchase of the Salem, NH facility for $4.8 million and $11.7 million used to repurchase treasury shares in the first quarter. Interest income will fluctuate based on interest rates and the level of investable cash balances. Income Taxes. Income taxes for the second quarter of fiscal 2005 were $102,000 (0.4% of net sales), representing an effective tax rate of 9.4%. This compares to income tax expense of $746,000 (3.8% of net sales) for the second quarter of fiscal 2004, representing an effective tax rate of 31.9%. The Company's effective tax rate is a direct result of the proportion of federally exempt state municipal bond income and federal tax credits and benefits in relation to the levels of taxable income or loss. During the second quarter, the Company reduced its expected annual tax rate for fiscal 2005 to approximately 22%, from 27%, based on lower expected income levels for the 2005 fiscal year, resulting in the lower effective rate in the second quarter. Six Months Ended December 31, 2004 Compared to Six Months Ended December 31, 2003. Net Sales. Net sales increased $10.7 million or 28%, to $48.6 million for the six months ended December 31, 2004 compared to $37.9 million for the first half of last fiscal year. This increase resulted from a $9.3 million rise in Wireless infrastructure equipment sales and $1.4 million increase in sales of Space and Defense products. The increase in sales of Wireless products was the result of a rise in worldwide demand for base station components during fiscal 2004, and was further bolstered by shipments to Nokia of a new custom subassembly. Wireless product sales rose $9.2 million, or 28%, in the first half of fiscal 2005 compared to the first half of last year, due to a $6.4 million increase in shipments of custom subassembly products of which, through six months, $6.3 million represented shipments to Nokia under a new production contract which is expected to generate between $7.0 and $10.0 million in revenue on an annual basis. Additionally, shipments of standard Wireless components rose $2.8 million during the first six months, with large increases in the first quarter which were subsequently offset by declines in second quarter related to the softening in market demand for these products beginning in September 2004. Current market demand for standard components and custom subassemblies remains soft and sales levels of all Wireless infrastructure products are expected to remain at or below current second quarter levels for the remainder of fiscal 2005. 21 Sales of Space and Defense products rose $1.4 million, or 11% in the first half of fiscal 2005 compared to the first half of the previous fiscal year. This increase consisted of a $3.0 million rise in sales of defense products, which was partially off-set by a $1.6 million decline in Space product shipments during the first six months of the current fiscal year compared to the same period in fiscal 2004. Defense product sales are increasing due to the higher level of new defense business booked by the Company in fiscal 2004, which is now starting to enter production. Defense product bookings in fiscal 2004 were $37.7 million resulting in a book-to-bill ratio of 1.4 to 1.0. Gross Profit. Gross profit in the first half of fiscal 2005 was $14.7 million (30.2% of net sales), up $2.1 million from $12.6 million (33.3% of net sales) for the first six months of the prior year. The $2.1 million rise in gross profit resulted from the 28% increase in sales volume in the first half of fiscal 2005 compared to the same period in fiscal 2004. Gross margin as a percent of sales declined 3.1percentage points due to a change in sales mix from higher margin standard Wireless component products to lower margin custom Wireless products in the first six months of fiscal 2005, compared to the first half of last year. Additionally, margins were eroded by a one-time write-down of inventory at RF Power in conjunction with the closure of the Bohemia, NY facility and the relocation of that operation to Salem, NH. Marketing. Marketing expenses increased 11.4% to $3.6 million (7.5% of net sales) for the first six months of fiscal 2005 from $3.3 million (8.6% of net sales) for the first half of last year. This increase is a result of higher commission expense caused by the sales increase and rising travel and support costs due to the higher level of business. Research and development expenses were $3.0 million (6.3% of net sales) in the first half of fiscal 2005, up 18.7% from $2.6 million (6.8% of net sales) for the first half of fiscal 2004. Research and development expenditures are supporting further development of Wireless infrastructure products and consumer components opportunities. Research and Development expenditures have increased in the first half of fiscal 2005 over fiscal 2004 expenditures due to the higher level of opportunities in the marketplace. Although research and development expenditures are expected to fluctuate based on customer funded engineering requirements in our Space and Defense group, the Company does not expect to reduce its current research and development efforts and is presently working on a number of new standard and custom Wireless products. General and Administrative. General and administrative expenses increased 14.6% to $4.2 million (8.7% of net sales) for the first half of fiscal 2005 from $3.7 million (9.8% of net sales) for the first half of fiscal 2004. The increase resulted primarily from one time charges to recognize the cost of buying out the RF Power and the Amitron leases and moving both operations to Salem, NH, writing-off certain Amitron lease intangibles, and rising administrative costs related to Sarbanes Oxley regulation compliance. Restructuring. Restructuring costs which consisted of wages, health insurance, payroll taxes and outplacement costs were $458,000 in the first six months of fiscal 2005. These costs were related to the termination of 79 people in conjunction with the closure of RF Power's facility and the move of that operation to Salem, NH. Operating Income. Operating income increased in the first half of fiscal 2005 to $3.3 million (6.8% of net sales) from $3.1 million (8.1% of net sales) for the first half of fiscal 2004. On a reporting segment basis, the Wireless operating loss was $(88,000) for the first half of fiscal 2005, a decline of $771,000 from Wireless operating income of $683,000 for the first half of last fiscal year. 22 Wireless operating income fell in the first six months of fiscal 2005 compared to the same period in fiscal 2004 due to the $850,000 of one-time charges related to the facility closure and move of the RF Power operation to Salem, NH and the $250,000 first quarter accelerated write-off of certain Amitron lease intangibles. Space and Defense operating income rose $1.0 million in the first half of fiscal 2005 to $3.4 million compared to $2.4 million in the first half of last fiscal year. This increase resulted from the higher sales volume in fiscal 2005 compared to fiscal 2004 and better production efficiencies within the Space and Defense group. Interest Expenses. The Company does not have any long term debt and interest expenses represents interest paid on a deferred obligation. Interest expense for the first half of fiscal 2005 was $16,000 (0.0% of net sales) compared to $5,000 (0.0% of net sales) for the first half of fiscal 2004. Other Income. Other income decreased 37% to $533,000 (1.0% of net sales) for the six month ended December 31, 2004, from $844,000 (2.2% of net sales) for the same period last year. This decrease was caused mainly by a $67,000 loss on the sale of capital equipment and a $343,000 loss on the sale of shares of Celeritek common stock. Additionally, Company cash balances were reduced $19.0 million over the six months due to the purchase of the Salem, NH facility for $4.8 million and $11.7 million used to repurchase treasury shares. Interest income will fluctuate based on interest rates and the level of investable cash balances. Income Taxes. Income taxes for the first half of fiscal 2005 were $835,000 (1.7% of net sales), representing an effective tax rate of 22%. This compares to tax expense of $1.1 million (3.0% of net sales) for the first half of fiscal 2004, representing an effective tax rate of 28.8%. The Company's effective tax rate is a direct result of the proportion of federally exempt state municipal bond income and federal tax credits and benefits in relation to the levels of taxable income or loss. The decrease in the effective tax rate in fiscal 2005 compared to fiscal 2004 resulted from higher estimated foreign sales tax benefits due to a rise in expected foreign export sales levels this year. Discontinued Operation. In July 2003, the Company announced its decision to dispose of its Anaren Europe operation. During the first quarter of fiscal 2004, the Company ceased production at Anaren Europe and liquidated the remaining net assets of that operation. The results of operations for Anaren Europe for the prior year six months has been classified as discontinued operations in the statements of earnings filed as part of this Quarterly Report on form 10-Q. 23 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 the Company's financial condition and results, and that require 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 and long-lived assets, which impacts write-offs of goodwill, intangibles and long-lived assets; and accounting for income taxes, which impacts the 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's accounts receivable represent those amounts which have been billed to its 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 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 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 adjusts the allowance as needed. These adjustments, when made, would have an impact on the Company's financial statements in the period that they were recorded. Intangible assets with estimable useful lives are amortized over those estimated useful lives. Long-lived assets with estimated useful lives are depreciated to their residual values over those useful lives on a straight line basis. Long-lived assets are tested for impairment at the group level, which is usually an economic unit such as a manufacturing facility or department, which has a measurable economic output or product. Long-lived assets are tested for impairment when events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable and exceeds its fair market value. This circumstance exists if the carrying amount of the assets in question exceeds the sum of the undiscounted cash flows expected to result from the use of the asset. The impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value as determined by the discounted cash flow or in the case of negative cash flow, an independent market appraisal of the asset. 24 Goodwill, generally, is tested annually, or sooner if indicators of impairment exist, 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 unit 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 flows 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 six months ended December 31, 2004 was $2.4 million. The positive cash flow from operations was due primarily to income before depreciation and amortization for the period coupled with a $1.0 million decline in trade and other receivables which off-set a $2.4 million increase in inventory and a $2.8 million pay down of current liabilities. Net cash provided by operations in the first half of fiscal 2004 was $5.9 million and was due primarily to the income before depreciation in that period and a $1.5 million decline in current liabilities. Net cash used in, or provided by, investing activities consists of funds used to purchase capital equipment, proceeds from the sale of investments and funds used or provided by the net purchase or maturity of marketable debt securities. Capital expenditures were $7.3 million and $1.5 million in the first half of fiscal 2005 and fiscal 2004, respectively, with the large increase in 2005 resulting from a $5.0 million expenditure to purchase and renovate a new facility in Salem, NH. Additionally, in fiscal 2005, $2.7 million was generated by the sale of the Company's investment in Celeritek, Inc. common stock and $1.9 million was generated by the net maturities of marketable securities, while in fiscal 2004, $15.5 million was produced by the maturity of marketable securities and $1.5 million was generated in discontinued operations in Europe through the auction sale of capital equipment. Net cash used in financing activities in the first half of fiscal 2005 and 2004 was $11.6 million and $19.7, respectively. The Company used $11.6 million in the first half of fiscal 2005 to purchase 968,195 treasury shares, while cash used in the first half of fiscal 2004 to purchase 1,437,100 treasury shares was $20.0 million, and cash generated by the exercise of stock options was $276,000. During the remainder of fiscal 2005, the Company anticipates that its main cash requirements will be for additions to capital equipment and the purchase of additional treasury shares. Capital expenditures, including purchases of $7.3 million made in the first six months, are expected to total between $8.0 and $8.5 million for fiscal 2005 and will be funded by existing cash balances. 25 The Company expects to continue to purchase shares of its common stock in the open market and/or through private negotiated transactions under the current Board authorization, depending on market conditions. At June 30, 2004 there was 927,000 shares remaining under the current Board repurchase authorization. On August 10, 2004, the Board increased its repurchase authorization by two million shares, and for the period July 1 through December 31, 2004, the Company repurchased an additional 968,195 shares, leaving 1,959,301 under the current authorization. At December 31, 2004, the Company had approximately $104.0 million in cash, cash equivalents, and marketable securities. The Company has no debt, and on a fiscal year basis has had positive operating cash flow for over eight years. The Company believes that its cash requirements for the foreseeable future will be satisfied by currently invested cash balances and expected cash flows from operations. 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, lease agreements, and under contingent commitments, such as debt guarantees. The Company's obligations and commitments are as follows:
Payment Due by Period --------------------- Less Total than 1 Yr. 2-3 Yrs 4-5 Yrs Over 5 Yrs ----- ---------- ------- ------- ---------- Contractual obligations - ----------------------- Operating leases - facilities $4,694,109 $545,657 $1,005,685 $1,005,685 $2,137,082 Deferred compensation 424,537 65,000 130,000 130,000 99,537 Pension plan contributions 382,196 382,196 -- -- --
Recent Accounting Pronouncements In December 2003, the FASB issued SFAS No. 132 (revised) Employers' Disclosures about Pensions and Other Postretirement Benefits, which revise employers' disclosures about pension plans and other post retirement benefits. The disclosure provisions are effective for fiscal years ending after June 15, 2004. We have provided the required disclosures. In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became law in the United States. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the Medicare benefit. In accordance with FASB Staff Position FAS 106-2,"Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," the Company has elected to defer recognition of the effects of the Act in any measures of the benefit obligation or cost. Specific authoritative guidance on the accounting for the federal subsidy is pending and that guidance, when issued, could require the Company to change previously reported information. Currently, we do not believe we will need to amend our plan to benefit from the Act, nor do we expect the Act to have a material impact on our consolidated financial position, results of operations or cash flows. EITF Issue No 03-1 "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments" must be applied in reporting periods beginning after June 15, 2004. The disclosure requirements are effective for all fiscal years after December 15, 2003. We have complied with the disclosure requirements. 26 In December 2004, the FASB published Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment. Statement 123 (revised 2004) requires registrants to recognize the cost of share-based payments, including previously issued share-based payments, in the income statement and is effective for awards that are granted, modified, or settled in cash in interim or annual periods beginning after June 15, 2005. Statement 123 (revised 2004) is effective for the Company's 2006 fiscal year and the Company is currently evaluating the expected impact on its financial statements. In November 2004, the FASB published Statement of Financial Accounting Standards No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. Statement 151 amends the guidance in Chapter 4, "Inventory Pricing" of ARB No. 43 and clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Statement 151 requires that those items be recognized as current-period charges. Statement 151 also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. Statement 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Statement 151 is effective for the Company's 2006 fiscal year and is not expected to have a material impact on the Company's financial statements. Forward-Looking Cautionary Statement In an effort to provide investors a balanced view of the Company's current condition and future growth opportunities, this Quarterly Report on Form 10-Q includes comments by the Company's management about future performance. These statements which are not historical information are "forward-looking statements" pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These, and other forward-looking statements, are subject to business and economic risks and uncertainties that could cause actual results to differ materially from those discussed. The risks and uncertainties described below are not the only risks and uncertainties facing our Company. Additional risks and uncertainties not presently known to us or that are currently deemed immaterial may also impair our business operations. If any of the following risks actually occur, our business could be adversely affected, and the trading price of our common stock could decline, and you may lose all or part of your investment. Such known factors include, but are not limited to: the Company's ability to timely ramp up to meet some of our customers' increased demands; unanticipated difficulties combining the Company's Amitron and RF Power subsidiaries in the Company's Salem, New Hampshire facility; unanticipated loss of engineering and other technical resources; increased pricing pressure from our customers; decreased capital expenditures by wireless service providers; the possibility that the Company may be unable to or have difficulties in successfully execute its business strategies or achieve its operating objectives, generate revenue growth or achieve profitability expectations; successfully securing new design wins from our original equipment manufacturer customers, reliance on a limited number of key component suppliers, unpredictable difficulties or delays in the development of new products; order cancellations or extended postponements; the risks associated with any technological shifts away from the Company's technologies and core competencies; unanticipated impairments of assets including investment values and goodwill; diversion of defense spending away from the Company's products and/or technologies due to on-going military operations; and litigation involving antitrust, intellectual property, environmental, product warranty, product liability, and other issues. You are encouraged to review Anaren's 2004 Annual Report and Anaren's Form 10-K for the fiscal year ended June 30, 2004 and exhibits to those Reports 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 27 Anaren's revenue, earnings and stock price. Unless required by law, Anaren disclaims any obligation to update or revise any forward-looking statement. Item 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 Quarterly Report on Form 10-Q. As of December 31, 2004, the Company had cash, cash equivalents and marketable securities of $104.0 million, all of which consisted of highly liquid investments in marketable debt. 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 December 31, 2004 rates, or 0.15%, would have reduced net income and cash flow by approximately $39,000, or $0.002 per share for the quarter. 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. Item 4. Controls and Procedures 1. Evaluation of disclosure controls and procedures. Based on their evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q, the Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are operating in an effective manner. 2. Changes in internal controls. During the period covered by this Quarterly Report on Form 10-Q, there were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f)) that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Part II. Other Information Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Issuer Purchases of Equity Securities On August 10, 2004, the Board of Directors increased the number of shares of common stock that the Company was authorized to repurchase in open market or by privately negotiated transactions through its previously announced stock repurchase program, by 2,000,000 shares. The program, which may be suspended at any time without notice, has no expiration date. The 28 following table sets forth information regarding shares repurchased and purchasable under the program during and as of the end of the periods indicated. At December 31, 2004, 1,959,301 shares remained authorized for purchase.
- ---------------------------------------------------------------------------------------------------------------------- Period Total Number of Average Price Paid Total Number of Maximum Number (or Shares (or Units) per Share (or Unit) Shares (or Units) Approximate Dollar Purchased Purchased as Part of Value) of Shares (or Publicly Announced Units) that May Yet Plans or Programs Be Purchased Under the Plans or Programs - ---------------------------------------------------------------------------------------------------------------------- October 2004 -- -- -- 1,959,301 - ---------------------------------------------------------------------------------------------------------------------- November 2004 -- -- -- 1,959,301 - ---------------------------------------------------------------------------------------------------------------------- December 2004 -- -- -- 1,959,301 - ---------------------------------------------------------------------------------------------------------------------- Total -- -- -- -- - ----------------------------------------------------------------------------------------------------------------------
Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Shareholders' meeting was held on November 4, 2004, at which time the election of Directors was conducted. The following named individuals were nominated and re-elected as Directors. Votes Votes For Withheld ----- -------- Herbert I. Corkin 16,958,558 1,414,339 Matthew S. Robison 17,005,065 1,367,832 Messrs. Corkin and Robison were elected to terms expiring in 2007. The terms of Directors Lawrence A. Sala, Dale F. Eck, Carl W. Gerst, James G. Gould, and Dr. David Wilemon continued after the meeting. Additionally, a proposal to amend and restate the Company's existing equity compensation plans to establish a single comprehensive long-term plan was approved by a vote of 13,292,700 for and 235,136 withheld. Additionally, the selection of KPMG LLP was approved as the Company's independent registered public accounting firm for fiscal 2005 was ratified by a vote of 18,148,837 for and 222,079 withheld. Item 6. Exhibits 31 RULE 13a-14(a) CERTIFICATIONS 32 SECTION 1350 CERTIFICATIONS 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Anaren, Inc. ------------ (Registrant) Date: February 7, 2005 S/ Lawrence A. Sala --------------------------------------- Lawrence A.Sala President & Chief Executive Officer Date: February 7, 2005 S/ Joseph E. Porcello --------------------------------------- Joseph E. Porcello Vice President of Finance and Treasurer 30 EX-31 2 e20391ex31.txt CERTIFICATIONS EXHIBIT 31 CERTIFICATIONS I, Lawrence A. Sala, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Anaren, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [text omitted in accordance with SEC transition instructions contained in SEC Release 34-47986] for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986] c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: February 7, 2005 /s/ Lawrence A. Sala ------------------------------------- Lawrence A. Sala President and Chief Executive Officer I, Joseph E. Porcello, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of Anaren, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [text omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986] c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Dated: February 7, 2005 /s/ Joseph E. Porcello --------------------------------------- Joseph E. Porcello Vice President of Finance and Treasurer EX-32 3 e20391ex32.txt CERTIFICATIONS EXHIBIT 32 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 Quarterly Report of Anaren, Inc. (the "Company") on Form 10-Q for the quarter ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Lawrence A. Sala, President and Chief Executive Officer 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 and Chief Executive Officer - ----------------------- Date: February 7, 2005 A signed original of this written statement required by Section 906 has been provided to Anaren, Inc. and will be retained by Anaren, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. 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 Quarterly Report of Anaren, Inc. (the "Company") on Form 10-Q for the quarter ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph E. Porcello, Vice President of 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 of Finance and Treasurer - ----------------------- Date: February 7, 2005 A signed original of this written statement required by Section 906 has been provided to Anaren, Inc. and will be retained by Anaren, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----