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Anaren Inc. Reports Operating Results (10-Q)

October 30, 2009 | About:
10qk

10qk

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Anaren Inc. (ANEN) filed Quarterly Report for the period ended 2009-09-30.

Anaren designs develops manufactures and sells highly integrated microwave component assemblies and subsystems for the wireless communications satellite communications and defense electronics markets. Anaren Inc. has a market cap of $227.6 million; its shares were traded at around $15.42 with a P/E ratio of 28.5 and P/S ratio of 1.3. Anaren Inc. had an annual average earning growth of 18.6% over the past 5 years.

Highlight of Business Operations:

Three Months Ended

Sept. 30, Sept. 30,

2009 2008

- -

Net Sales 100.0% 100.0%

Cost of sales 63.6% 69.4%

- -

Gross profit 36.4% 30.6%

- -

Operating expenses:

Marketing 5.9% 5.5%

Research and development 9.0% 8.1%

General and administrative 11.1% 11.9%

- -

Total operating expenses 26.0% 25.5%

- -

Operating income 10.4% 5.1%

- -

Other income (expense):

Other, primarily interest income 0.3% 1.1%

Interest expense -0.4% -0.8%

- -

Total other income (expense), net -0.1% 0.3%

- -



Income before income taxes 10.3% 5.4%

Income taxes 3.3% 1.9%

- -

Net income 7.0% 3.5%

= =



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 first quarter of fiscal 2010 was

$14.7 million, (36.4% of net sales), up from $11.7 million (30.6% of net sales)

for the same quarter of the prior year. Gross profit as a percent of sales

increased in the first quarter of fiscal 2010 from the first quarter of last

year due to the absence in the current first quarter of $1.1 million (2.6% of

net sales) of amortization of inventory step-up costs related to the acquisition

of M. S. Kennedy and Unicircuit, which were included in the first quarter fiscal

2009 cost of sales. Additionally, gross margins were enhanced by the $2.3

million reduction in sales of lower margin, high material content custom

Wireless Group products and by reduced production overhead costs, including

personnel, freight, and production supplies, in excess of $1.1 million in the

current first quarter compared to the same period last year resulting from

ongoing cost reduction efforts throughout the Company.



Interest Expense. Interest expense consists mainly of interest on Company

borrowings and deferred items. Interest expense in the first quarter of fiscal

2010 was $0.2 million compared to $0.3 million for the first quarter of fiscal

2009. This decrease, despite a higher average outstanding debt balance over the

current first quarter compared to the first quarter of fiscal 2009, was due to

the substantial decline in the 90 day LIBOR interest rate for the first quarter

of fiscal 2010 (approx. 0.5%) compared to the rate (approx. 2.79%) for the first

quarter of fiscal 2009. The Company borrowed a total of $49.8 million under its

$50.0 million revolving credit facility in the first quarter 2009 and repaid

$9.8 million in the first quarter of fiscal 2010. These borrowings bear interest

at the 90 day LIBOR rate, plus 100 to 425 basis points, depending upon the

Company's rolling twelve month EBITDA performance. The rate is reset quarterly

and for the second quarter of fiscal 2010 is expected to be approximately 1.30%.



Income Taxes. Income taxes for the first quarter of fiscal 2010 were $1.3

million (3.3% of net sales), representing an effective tax rate of 31.3%. This

compares to income tax expense of $0.7 million (1.9% of net sales) for the first

quarter of fiscal 2009, representing an effective tax rate of 35.0%. The

decrease in the effective rate for the quarter is a results of the Federal

Research and Experimentation Credit not being in effect during the first quarter

of fiscal year 2009, as it had expired and was not reinstated until subsequent

to September 30, 2008. The projected effective tax rate for fiscal 2010 is

expected to be approximately 32.0%.



As of September 30, 2009, the Company had $40.0 million in outstanding debt

under its revolving line of credit with Keybank National Association. The line

consists of a $50,000,000 revolving credit note (the "Note") for which principal

amounts are due on August 1, 2009, and on each anniversary date thereafter

through July 31, 2013. Borrowings under the Note, at the Company's choice, bear

interest at LIBOR, plus 100 to 425 basis points or at the Keybank's prime rate,

minus (100) to plus 225 basis points, depending upon the Company's EBITDA

performance at the end of each quarter as measured by the formula: EBITDA

divided by the Current Portion of Long-term Debt plus interest expense. For the

three months ended September 30, 2009, the weighted average interest rate on the

outstanding borrowings was 1.3%. Interest expense for these borrowings is

exposed to interest rate risk and will increase if market interest rates rise. A

hypothetical increase in market interest rate of 10.0% from September 30, 2009

rates, or 0.13%, would have reduced net income and cash flow by approximately

$15,000, or $.001 per diluted share for the quarter. Due to the Company's

significant cash reserves and historical positive operating cash flow, the

Company does not believe that an immediate increase in interest rates would have

a material effect on its financial condition or results of operations. Over

time, however, increases in market interest rates will increase the Company's

interest expense.



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