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, 1996
--------------
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.
May 10, 1996 12,284,319(excluding 75,772 shares held in treasury)
(Date) (Number of Shares)
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
INDEX
PAGE
----
PART I: FINANCIAL INFORMATION
---------------------
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and June 30, 1995 3-4
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended March 31, 1996 and 1995 5
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1996 and 1995 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, 1996 and 1995 11-13
PART II: OTHER INFORMATION
-----------------
ITEM 1 Legal Proceedings 14
ITEM 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
---------- --------
ASSETS
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 777,000 $ 11,330,000
Current portion of invested cash - 635,000
Accounts receivable less allowance for
doubtful accounts of $603,000 and
$437,000 16,977,000 18,898,000
Refundable income taxes 1,143,000 -
Inventories (Note 5) 20,559,000 12,330,000
Deferred income taxes 812,000 467,000
Prepaid expenses and other current assets 1,148,000 605,000
------------ -----------
Total Current Assets 41,416,000 44,265,000
Invested cash 615,000 677,000
Property, plant and equipment, at cost, net 16,657,000 13,859,000
Intangible assets acquired in connection with
the purchase of businesses, net (Note 2) 8,523,000 -
Cost in excess of fair value of net assets of
businesses acquired, net (Note 2) 10,130,000 10,297,000
Deferred income taxes 589,000 589,000
Other assets 2,985,000 2,249,000
------------ -----------
$ 80,915,000 $ 71,936,000
============ ===========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
--------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 4,263,000 $ 1,936,000
Accounts payable 5,788,000 3,343,000
Accrued expenses and other current liabilities 6,840,000 6,916,000
Income taxes payable 1,176,000 537,000
------------- -------------
Total Current Liabilities 18,067,000 12,732,000
------------- -------------
Long-term debt (Note 4) 24,271,000 1,851,000
------------ -------------
Other long-term liabilities 979,000 1,009,000
------------ -------------
7-1/2% Senior Subordinated Convertible
Debentures 9,990,000 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
12,360,000 and 11,818,000 shares 1,236,000 1,182,000
Additional paid-in capital 57,742,000 56,101,000
Accumulated deficit (31,063,000) (10,584,000)
------------ ------------
27,915,000 46,699,000
Less: Treasury stock, at cost (76,000 and
92,000 shares) 307,000 355,000
------------ ------------
27,608,000 46,344,000
------------ ------------
$ 80,915,000 $ 71,936,000
============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Net Sales $ 44,300,000 $49,597,000
Cost of Sales 30,655,000 33,398,000
------------ ------------
Gross Profit 13,645,000 16,199,000
Selling, General and Administrative Costs 9,903,000 11,521,000
Special Charge (Note 2) 23,200,000 -
Restructuring Charge (Note 3) - 1,150,000
------------ ------------
Operating Income (Loss) (19,458,000) 3,528,000
------------ ------------
Other Expense (Income)
Life insurance proceeds (Note 8) - (2,000,000)
Interest expense 936,000 1,156,000
Interest and other income (595,000) (611,000)
------------ ------------
Total Other Expense (Income) 341,000 (1,455,000)
------------ ------------
Income (Loss) Before Income Taxes (19,799,000) 4,983,000
Provision for Income Taxes (Note 6) 680,000 501,000
------------ ------------
Net Income (Loss) $(20,479,000) $ 4,482,000
============ ============
Income (Loss) per Common Share:
Primary $(1.72) $ .36
======= =======
Fully Diluted $(1.72) $ .36
======= =======
Weighted Average Number of Common
Shares Outstanding:
Primary 11,876,000 12,354,000
============ ============
Fully Diluted 11,876,000 14,164,000
============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Net Sales $ 15,956,000 $19,750,000
Cost of Sales 10,940,000 12,988,000
------------ ------------
Gross Profit 5,016,000 6,762,000
Selling, General and Administrative Costs 3,562,000 4,664,000
Special Charge (Note 2) 23,200,000 -
Restructuring Charge (Note 3) - 1,150,000
------------ ------------
Operating Income (Loss) (21,746,000) 948,000
------------ ------------
Other Expense (Income)
Interest expense 320,000 372,000
Interest and other income (262,000) (287,000)
------------ ------------
Total Other Expense (Income) 58,000 85,000
------------ ------------
Income (Loss) Before Income Taxes (21,804,000) 863,000
Provision for Income Taxes (Note 6) 280,000 180,000
------------ ------------
Net Income (Loss) $(22,084,000) $ 683,000
============ ============
Net Income (Loss) per Common Share:
Primary $(1.85) $ .06
======= =======
Fully Diluted $(1.85) $ .06
======= =======
Weighted Average Number of Common
Shares Outstanding:
Primary 11,937,000 12,384,000
============ ============
Fully Diluted 11,937,000 14,166,000
============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(20,479,000) $ 4,482,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Special charge 23,200,000 -
Non-cash portion of restructuring charge - 539,000
Depreciation and amortization 2,331,000 2,321,000
Deferred income taxes (163,000) 126,000
Other (11,000) (27,000)
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 3,922,000 1,773,000
Decrease (increase) in inventories (6,501,000) (818,000)
Decrease (increase) in prepaid expenses and
other assets (886,000) (327,000)
Increase (decrease) in accounts payable, accrued
expenses and other long-term liabilities (315,000) (630,000)
Increase (decrease) in income taxes payable 590,000 (489,000)
------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 1,688,000 6,950,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of businesses,
net of cash acquired (34,924,000) (537,000)
Capital expenditures (811,000) (2,448,000)
Proceeds from the sale of property, plant
and equipment 313,000 159,000
Decrease in invested cash 697,000 179,000
Net cash provided by (used in)
discontinued operations 79,000 278,000
------------ ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (34,646,000) (2,369,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements 27,000,000 292,000
Debt repayments (5,022,000) (5,055,000)
Proceeds from exercise of stock options 427,000 37,000
------------ ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 22,405,000 (4,726,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (10,553,000) (145,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,330,000 8,238,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 777,000 $ 8,093,000
============ ============
<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 March 31, 1996 and the related consolidated
statements of operations for the nine and three months ended March 31, 1996
and 1995 and the statements of cash flows for the nine months ended March
31, 1996 and 1995 have been prepared by the Company and are unaudited. In
the opinion of management, all adjustments (which include normal recurring
adjustments and the adjustments referred to in Notes 2 and 3) necessary to
present fairly the financial position, results of operations and cash flows
at March 31, 1996 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 nine and three month periods are not
necessarily indicative of results of operations for the corresponding
years.
2. Acquisition of Businesses
-------------------------
MIC
---
Effective March 19, 1996, the Company acquired all of the outstanding stock
of MIC Technology Corporation ("MIC") for approximately $36,000,000 of
cash, 300,000 shares of common stock and warrants to purchase 400,000
shares of common stock (at exercise prices ranging from $7.05 to $7.50 per
share). The purchase price was paid with available cash of $9,000,000 and
borrowings under the Company's bank loan agreement of $27,000,000. The
purchase agreement also provides for a contingent payment of $4,000,000
based upon certain operating results. MIC manufactures high frequency
thin film circuits and interconnects for miniaturized, high
frequency, high performance electronic products for growing commercial
markets such as wireless communications, satellite based communications
hardware and high technology military electronics. The acquired
Company's net sales were approximately $25,000,000 for its fiscal year
ended October 31, 1995.
The Company had commissioned an independent asset valuation study of
acquired tangible and identifiable intangible assets to serve as a basis
for allocation of the purchase price. Based on this study, the Company
allocated the purchase price as follows:
<TABLE>
<S> <C>
Net tangible assets $ 6,120,000
Identifiable intangible assets 8,523,000
In-process research and development 23,200,000
-----------
$37,843,000
===========
</TABLE>
The identifiable intangible assets which include existing technology,
customer relationships and assembled work force will be amortized on a
straight-line basis over thirteen years based on the study described above.
The acquired in-process research and development is not considered to have
reached technological feasibility and, in accordance with generally
accepted accounting principles, the value of such has been expensed in the
third quarter of fiscal 1996.
<PAGE>
Summarized below are the unaudited pro forma results of operations of the
Company as if MIC had been acquired at the beginning of the fiscal periods
presented. The $23,200,000 write-off has been included in the March 31,
1996 pro forma income but not the June 30, 1995 pro forma income in order
to provide comparability to the respective historical periods.
<TABLE>
<CAPTION>
Pro Forma
Nine Months Pro Forma
Ended Year Ended
March 31, 1996 June 30, 1995
-------------- -------------
(in thousands, except per share data)
<S> <C> <C>
Net Sales $ 60,030 $ 95,300
Income (Loss) From Continuing
Operations (22,474) 6,729
Net Income (Loss) (22,474) 7,191
Earnings (Loss) Per Share
Primary
Continuing Operations $ (1.83) $ .53
Net Income (Loss) (1.83) .56
Fully Diluted
Continuing Operations * .51
Net Income (Loss) * .54
<FN>
* Due to the loss, all options, warrants and convertible debentures are
anti-dilutive.
</FN>
</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.
Lintek
------
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. An additional $63,000 of consideration was earned as
of December 31, 1995 and paid in February 1996. Such amount and, any
further contingent consideration earned, will be treated 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.
These 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 respective dates of acquisition. The operating
results of the acquired companies are included in the consolidated
statements of operations from the respective acquisition dates.
3. 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 of $1,150,000 and $519,000 in the third and fourth
quarters of fiscal 1995, respectively, 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. Approximately $597,000 of this amount were non-
cash costs and approximately $100,000 remains unpaid.
<PAGE>
4. Bank Loan Agreements
--------------------
As of March 15, 1996 the Company replaced a previous agreement with a
revised revolving credit and term loan agreement with two banks which is
secured by substantially all of the Company's assets not otherwise
encumbered. The agreement provides for a revolving credit line of
$22,000,000 and a term loan of $16,000,000. The revolving credit line
expires in March 1999. The term loan is payable in quarterly installments
of $900,000 beginning June 1996 with final payment on September 30, 2000.
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 (8.25% at March 31, 1996) plus
3/4% on the revolving credit borrowings and 1% on the term loan borrowings.
The terms of the agreement require compliance with certain covenants
including minimum consolidated tangible net worth and pre-tax earnings,
maintenance of certain financial ratios, limitations on capital
expenditures and indebtedness and prohibition of the payment of cash
dividends.
5. Inventories
-----------
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
----------- ----------
<S> <C> <C>
Raw Materials $ 9,864,000 $ 5,509,000
Work in Process 7,632,000 3,398,000
Finished Goods 3,063,000 3,423,000
------------ ------------
$ 20,559,000 $ 12,330,000
============ ============
</TABLE>
6. 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 nine and three months ended
March 31, 1996 and 1995 include benefits relating to the recognition of
unrealized and realized net operating loss carryforwards.
In connection with the acquisition of MIC (Note 2), the Company recorded
approximately $3,800,000 of deferred tax liabilities related to identifiable
intangible assets which are not deductible for tax purposes. Concurrently,
the Company reduced its valuation allowance against its deferred tax assets
by the same amount to recognize the net operating loss carryforwards that
can offset these deferred tax liabilities.
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 1995. Management believes that the probable outcome of these
various audits should not materially affect the consolidated financial
statements of the Company.
7. 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.
8. 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.
AEROFLEX INCORPORATED
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Nine Months Ended March 31, 1996 Compared to Nine Months Ended March 31, 1995
- --------------------------------------------------------------------------------
Net sales decreased to $44,300,000 for the nine months ended March 31, 1996 from
$49,597,000 for the nine months ended March 31, 1995. The net loss of
$20,479,000 for the nine months ended March 31, 1996 included a write-off of
$23,200,000 of in-process research and development acquired in connection with
the purchase of MIC Technology Corporation. Net income for the comparable period
in the prior year was $4,482,000, including a net of tax restructuring charge of
$1,035,000 and life insurance proceeds of $2,000,000. Net income exclusive of
the respective special items was $2,721,000 for the current nine month period
compared to $3,517,000 for the same period of last year.
Net sales in the electronics segment decreased to $33,186,000 for the nine
months ended March 31, 1996 from $38,818,000 for the nine months ended March 31,
1995 primarily as a result of lower sales volume of microelectronics, scanning
devices and electronic systems offset, in part, by the increased volume of
stabilization and tracking devices and the acquisition of Lintek, Inc. in
January, 1995. Operating profits decreased by $1,364,000 as a result of the
lower sales volume partially offset by decreased selling, general and
administrative costs.
Net sales in the isolator products segment increased to $11,114,000 for the nine
months ended March 31, 1996 from $10,779,000 for the nine months ended March 31,
1995. The increase reflects higher sales volume of industrial and commercial
isolators partially offset by decreased sales volume of military isolators
caused by delays in the transition of this product line from our former Puerto
Rico subsidiary to our New Jersey facility. Operating profits increased by
$156,000 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 69.2% from 67.3% 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 and start-up costs
of the transition to the New Jersey facility. Selling, general and
administrative costs (exclusive of the respective special charges) as a
percentage of sales decreased to 22.4% from 23.2% 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 $936,000 from $1,156,000 due to decreased levels
of borrowings. Interest and other income decreased to $595,000 from $611,000.
The income tax provisions for the nine months ended March 31, 1996 and 1995 were
different 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) and, for the period ended March 31,
1996, because of the non-deductibility of the $23,200,000 special charge, and
for the period ended March 31, 1995, because of the non-taxable life insurance
proceeds of $2,000,000.
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.
<PAGE>
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
- --------------------------------------------------------------------------------
Net sales decreased to $15,956,000 for the three months ended March 31, 1996
from $19,750,000 for the three months ended March 31, 1995. The net loss of
$22,084,000 for the three months ended March 31, 1996 included a write-off of
$23,200,000 of in-process research and development acquired in connection with
the purchase of MIC Technology Corporation. Net income for the comparable period
in the prior year was $683,000, including a net of tax restructuring charge of
$1,035,000. Net income exclusive of the respective special items was $1,116,000
for the current three month period compared to $1,718,000 for the same period of
last year.
Net sales in the electronics segment decreased to $11,790,000 for the three
months ended March 31, 1996 from $15,833,000 for the three months ended March
31, 1995 primarily as a result of lower sales volume of microelectronics and
scanning devices offset, in part by the increased volume of frequency
synthesizers. Operating profits decreased by $964,000 as a result of the lower
sales volume, partially offset by decreased selling, general and administrative
costs.
Net sales in the isolator products segment increased to $4,166,000 for the three
months ended March 31, 1996 from $3,917,000 for the three months ended March 31,
1995. The increase is primarily attributable to higher sales volume of military
isolators. Operating profits decreased by $56,000 as a result of learning curve
inefficiencies in the transition of the military isolator division of the Puerto
Rican operation to the Company's New Jersey facility, partially offset by
reduced selling, general and administrative costs as a result of such
consolidation.
Cost of sales as a percentage of sales increased to 68.6% from 65.8% between the
two periods as a result of inefficiencies and start-up costs of the transition
of the military isolator division of the Puerto Rican operation to the Company's
New Jersey facility. Selling, general and administrative costs (exclusive of the
respective special charges) as a percentage of sales decreased to 22.3% from
23.6% 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 $320,000 from $372,000 due to decreased levels of
borrowings. The income tax provisions for the three month periods ended March
31, 1996 and 1995 were different 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) and, for
the period ended March 31, 1996, because of the non-deductibility of the
$23,200,000 special charge.
Financial Condition
- -------------------
The Company's working capital at March 31, 1996 was $23,349,000 as compared to
$31,533,000 at June 30, 1995. The current ratio decreased to 2.3 to 1 from 3.5
to 1 at June 30, 1995. The decreases were due primarily to the use of $9,000,000
of cash and the incurrence of $3,600,000 of current debt for the acquisition of
MIC, offset, in part, by increased inventory levels.
Cash provided by operating activities of $1,688,000 for the nine months ended
March 31, 1996 was due to the continued profitability of the Company, excluding
the non-cash special charge, and the collection of receivables, primarily offset
by increased levels of inventories. Cash used in investing activities of
$34,646,000 was primarily for the acquisition of MIC. Cash provided by financing
activities of $22,405,000 is comprised primarily of the proceeds of $27,000,000
from the revised revolving credit and term loan facility offset, in part, by
paydowns of both existing debt and debt assumed in the acquisition of MIC.
Management believes that the revolving credit and term loan facility, coupled
with cash provided by operations, will be sufficient for its presently
anticipated working capital requirements, capital expenditure needs, and the
servicing of its debt.
<PAGE>
Effective March 19, 1996, the Company acquired all of the outstanding stock of
MIC Technology Corporation ("MIC") for approximately $36,000,000 of cash,
300,000 shares of common stock and warrants to purchase 400,000 shares of common
stock (at exercise prices ranging from $7.05 to $7.50 per share). The purchase
price was paid with available cash of $9,000,000 and borrowings under the
Company's bank loan agreement of $27,000,000. The purchase agreement also
provides for a contingent payment of $4,000,000 based upon certain operating
results. MIC manufactures high frequency thin film circuits and
interconnects for miniaturized, high frequency, high performance electronic
products for growing commercial markets such as wireless
communications, satellite based communications hardware and high technology
military electronics. The acquired Company's net sales were approximately
$25,000,000 for its fiscal year ended October 31, 1995.
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 of
$1,150,000 and $519,000 in the third and fourth quarters of fiscal 1995,
respectively, 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. Approximately $597,000
of this amount were non-cash costs and approximately $100,000 remains unpaid.
As of March 15, 1996 the Company replaced a previous agreement with a revised
revolving credit and term loan agreement with two banks which is secured by
substantially all of the Company's assets not otherwise encumbered. The
agreement provides for a revolving credit line of $22,000,000 and a term loan of
$16,000,000. The revolving credit line expires in March 1999. The term loan is
payable in quarterly installments of $900,000 beginning June 1996 with final
payment on September 30, 2000. 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 (8.25% at March 31,
1996) plus 3/4% on the revolving credit borrowings and 1% on the term loan
borrowings. The terms of the agreement require compliance with certain covenants
including minimum consolidated tangible net worth and pre-tax earnings,
maintenance of certain financial ratios, limitations on capital expenditures and
indebtedness and prohibition of the payment of cash dividends.
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. In October 1995, $10,000 principal amount
of debentures was converted.
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.
The Company's backlog of orders at March 31, 1996 and 1995 was $44,000,000 and
$31,000,000, 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 1995.
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Computation of Earnings (Loss) Per Common Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
(1) Current Report on Form 8-K dated March 19, 1996 covering Item 2
Acquisition or Disposition of Assets, Item 5 - Other Events and
Item 7 - Financial Statements, Pro Forma Financial Information
and Exhibits.
(2) Report on Form 8-K/A dated May 10, 1996 covering Item 7
Financial Statements, Pro Forma Financial Information and
Exhibits.
<PAGE>
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 10, 1996 /s/Michael Gorin
By: Michael Gorin
President and Chief Financial Officer
Exhibit 11
<TABLE>
<CAPTION>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
Nine Months Three Months
Ended March 31 Ended March 31,
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
COMPUTATION OF ADJUSTED NET INCOME (LOSS):
Net income (loss) for primary earnings
per common share $(20,479,000) $ 4,482,000 $(22,084,000) $ 683,000
============ ============
Add: Debenture interest and amortization
expense, net of income taxes Note 1 573,000 Note 1 191,000
----------- -----------
Adjusted net income (loss) for fully diluted
earnings per common share $ 5,055,000 $ 874,000
=========== ===========
COMPUTATION OF ADJUSTED WEIGHTED AVERAGE
SHARES OUTSTANDING:
Weighted average shares outstanding 11,876,000 11,739,000 11,937,000 11,741,000
=========== ===========
Add: Effect of options and warrants outstanding 615,000 643,000
---------- ----------
Weighted average shares and common share
equivalents used for computation of primary
earnings per common share 12,354,000 12,384,000
Add: Effect of additional options and warrants
outstanding for fully diluted computation 32,000 4,000
Add: Shares assumed to be issued upon
conversion of debentures 1,778,000 1,778,000
---------- ----------
Weighted average shares and common share
equivalents used for computation of fully
diluted earnings per common share 14,164,000 14,166,000
========== ==========
NET INCOME (LOSS) PER COMMON SHARE AND COMMON
SHARE EQUIVALENT:
Primary $(1.72) $ .36 $(1.85) $ .06
======= ======= ======= =======
Fully Diluted Note 1 $ .36 Note 1 $ .06
======= =======
<FN>
Note 1 - As a result of the loss, all options, warrants and convertible debentures are anti-dilutive.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the nine months ended March 31, 1996 and
is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 777,000
<SECURITIES> 0
<RECEIVABLES> 17,580,000
<ALLOWANCES> 603,000
<INVENTORY> 20,559,000
<CURRENT-ASSETS> 41,416,000
<PP&E> 38,361,000
<DEPRECIATION> 21,704,000
<TOTAL-ASSETS> 80,915,000
<CURRENT-LIABILITIES> 18,067,000
<BONDS> 9,990,000
0
0
<COMMON> 1,236,000
<OTHER-SE> 26,372,000
<TOTAL-LIABILITY-AND-EQUITY> 80,915,000
<SALES> 44,300,000
<TOTAL-REVENUES> 44,300,000
<CGS> 30,655,000
<TOTAL-COSTS> 63,758,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 936,000
<INCOME-PRETAX> (19,799,000)
<INCOME-TAX> 680,000
<INCOME-CONTINUING> (20,479,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,479,000)
<EPS-PRIMARY> (1.72)
<EPS-DILUTED> (1.72)
</TABLE>
