<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1995 Commission File Number 1-8037
AEROFLEX INCORPORATED
(Formerly ARX, Inc.)
(Exact name of Registrant as specified in its Charter)
DELAWARE 11-1974412
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
35 South Service Road
Plainview, N.Y. 11803
(Address of principal executive offices) (Zip Code)
(516) 694-6700
(Registrant's telephone number, including area code)
*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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
May 1, 1995 11,744,119
- ---------------------------------------------------------------------------
(Date) (Number of Shares)
<PAGE> 2
AEROFLEX INCORPORATED
AND SUBSIDIARIES
INDEX
-----
<TABLE>
<S> <C>
PAGE
----
PART I: FINANCIAL INFORMATION
---------------------
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and June 30, 1994 3-4
CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months Ended March 31, 1995 and 1994 5
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 31, 1995 and 1994
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1995 and 1994 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Nine and Three Months Ended March 31, 1995 and 1994 11-13
PART II: OTHER INFORMATION
-----------------
ITEM 1 Legal Proceedings 14
ITEM 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
<PAGE> 3
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
---------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,093,000 $ 8,238,000
Current portion of invested cash 635,000 150,000
Accounts receivable less allowance for
doubtful accounts of $578,000 and $434,000 15,014,000 16,804,000
Inventories (Note 7) 15,412,000 14,087,000
Deferred income taxes 640,000 640,000
Prepaid expenses and other current assets 825,000 937,000
----------- -----------
TOTAL CURRENT ASSETS 40,619,000 40,856,000
Invested cash 692,000 1,356,000
Property, plant and equipment, at cost, net 13,435,000 13,180,000
Costs in excess of fair value of net assets
of businesses acquired, net 10,373,000 10,602,000
Net assets of discontinued operations (Note 4) 2,125,000 2,403,000
Deferred income taxes 430,000 403,000
Other assets 2,394,000 2,216,000
------------ ------------
$ 70,068,000 $ 71,016,000
============ ============
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 4
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
---------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,324,000 $ 820,000
Accounts payable 3,310,000 222,000
Accrued expenses and other current liabilities 6,880,000 7,580,000
Income taxes payable 173,000 662,000
------------ -----------
Total Current Liabilities 11,687,000 12,284,000
------------ -----------
Long-term debt (Note 5) 2,639,000 7,588,000
------------ -----------
Other long-term liabilities 1,680,000 1,573,000
------------ -----------
7-1/2% Senior Subordinated Convertible
Debentures (Note 6) 10,000,000 10,000,000
------------ -----------
Stockholders' equity
Preferred stock, par value $.10 per share;
authorized 1,000,000 shares:
Series A Junior Participating Preferred
Stock, par value $.10 per share,
authorized 150,000 shares - -
Common stock, par value $.10 per share;
authorized 25,000,000 shares; issued
11,744,000 and 11,799,000 shares 1,174,000 1,180,000
Additional paid-in capital 56,039,000 56,116,000
Accumulated deficit (13,151,000) (17,633,000)
------------- ------------
44,062,000 39,663,000
Less: Treasury stock, at cost (58,000 shares) - 92,000
------------ ------------
44,062,000 39,571,000
------------ ------------
$ 70,068,000 $ 71,016,000
============ ============
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 5
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Net Sales $ 49,597,000 $ 44,259,000
Cost of Sales 33,398,000 30,891,000
------------ ------------
Gross Profit 16,199,000 13,368,000
Selling, General and Administrative Costs 11,521,000 9,568,000
Restructuring Charge (Note 2) 1,150,000 -
------------ ------------
Operating Income 3,528,000 3,800,000
------------ ------------
Other Income (Expense)
Life insurance proceeds (Note 10) 2,000,000 -
Interest expense (1,156,000) (1,176,000)
Interest and other income 611,000 143,000
------------- ------------
Total Other Income (Expense) 1,455,000 (1,033,000)
------------- ------------
Income From Continuing Operations
Before Income Taxes 4,983,000 2,767,000
Provision for Income Taxes (Note 8) 501,000 495,000
------------- -------------
Income From Continuing Operations 4,482,000 2,272,000
Income From Discontinued Operations
(Note 4) - 187,000
------------ ------------
Net Income $ 4,482,000 $ 2,459,000
============ ============
come per Common Share
Primary
Continuing Operations $ .36 $ .23
Discontinued Operations - .02
----- -----
Net Income $ .36 $ .25
===== =====
Fully Diluted
Continuing Operations $ .36 $ .21
Discontinued Operations - .01
----- -----
Net Income $ .36 $ .22
===== =====
Weighted Average Number of Common
Shares Outstanding
Primary 12,354,000 9,904,000
========== ==========
Fully Diluted 14,164,000 12,437,000
========== ==========
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 6
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1995 1994
---- ----
<S> <C> <C>
Net Sales $ 19,750,000 $ 19,187,000
Cost of Sales 12,988,000 13,653,000
------------ ------------
Gross Profit 6,762,000 5,534,000
Selling, General and Administrative Costs 4,664,000 3,787,000
Restructuring Charge (Note 2) 1,150,000 -
------------ ------------
Operating Income 948,000 1,747,000
------------ ------------
Other Income (Expense)
Interest expense (372,000) (387,000)
Interest and other income 287,000 34,000
------------ ------------
Total Other Income (Expense) (85,000) (353,000)
------------ ------------
Income Before Income Taxes 863,000 1,394,000
Provision for Income Taxes (Note 8) 180,000 223,000
------------ ------------
Net Income $ 683,000 $ 1,171,000
============ ============
Net Income per Common Share:
Primary $ .06 $ .11
===== =====
Fully Diluted $ .06 $ .10
===== =====
Weighted Average Number of Common
Shares Outstanding
Primary 12,384,000 10,917,000
=========== ===========
Fully Diluted 14,166,000 12,514,000
=========== ===========
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 7
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,482,000 $ 2,459,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Income from discontinued operations - (187,000)
Non-cash portion of restructuring
charge (Note 2) 539,000 -
Depreciation and amortization 2,321,000 2,169,000
Other 126,000 720,000
Increase (decrease) in deferred
income taxes (27,000) 102,000
----------- -----------
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 1,773,000 (1,754,000)
Decrease (increase) in inventories (818,000) (1,514,000)
Decrease (increase) in prepaid expenses and
other assets (327,000) (466,000)
Increase (decrease) in accounts payable, accrued
expenses and other long-term liabilities (630,000) 1,113,000
Increase (decrease) in income taxes payable (489,000) (1,048,000)
---------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 6,950,000 1,594,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of businesses,
net of cash acquired (537,000) (5,650,000)
Net cash provided by (used in)
discontinued operations 278,000 5,841,000
Decrease (increase) in invested cash 179,000 1,895,000
Capital expenditures (2,448,000) (1,119,000)
Other 159,000 14,000
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (2,369,000) 981,000
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements 292,000 528,000
Net debt repayments (5,055,000) (3,415,000)
Proceeds from exercise of stock options 37,000 64,000
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (4,726,000) (2,823,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (145,000) (248,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,238,000 360,000
----------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,093,000 $ 112,000
=========== ============
</TABLE>
[FN]
See notes to consolidated financial statements
<PAGE> 8
AEROFLEX INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The consolidated balance sheet of Aeroflex Incorporated and Subsidiaries
("the Company") as of March 31, 1995 and the related consolidated statements
of earnings for the nine and three months ended March 31, 1995 and 1994 and
the statements of cash flows for the nine months ended March 31, 1995 and 1994
have been prepared by the Company and are unaudited. In the opinion of
management, all adjustments (which include only normal recurring adjustments
and the adjustment referred to in Note 2) necessary to present fairly the
financial position, results of operations and cash flows at March 31, 1995 and
for all periods presented have been made. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been omitted. It is
suggested that these consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's June
30, 1994 annual report to shareholders. There have been no changes of
significant accounting policies since June 30, 1994.
Certain reclassifications have been made to previously reported financial
statements to conform to current classifications.
Results of operations for the nine and three month periods are not
necessarily indicative of results of operations for the corresponding years.
2. Restructuring Charge
--------------------
In March 1995, the Company, pursuant to a Board of Directors resolution,
decided to consolidate its Puerto Rican manufacturing operations into its
existing facilities in New York and New Jersey. The Company intends to
cease manufacturing operations in Puerto Rico as of July 1995 and expects
the consolidation to be complete by October 1995. In connection with this
restructuring, the Company has reported a special charge to earnings of
$1,150,000 in the third quarter of fiscal 1995, representing costs for
abandonment of leasehold improvements, lease termination costs, write-
down of excess equipment and other related costs. This amount includes
non-cash costs of approximately $539,000. Costs for employee severance of
approximately $525,000 will be recorded in the fourth quarter of fiscal 1995.
3. Acquisitions of Businesses
--------------------------
In January 1995, the Company acquired substantially all of the net
operating assets of Lintek, Inc. ("Lintek") for $537,000 plus contingent
consideration based on the next five years' earnings to a maximum of an
additional $675,000. Lintek designs, develops and manufactures radar cross
section and antenna pattern measurement systems for commercial and military
applications, as well as surface penetrating radars. The acquired Company's
net sales were approximately $2,600,000 for the year ended December 31, 1994.
On a pro forma basis, had the Lintek acquisition taken place as of the
beginning of the periods presented, results of operations for those periods
would not have been materially affected. Effective January 1, 1994, the
Company acquired substantially all of the net operating assets of the
microelectronics division of Marconi Circuit Technology Corporation
("Circuit Tech") for $5,650,000 and assumed liabilities of $3,115,000.
The purchase price was allocated to the assets acquired based upon the
respective fair values as of the acquisition date. The purchase was financed
through borrowings under the Company's revolving line of credit agreement.
The acquired division's net sales of microelectronic products were
approximately $17,500,000 for the twelve months ended December 31, 1993.
Summarized below are the unaudited pro forma results of operations of the
Company as if Circuit Tech had been acquired at the beginning of the fiscal
periods presented:
<PAGE> 9
<TABLE>
<CAPTION>
Pro Forma
Nine Months Pro Forma
Ended Year Ended
March 31, 1994 June 30, 1994
-------------- -------------
(in thousands, except per share data)
<S> <C> <C>
Net Sales $ 52,414 $ 73,757
Income From Continuing Operations 2,131 5,703
Net Income 2,318 5,890
Earnings Per Share
Primary
Income From Continuing Operations $ .21 $ .54
Net Income .23 .56
Fully Diluted
Income From Continuing Operations .20 .48
Net Income .21 .50
</TABLE>
The pro forma financial information presented above is not necessarily
indicative of either the results of operations that would have occurred had
the acquisition taken place at the beginning of the periods presented or of
future operating results of the combined companies.
The acquisitions have been accounted for as purchases and, accordingly,
the acquired assets and liabilities assumed have been recorded at their
estimated fair values at the dates of acquisition. The operating results of
the acquired companies are included in the consolidated statements of earnings
from their respective acquisition dates.
4. Discontinued Operations
-----------------------
In September 1993, the Company entered into an agreement with the U.S. Air
Force in full settlement of claims against the U.S. Air Force on two telecom-
munication contracts which were completed in 1992. The settlement represents
a final mutual release of all claims between the parties relative to these two
contracts. The settlement, together with other unrelated settlements of claims
and adjustments of previously recorded loss reserves, resulted in an after tax
gain of $2,295,000, which was included in discontinued operations in the first
quarter of fiscal 1994.
In November 1993, the Company sold substantially all of the net operating
assets of its Huxley subsidiary for $5,550,000. Huxley is a manufacturer of
specialized envelopes for high-volume direct-mail users. The disposal is
being accounted for as a discontinued operation, and, accordingly, Huxley's
operations and the loss on disposal have been reported separately from
continuing operations. The total loss of $2,108,000 represents a loss from
Huxley's operations of $187,000 and a loss on the disposal of $1,921,000.
Huxley's assets and liabilities have been reclassified on the balance sheet
from the historic classifications and combined under the caption "net assets
of discontinued operations".
5. Revolving Credit Agreements
---------------------------
As of April 11, 1994 the Company entered into a revised revolving credit and
term loan agreement with two banks which is secured by accounts receivable,
inventory and the Company's stockholdings in certain of its subsidiaries. The
agreement provides for a revolving credit line of $16,000,000 and a term loan
of $4,000,000, both of which expire on March 31, 1997. The term loan was
repaid during the third quarter of 1995. The interest rate on borrowings under
this agreement is at various rates depending upon certain financial ratios,
with the present rate substantially equivalent to the prime rate (9% at March
31, 1995). The terms of the agreement require compliance with certain
covenants including minimum consolidated working capital and tangible net
worth, maintenance of certain financial ratios, limitations on capital
expenditures and lease commitments, and prohibition of the payment of cash
dividends. Management believes that this revolving credit and term loan
facility, coupled with cash to be provided by future operations, will be
sufficient for its working capital requirements, capital expenditure needs,
wind-down of discontinued operations and the servicing of its debt.
<PAGE> 10
6. Senior Subordinated Convertible Debentures
------------------------------------------
In December 1992, the Company completed a sale of $6,870,000 of principal
amount of 7% Convertible Senior Subordinated Debentures to non-U.S. persons.
The debentures were convertible into the Company's common stock at a price of
$2.25 per share. All of the net proceeds from the debenture offering were used
to repay indebtedness under the revolving credit and term loan agreement.
In February 1994, the Company called for redemption all outstanding debentures.
Substantially all of the debentures were converted and the balance, $8,000,
was redeemed as of March 31, 1994.
During June 1994, the Company completed a sale of $10,000,000 of principal
amount of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S.
persons. The debentures are due June 15, 2004 and are convertible into the
Company's common stock at a price of $5-5/8 per share. The net proceeds from
the offering were used initially to retire certain bank indebtedness and for
general working capital with excess proceeds placed in temporary short term
bank related investments.
7. Inventories
-----------
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1995 1994
--------- ---------
<S> <C> <C>
Raw Materials $ 6,118,000 $ 5,706,000
Work in Process 6,591,000 5,800,000
Finished Goods 2,703,000 2,581,000
----------- ----------
$15,412,000 $14,087,000
=========== ==========
</TABLE>
8. Income Taxes
------------
At June 30, 1994 the Company had net operating loss carryforwards of
approximately $19,000,000 for Federal income tax purposes which expire
through 2006. The income tax provisions for the nine and three months ended
March 31, 1995 and 1994 include benefits relating to the recognition of
unrealized and realized net operating loss carryforwards.
The Company is undergoing routine audits by various taxing authorities of
several of its U.S. Federal, state and local income tax returns covering
different periods from 1988 to 1993. In view of the Company's Puerto Rico
operations and the increased focus by the Internal Revenue Service on profit
allocations between U.S. and foreign related entities, deficiencies could be
proposed. Management believes that the probable outcome of these various
audits should not materially affect the consolidated financial statements of
the Company.
9. Contingencies
-------------
A subsidiary of the Company whose operations were discontinued in 1991, is
one of several defendants named in a personal injury action initiated in
August, 1994, by a group of plaintiffs. The complaint alleges, among other
things, that the plaintiffs suffered injuries from exposure to substances
contained in products sold by the subsidiary to one of its customers.
Considering its various defenses, together with its product liability
insurance, in the opinion of management of the Company, the outcome of the
action against its subsidiary will not have a materially adverse effect on the
Company's consolidated financial statements.
10. Life Insurance Proceeds
-----------------------
During the quarter ended December 31, 1994, the Company received $2,000,000
of insurance proceeds on the death of the former chairman.
<PAGE> 11
AEROFLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Nine Months Ended March 31, 1995 Compared to Nine Months Ended March 31, 1994
- -----------------------------------------------------------------------------
Net sales increased to $49,597,000 for the nine months ended March 31, 1995 from
$44,259,000 for the nine months ended March 31, 1994. Net income was $4,482,000
for the nine months ended March 31, 1995 including $2,000,000 of life insurance
proceeds on the death of the former chairman and a restructuring charge of
$1,150,000 representing the non-severance costs of consolidating the Company's
Puerto Rican operations into its existing domestic facilities. The employee
severance costs associated with the restructuring of approximately $525,000
will be recorded in the fourth quarter. Net income for the nine months ended
March 31, 1994 was $2,459,000 including a $187,000 gain from discontinued
operations.
Net sales in the electronics segment increased to $38,818,000 for the nine
months ended March 31, 1995 from $34,351,000 for the nine months ended March 31,
1994 primarily as a result of the acquisition of the microelectronics division
of Marconi Circuit Technology Corporation in January 1994. Operating profits,
exclusive of the restructuring charge, increased by $1,149,000 as a result of
the higher sales and improved margins, partially offset by increased research
and development costs, primarily in the microelectronics division.
Net sales in the shock and vibration segment increased to $10,779,000 for the
nine months ended March 31, 1995 from $9,908,000 for the nine months ended
March 31, 1994. The increase is primarily attributable to higher sales volume
of commercial and industrial isolators. Operating profits, exclusive of the
restructuring charge, increased by $141,000. The increase in volume was
partially offset by an unfavorable change in the product mix and lower margins
in the military isolator division.
Cost of sales as a percentage of sales decreased to 67.3% from 69.8% between the
two periods as a result of improved profit margins primarily in the instrument
products and microelectronics divisions. Selling general and administrative
costs, exclusive of the restructuring charge, as a percentage of sales
increased to 23.2% from 21.6% primarily due to increased research and
development costs in the microelectronics division.
Interest expense decreased to $1,156,000 from $1,176,000. Decreased levels of
borrowings were offset by increased interest rates. Interest and other
income were greater by $468,000 as a result of the short term investments made
with the proceeds from the 7-1/2% debentures. The income tax provisions for
the nine month periods ended March 31, 1995 and 1994 were less than the amounts
computed by applying the U.S. Federal income tax rate to income from continuing
operations before income taxes primarily as a result of the tax benefits of
loss carryforwards (both unrealized and realized) and the exemption of the
earnings of the Company's Puerto Rican subsidiary from U.S. Federal income
taxes, and, for the period ended March 31, 1995, because of the non-taxable
life insurance proceeds of $2,000,000.
In September 1993, the Company entered into an agreement with the U.S. Air Force
in full settlement of claims against the U.S. Air Force for extra work, delays
and other out-of-scope costs on two telecommunication contracts which were the
primary reasons for T-CAS's loss in 1991. The settlement represents a final
mutual release of all claims between the parties relative to these two
contracts. The settlement, together with other unrelated settlements of claims
and adjustments of previously recorded loss reserves, resulted in an after tax
gain of $2,295,000, which was included in discontinued operations in the first
quarter of fiscal 1994.
In November 1993, the Company sold substantially all of the net operating
assets of its Huxley subsidiary. The disposal is being accounted for as a
discontinued operation, and, accordingly, Huxley's operations and the loss on
disposals, have been reported separately from continuing operations. This loss
of $2,108,000 represents a loss from Huxley's operations of $187,000 and a loss
on the disposal of $1,921,000.
<PAGE> 12
Three Months Ended March 31,1995 Compared to Three Months Ended March 31, 1994
- ------------------------------------------------------------------------------
Net sales increased to $19,750,000 for the three months ended March 31, 1995
from $19,187,000 for the three months ended March 31, 1994. Net income was
$683,000 for the three months ended March 31, 1995 including a restructuring
charge of $1,150,000 representing non-severance costs of consolidating the
Company's Puerto Rican operations into its existing domestic facilities. The
employee severance costs associated with the restructuring of approximately
$525,000 will be recorded in the fourth quarter. Net income was $1,171,000 in
the prior year.
Net sales in the electronics segment increased to $15,833,000 for the three
months ended March 31, 1995 from $15,673,000 for the three months ended
March 31, 1994. Operating profits, exclusive of the restructuring charge,
increased by $501,000 as a result of improved profit margins, partially offset
by increased research and development costs, primarily in the microelectronics
division.
Net sales in the shock and vibration segment increased to $3,917,000 for the
three months ended March 31, 1995 from $3,514,000 for the three months ended
March 31, 1994. The increase is primarily attributable to higher sales volume
of commercial and industrial isolators. Operating profits, exclusive of the
restructuring charge, increased by $137,000 due to the increased sales.
Cost of sales as a percentage of sales decreased to 65.8% from 71.2% between
the two periods primarily as a result of improved margins in the instrument
products and microelectronics divisions. Selling, general and administrative
costs, exclusive of the restructuring charge, as a percentage of sales
increased to 23.6% from 19.7% primarily due to increased research and
development costs in the microelectronics division.
Interest expense decreased to $372,000 from $387,000. Decreased levels of
borrowings were offset by increased interest rates. Interest and other income
were greater by $253,000 as a result of the short term investments made with
the proceeds from the 7-1/2% debentures. The income tax provisions for the
three month periods ended March 31, 1995 and 1994 were less than the amounts
computed by applying the U.S. Federal income tax rate to income before income
taxes primarily as a result of the tax benefits of loss carryforwards (both
unrealized and realized) and the exemption of the earnings of the Company's
Puerto Rican subsidiary from U.S. Federal income taxes.
Financial Condition
- -------------------
The Company's working capital at March 31, 1995 was $28,932,000 as compared
to $28,572,000 at June 30, 1994. The current ratio increased to 3.5 to 1 from
3.3 to 1 at June 30, 1994.
Cash provided by operating activities was $6,950,000 for the nine months ended
March 31, 1995 as compared to $1,594,000 for the nine months ended March 31,
1994. The improvement was primarily due to improved earnings (including
$2,000,000 of life insurance proceeds) and the collections of receivables
offset, in part, by reductions in accrued expenses. Cash used by investing
activities of $2,369,000 was comprised primarily of capital expenditures. The
net cash provided by operating and investing activities for the nine month
period was used to reduce debt by $4,763,000. Management believes that the
revolving credit and term loan facility, coupled with cash to be provided by
future operations, will be sufficient for its presently anticipated working
capital requirements, capital expenditure needs, wind-down of discontinued
operations and the servicing of its debt.
As of April 11, 1994, the Company entered into a revised revolving credit and
term loan agreement with two banks which is secured by accounts receivable,
inventory and the Company's stockholdings in certain of its subsidiaries. The
agreement provides for a revolving credit line of $16,000,000 and a term loan
of $4,000,000 both of which expire on March 31, 1997. The term loan was repaid
during the third quarter of 1995. See Note 5 to the Consolidated Financial
Statements.
<PAGE> 13
During June 1994, the Company completed a sale of $10,000,000 of principal
amount of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S. persons.
The debentures are due June 15, 2004 subject to prior sinking fund payments of
10%, 10%, 15% and 15% of the principal amount on September 15, 2000, 2001,
2002 and 2003, respectively. The debentures are convertible into the Company's
common stock at a price of $5-5/8 per share.
In November 1993, the Company sold its Huxley subsidiary for $5,550,000,
including a $700,000 five year subordinated secured note. The net cash
proceeds from the sale were used to repay indebtedness under the revolving
credit and term loan agreement. In July, 1994, the $700,000 note was
satisfied.
In January 1994, the Company acquired substantially all of the net operating
assets of the microelectronics division of Marconi Circuit Technology
Corporation for $5,650,000. The operations acquired have been consolidated
with the Company's wholly-owned subsidiary, Aeroflex Laboratories, Incorporated.
The acquired division's net sales of microelectronic products were approximately
$17,500,000 for the twelve months ended December 31, 1993.
In January 1995, the Company acquired substantially all of the net operating
assets of Lintek, Inc. for $537,000 plus contingent consideration based on the
next five years' earnings to a maximum of an additional $675,000. Lintek, Inc.
designs, develops and manufactures radar cross section and antenna pattern
measurement systems for commercial and military applications, as well as surface
penetrating radars. The acquired Company's net sales were approximately
$2,600,000 for the year ended December 31, 1994.
In March 1995, the Company decided to consolidate its Puerto Rican
manufacturing operations into its existing facilities in New York and New
Jersey. The Company intends to cease manufacturing operations in Puerto Rico
as of July 1995 and expects the consolidation to be complete by October 1995.
In connection with this restructuring, the Company has reported a special
charge to earnings of $1,150,000 in the third quarter of fiscal 1995
representing costs for abandonment of leasehold improvements, lease termination
costs, write-down of excess equipment and other related costs. This amount
includes non-cash costs of approximately $539,000. Costs for employee
severance of approximately $525,000 will be recorded in the fourth quarter of
fiscal 1995. The Puerto Rican facility presently employs approximately 100
persons of which only a few may be relocated to New York or New Jersey.
A subsidiary of the Company whose operations were discontinued in 1991, is one
of several defendants named in a personal injury action initiated in August,
1994, by a group of plaintiffs. The complaint alleges, among other things,
that the plaintiffs suffered injuries from exposure to substances contained in
products sold by the subsidiary to one of its customers. Considering its
various defenses, together with its product liability insurance, in the opinion
of management of the Company, the outcome of the action against its subsidiary
will not have a materially adverse effect on the Company's consolidated
financial statements.
Since many of the programs in which the Company is involved are not currently
expected to be curtailed, management presently believes that potential
reductions in military spending will not materially adversely affect its
operations.
At June 30, 1994, the Company had net operating loss carryforwards of
approximately $19,000,000 for Federal income tax purposes. The Company is
undergoing routine audits by various taxing authorities of several of its U.S.
Federal, state, and local income tax returns covering different periods from
1988 to 1993. In view of the Company's Puerto Rico operations and the
increased focus by the Internal Revenue Service on profit allocations between
U.S. and foreign related entities, deficiencies could be proposed. Management
believes that the probable outcome of these various audits should not materially
affect the consolidated financial statements of the Company.
<PAGE> 14
AEROFLEX INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Old Corp. (formerly Filtron Co., Inc.) a subsidiary of the Company whose
operations were discontinued in October 1991, was one of several
defendants named in a personal injury action instituted recently by
several plaintiffs in the Supreme Court of the State of New York, County
of Kings.
According to the allegations of the Amended Verified Complaint, the
plaintiffs, who are current or former employees of a company to whom Old
Corp. sold RFI filters/capacitors, and their wives, are seeking to
recover, respectively, directly and derivatively, on diverse theories of
negligence, strict liability and breach of warranty, for injuries
allegedly suffered from exposure to a liquid substance or material which
Old Corp. incorporated for a period of time in the RFI filters/
capacitors which it manufactured.
Without considering the merits of the action, in view of the nature of
the referenced transactions and based upon the existence of product
liability insurance covering Old Corp.'s operations during the relevant
period of time, the management of the Company does not believe that the
outcome of the action against its subsidiary would have a material
adverse effect on the Company's consolidated financial statements.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 11
Exhibit 27
(b) Reports on Form 8-K
(1) Report on Form 8-K dated March 29, 1995 covering Item 4 -
Changes in Registrant's Certifying Accountant.
<PAGE> 15
AEROFLEX INCORPORATED
AND SUBSIDIARIES
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.
AEROFLEX INCORPORATED
(REGISTRANT)
May 1, 1995 By: /s/ Michael Gorin
---------------------------------
Michael Gorin
President and Chief Financial Officer
AEROFLEX INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION> Nine Months Three Months
Ended March 31, Ended March 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
COMPUTATION OF ADJUSTED NET INCOME:
Income from continuing operations $ 4,482,000 $ 2,272,000 $ 683,000 $ 1,171,000
Discontinued operations - 187,000 - -
------------ ------------ ------------ ------------
Net income for primary earnings
per common share 4,482,000 2,459,000 683,000 1,171,000
Add: Debenture interest and amortization
expense, net of income taxes 573,000 291,000 191,000 73,000
------------- ------------ ------------ ------------
Adjusted net income for fully diluted
earnings per common share $ 5,055,000 $ 2,750,000 $ 874,000 $ 1,244,000
============= ============ ============ ============
COMPUTATION OF ADJUSTED WEIGHTED AVERAGE
SHARES OUTSTANDING:
Weighted average shares outstanding 11,739,000 9,371,000 11,741,000 10,138,000
Add: Effect of options and warrants outstanding 615,000 533,000 643,000 779,000
------------- ------------ ------------- ------------
Weighted average shares and common share
equivalents used for computation of primary
earnings per common share 12,354,000 9,904,000 12,384,000 10,917,000
Add: Effect of additional options and warrants
outstanding for fully diluted computation 32,000 179,000 4,000 -
Add: Shares assumed to be issued upon
conversion of debentures 1,778,000 2,354,000 1,778,000 1,597,000
Weighted average shares and common share ------------ ----------- ---------- ----------
equivalents used for computation of fully
diluted earnings per common share 14,164,000 12,437,000 14,166,000 12,514,000
============ =========== ========== ===========
EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT:
Primary:
Income from continuing operations $ .36 $ .23 $ .06 $ .11
Discontinued operations - .02 - -
----- ----- ----- -----
Net income $ .36 $ .25 $ .06 $ .11
===== ===== ===== =====
Fully diluted:
Income from continuing operations $ .36 $ .21 $ .06 $ .10
Discontinued operations - .01 - - -
----- ----- ----- -----
Net income $ .36 $ .22 $ .06 $ .10
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 8,093,000
<SECURITIES> 0
<RECEIVABLES> 15,592,000
<ALLOWANCES> 578,000
<INVENTORY> 15,412,000
<CURRENT-ASSETS> 40,619,000
<PP&E> 36,808,000
<DEPRECIATION> 23,373,000
<TOTAL-ASSETS> 70,068,000
<CURRENT-LIABILITIES> 11,687,000
<BONDS> 10,000,000
<COMMON> 1,174,000
0
0
<OTHER-SE> 42,888,000
<TOTAL-LIABILITY-AND-EQUITY> 70,068,000
<SALES> 49,597,000
<TOTAL-REVENUES> 49,597,000
<CGS> 33,398,000
<TOTAL-COSTS> 46,069,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,156,000
<INCOME-PRETAX> 4,983,000
<INCOME-TAX> 501,000
<INCOME-CONTINUING> 4,482,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,482,000
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
