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 September 30, 1995
Commission File Number 1-8037
AEROFLEX INCORPORATED
(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.
November 8, 1995 11,882,542 (excluding 75,772 shares held in treasury)
- --------------------------------------------------------------------------------
(Date) (Number of Shares)
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PAGE
----
PART I: FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
September 30, 1995 and June 30, 1995 3-4
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended September 30, 1995 and 1994 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1995 and 1994 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7-8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 and 1994 9-10
PART II: OTHER INFORMATION
ITEM 1 Legal Proceedings 11
ITEM 4 Submission of Matters to a Vote of Security Holders 11
ITEM 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
-------------- --------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 11,604,000 $ 11,330,000
Current portion of invested cash 635,000 635,000
Accounts receivable less allowance for
doubtful accounts of $473,000 and $437,000 15,958,000 18,898,000
Inventories (Note 6) 13,471,000 12,330,000
Deferred income taxes 630,000 467,000
Prepaid expenses and other current assets 1,065,000 605,000
----------- -----------
43,363,000 44,265,000
Invested cash 658,000 677,000
Property, plant and equipment, at cost, net 13,502,000 13,859,000
Costs in excess of fair value of net assets
of businesses acquired, net 10,221,000 10,297,000
Deferred income taxes 589,000 589,000
Other assets 2,293,000 2,249,000
------------ ------------
$ 70,626,000 $ 71,936,000
============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 1,042,000 $ 1,936,000
Accounts payable 3,074,000 3,343,000
Accrued expenses and other current
liabilities 5,724,000 6,916,000
Income taxes payable 737,000 537,000
----------- -----------
Total Current Liabilities 10,577,000 12,732,000
----------- -----------
Long-term debt (Note 4) 1,754,000 1,851,000
----------- -----------
Other long-term liabilities 1,009,000 1,009,000
----------- -----------
7-1/2% Senior Subordinated Convertible
Debentures (Note 5) 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
11,958,000 and 11,818,000 shares 1,196,000 1,182,000
Additional paid-in capital 56,406,000 56,101,000
Accumulated deficit (9,977,000) (10,584,000)
----------- -----------
47,625,000 46,699,000
----------- -----------
Less: Treasury stock, at cost (84,000 and
92,000 shares) 339,000 355,000
----------- -----------
47,286,000 46,344,000
------------ ------------
$ 70,626,000 $ 71,936,000
============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------
1995 1994
---- ----
<S> <C> <C>
Net Sales $ 13,149,000 $ 14,027,000
Cost of Sales 9,080,000 9,642,000
------------ ------------
Gross Profit 4,069,000 4,385,000
Selling, General and Administrative Costs 3,178,000 3,321,000
------------ ------------
Operating Income 891,000 1,064,000
------------ ------------
Other Expense (Income)
Interest expense 303,000 387,000
Interest and other income (170,000) (163,000)
------------ ------------
Total Other Expense (Income) 133,000 224,000
------------ ------------
Income Before Income Taxes 758,000 840,000
Provision for Income Taxes (Note 7) 151,000 125,000
------------ ------------
Net Income $ 607,000 $ 715,000
============ ============
Net Income per Common Share $ .05 $ .06
===== =====
Weighted Average Number of Common
Shares Outstanding 12,714,000 12,353,000
========== ==========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 607,000 $ 715,000
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 787,000 770,000
Deferred income taxes (163,000) 10,000
Other 36,000 8,000
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 2,904,000 3,858,000
Decrease (increase) in inventories (1,140,000) (523,000)
Decrease (increase) in prepaid expenses and
other assets (653,000) (305,000)
Increase (decrease) in accounts payable, accrued
expenses and other long-term liabilities (1,525,000) (1,841,000)
Increase (decrease) in income taxes payable 199,000 (362,000)
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,052,000 2,330,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash provided by (used in)
discontinued operations 80,000 583,000
Proceeds from sale of property, plant
and equipment 100,000 157,000
Capital expenditures (322,000) (906,000)
Other 19,000 14,000
---------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (123,000) (152,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net debt repayments (990,000) (284,000)
Proceeds from the exercise of stock options 335,000 -
---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (655,000) (284,000)
---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 274,000 1,894,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,330,000 8,238,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $11,604,000 $10,132,000
=========== ===========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The consolidated balance sheet of Aeroflex Incorporated and Subsidiaries
("the Company") as of September 30, 1995 and the related consolidated
statements of earnings for the three months ended September 30, 1995 and
1994 and the statements of cash flows for the three months ended September
30, 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) necessary to present fairly the financial position,
results of operations and cash flows at September 30, 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, 1995 annual report to shareholders. There have been no
changes of significant accounting policies since June 30, 1995.
Certain reclassifications have been made to previously reported financial
statements to conform to current classifications.
Results of operations for the three month periods are not necessarily
indicative of results of operations for the corresponding years.
2. Restructuring Charge
--------------------
In March 1995, the Company adopted a plan to consolidate its Puerto Rican
manufacturing operations into its existing facilities in New York and New
Jersey. The Company has ceased manufacturing operations in Puerto Rico. In
connection with this restructuring, the Company recorded a charge to
earnings totalling $1,669,000 in the third and fourth quarters of fiscal
1995, representing costs for abandonment of leasehold improvements,
severance costs for approximately 100 employees, lease termination costs,
write-down of excess equipment and other related costs. This amount
included non-cash costs of approximately $597,000.
3. Acquisition of Business
-----------------------
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. Any contingent consideration paid will be recorded as
cost in excess of fair value of net assets acquired. 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.
The acquisition has been accounted for as a purchase and, accordingly, the
acquired assets and liabilities assumed have been recorded at their
estimated fair values at the date of acquisition. The operating results of
the acquired company are included in the consolidated statements of
earnings from the acquisition date.
<PAGE>
4. Revolving Credit Agreements
---------------------------
As of April 11, 1994 the Company replaced a previous agreement with 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, which was repaid
during the third quarter of fiscal 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
(8.75% at September 30, 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.
5. Senior Subordinated Convertible Debentures
------------------------------------------
During June 1994, the Company completed a sale of $10,000,000 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.
6. Inventories
-----------
Inventories consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- ------------
<S> <C> <C>
Raw Materials $ 4,444,000 $ 5,509,000
Work in Process 5,606,000 3,398,000
Finished Goods 3,421,000 3,423,000
----------- -----------
$13,471,000 $12,330,000
=========== ===========
</TABLE>
7. Income Taxes
------------
At June 30, 1995 the Company had net operating loss carryforwards of
approximately $14,000,000 for Federal income tax purposes which expire
through 2006. The income tax provisions for the three months ended September
30, 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 state and local income tax returns covering different periods
from 1991 to 1993. Management believes that the probable outcome of these
various audits should not materially affect the consolidated financial
statements of the Company.
8. 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 plaintiffs are seeking damages
which cumulatively may exceed $500 million. 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 is not expected to have a
materially adverse effect on the Company's consolidated financial
statements.
<PAGE>
AEROFLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Quarter Ended September 30, 1995 Compared to Quarter Ended September 30, 1994
- --------------------------------------------------------------------------------
Net sales decreased to $13,149,000 for the quarter ended September 30, 1995 from
$14,027,000 for the quarter ended September 30, 1994. Net income decreased to
$607,000 for the quarter ended September 30, 1995 from $715,000 for the
comparable period in the prior year.
Net sales in the electronics segment decreased to $9,844,000 for the quarter
ended September 30, 1995 from $10,639,000 for the quarter ended September 30,
1994 primarily as a result of lower sales volume of microelectronics and
scanning devices offset, in part, by increased volume of frequency synthesizers.
Operating profits decreased by $231,000 as a result of the lower sales volume.
Net sales in the isolator products segment decreased to $3,305,000 for the
quarter ended September 30, 1995 from $3,388,000 for the quarter ended September
30, 1994. The decrease reflects reduced sales volume of military and industrial
isolators partially offset by increased sales volume of commercial isolators.
Operating profits increased by $23,000 primarily due to reduced selling, general
and administrative costs as a result of the consolidation of certain operations
of the Puerto Rican facility into the Company's other facilities.
Cost of sales as a percentage of sales increased to 69.1% from 68.7% between the
two periods primarily as a result of inefficiencies in the final production runs
of military isolators in the Company's Puerto Rican facility. Selling general
and administrative costs decreased to $3,178,000 from $3,321,000 primarily as a
result of cost savings from the consolidation of certain operations of the
Company's Puerto Rican facility into the Company's other facilities.
Interest expense decreased to $303,000 from $387,000 due to decreased levels of
borrowings partially offset by increased interest rates. Interest and other
income increased to $170,000 from $163,000.
The income tax provisions for the quarters ended September 30, 1995 and 1994
differed from 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).
Liquidity and Capital Resources
- -------------------------------
The Company's working capital at September 30, 1995 was $32,786,000 as compared
to $31,533,000 at June 30, 1995. The current ratio increased to 4.1 to 1 from
3.5 to 1 at June 30, 1995. The increase was due primarily to the repayment of
$900,000 of debt related to the Company's Puerto Rican operation.
Cash provided by operating activities of $1,052,000 for the three months ended
September 30, 1995 was due to the consolidated profitability of the Company and
the collection of receivables which were partially offset by reductions in
accrued expenses and an increase in inventories. Cash used by investing
activities of $123,000 was comprised primarily of capital expenditures partially
offset by net cash provided by discontinued operations and proceeds from the
sale of property, plant and equipment. The net cash provided by operating and
investing activities for the three month period was used to reduce debt by
$990,000. 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, restructuring costs and the servicing of its debt.
<PAGE>
In March 1995, the Company adopted a plan to consolidate its Puerto Rican
manufacturing operations into its existing facilities in New York and New
Jersey. The Company has ceased manufacturing operations in Puerto Rico. In
connection with this restructuring, the Company recorded a charge to earnings
totalling $1,669,000 in the third and fourth quarters of fiscal 1995,
representing costs for abandonment of leasehold improvements, severance costs
for approximately 100 employees, lease termination costs, write-down of excess
equipment and other related costs. This amount included non-cash costs of
approximately $597,000.
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, the Company's stockholdings in certain of its subsidiaries and the
Company's principal operating facility. The agreement provides for a revolving
credit line of $16,000,000 and a term loan of $4,000,000 which was repaid during
the third quarter of fiscal 1995. As of September 30, 1995, there were no
borrowings under this agreement. See Note 4 to the Consolidated Financial
Statements.
During June 1994, the Company completed a sale of $10,000,000 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.
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 plaintiffs are seeking damages which
cumulatively may exceed $500 million. 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 is
not expected to have a materially adverse effect on the Company's consolidated
financial statements.
Management believes that potential reductions in military spending will not
materially affect its operations. In certain product areas, the Company has
suffered reductions in sales volume due to cutbacks in the military budget. In
other product areas, the Company has experienced increased sales volume due to a
realignment of government spending towards upgrading existing systems instead of
purchasing completely new systems. The overall effect of the cutbacks and
realignment has not been material to the Company.
The Company's backlog of orders at September 30, 1995 and 1994 was $40,900,000
and $40,000,000, respectively.
At June 30, 1995 the Company had net operating loss carryforwards of
approximately $14,000,000 for Federal income tax purposes. The Company is
undergoing routine audits by various taxing authorities of several of its state
and local income tax returns covering different periods from 1991 to 1993.
Management believes that the probable outcome of these various audits should not
materially affect the consolidated financial statements of the Company.
<PAGE>
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. The plaintiffs are seeking damages which
cumulatively may exceed $500 million. 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 is not expected to have a materially 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
A. The Registrant held its Annual Meeting of Stockholders on November 8,
1995.
B. Three directors were elected at the Annual Meeting to serve until the
Annual Meeting of Stockholders in 1998. The name of these Directors and
votes cast in favor of their election and shares withheld are as follows:
Name Votes For Votes Withheld
---- --------- --------------
Leonard Borow 10,098,351 98,022
Milton Brenner 10,098,166 98,207
Eugene Novikoff 10,098,351 98,022
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
None
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)
/s/ Michael Gorin
November 8, 1995 By:----------------------------
Michael Gorin
President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the quarter ended September 30, 1995 and
is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 11,604,000
<SECURITIES> 0
<RECEIVABLES> 16,431,000
<ALLOWANCES> 473,000
<INVENTORY> 13,471,000
<CURRENT-ASSETS> 43,363,000
<PP&E> 38,164,000
<DEPRECIATION> 24,662,000
<TOTAL-ASSETS> 70,626,000
<CURRENT-LIABILITIES> 10,577,000
<BONDS> 10,000,000
<COMMON> 1,196,000
0
0
<OTHER-SE> 46,090,000
<TOTAL-LIABILITY-AND-EQUITY> 70,626,000
<SALES> 13,149,000
<TOTAL-REVENUES> 13,149,000
<CGS> 9,080,000
<TOTAL-COSTS> 12,258,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 303,000
<INCOME-PRETAX> 758,000
<INCOME-TAX> 151,000
<INCOME-CONTINUING> 607,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 607,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
