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, 1997
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 9, 1997 12,488,991 (excluding 168,590 shares held in treasury)
(Date) (Number of Shares)
NOTE: THIS IS PAGE 1 OF A DOCUMENT CONSISTING OF 15 PAGES.
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
INDEX
PAGE
----
PART I: FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
March 31, 1997 and June 30, 1996 3-4
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended March 31, 1997 and 1996 5
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1997 and 1996 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1997 and 1996 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, 1997 and 1996 11-13
PART II: OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K 14
SIGNATURES 15
-2-
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
--------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 586,000 $ 661,000
Invested cash 69,000 -
Accounts receivable less allowance for
doubtful accounts of $417,000 and $354,000 18,028,000 23,336,000
Income tax refund receivable - 926,000
Inventories 22,113,000 16,916,000
Deferred income taxes 1,826,000 1,871,000
Prepaid expenses and other current assets 829,000 554,000
----------- -----------
Total Current Assets 43,451,000 44,264,000
Invested cash 478,000 603,000
Property, plant and equipment, at cost, net 14,404,000 14,854,000
Intangible assets acquired in connection with
the purchase of businesses, net 8,223,000 8,707,000
Costs in excess of fair value of net assets
of businesses acquired, net 9,982,000 10,054,000
Other assets 2,682,000 2,687,000
------------ ------------
$ 79,220,000 $ 81,169,000
============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
-3-
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
--------- ---------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 4,199,000 $ 4,259,000
Accounts payable 4,312,000 5,243,000
Accrued expenses and other current
liabilities 8,539,000 8,256,000
Income taxes payable 1,629,000 1,770,000
------------ ------------
Total Current Liabilities 18,679,000 19,528,000
------------ ------------
Long-term debt 17,169,000 20,337,000
------------ ------------
Deferred income taxes 31,000 172,000
------------ ------------
Other long-term liabilities 279,000 679,000
------------ ------------
7-1/2% Senior Subordinated Convertible
Debentures 9,981,000 9,981,000
------------ ------------
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
12,658,000 and 12,380,000 shares 1,266,000 1,238,000
Additional paid-in capital 58,110,000 57,820,000
Accumulated deficit (25,543,000) (28,004,000)
------------ ------------
33,833,000 31,054,000
Less: Treasury stock, at cost (169,000 and
129,000 shares) 752,000 582,000
------------ ------------
33,081,000 30,472,000
------------ ------------
$ 79,220,000 $ 81,169,000
============ ============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
-4-
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Net Sales $ 64,912,000 $ 44,300,000
Cost of Sales 43,618,000 30,655,000
------------ -----------
Gross Profit 21,294,000 13,645,000
Selling, General and Administrative Costs 15,191,000 9,903,000
Special Charge (Note 2) - 23,200,000
------------ -----------
Operating Income (Loss) 6,103,000 (19,458,000)
------------ -----------
Other Expense (Income)
Interest expense 2,263,000 936,000
Interest and other income (71,000) (595,000)
------------ -----------
Total Other Expense (Income) 2,192,000 341,000
------------ -----------
Income (Loss) Before Income Taxes 3,911,000 (19,799,000)
Provision for Income Taxes 1,450,000 680,000
------------ -----------
Net Income (Loss) $ 2,461,000 $(20,479,000)
============ ============
Net Income (Loss) per Common Share:
Primary $ .19 $(1.72)
====== ======
Fully Diluted $ .19 *
======
Weighted Average Number of Common
Shares Outstanding:
Primary 13,181,000 11,876,000
=========== ===========
Fully Diluted 15,001,000 *
===========
<FN>
* As a result of the loss, all options, warrants and convertible debentures are
anti-dilutive.
See notes to consolidated financial statements
</FN>
</TABLE>
-5-
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Net Sales $ 22,937,000 $ 15,956,000
Cost of Sales 15,178,000 10,940,000
------------ ------------
Gross Profit 7,759,000 5,016,000
Selling, General and Administrative Costs 5,615,000 3,562,000
Special Charge (Note 2) - 23,200,000
------------ ------------
Operating Income (Loss) 2,144,000 (21,746,000)
------------ ------------
Other Expense (Income)
Interest expense 712,000 320,000
Interest and other income (10,000) (262,000)
------------ ------------
Total Other Expense (Income) 702,000 58,000
------------ ------------
Income (Loss) Before Income Taxes 1,442,000 (21,804,000)
Provision for Income Taxes 525,000 280,000
------------ ------------
Net Income (Loss) $ 917,000 $(22,084,000)
============ ============
Net Income (Loss) per Common Share:
Primary $ .07 $(1.85)
====== =======
Fully Diluted $ .07 *
======
Weighted Average Number of Common
Shares Outstanding:
Primary 12,992,000 11,937,000
============ ============
Fully Diluted 14,766,000 *
============
<FN>
* As a result of the loss, all options, warrants and convertible debentures are
anti-dilutive.
See notes to consolidated financial statements
</FN>
</TABLE>
-6-
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,461,000 $(20,479,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Special charge - 23,200,000
Depreciation and amortization 3,292,000 2,159,000
Deferred income taxes (96,000) (163,000)
Other 70,000 (11,000)
Change in operating assets and liabilities:
Decrease (increase) in accounts receivable 5,238,000 3,922,000
Decrease (increase) in inventories (5,197,000) (6,501,000)
Decrease (increase) in prepaid expenses and
other assets 654,000 (714,000)
Increase (decrease) in accounts payable, accrued
expenses and other long-term liabilities (1,095,000) (315,000)
Increase (decrease) in income taxes payable (208,000) 590,000
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 5,119,000 1,688,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of businesses,
net of cash acquired (162,000) (34,924,000)
Capital expenditures (2,075,000) (811,000)
Proceeds from the sale of property, plant
and equipment - 313,000
Decrease in invested cash 56,000 697,000
Net cash provided by
discontinued operations - 79,000
----------- ------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (2,181,000) (34,646,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements - 27,000,000
Debt repayments (3,228,000) (5,022,000)
Proceeds from exercise of stock options 652,000 427,000
Purchase of treasury stock (437,000) -
----------- ------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (3,013,000) 22,405,000
----------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (75,000) (10,553,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 661,000 11,330,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 586,000 $ 777,000
=========== ===========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
-7-
<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, 1997 and the related consolidated
statements of operations for the nine and three months ended March 31, 1997
and 1996 and the statements of cash flows for the nine months ended March
31, 1997 and 1996 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 Note 2) necessary to present
fairly the financial position, results of operations and cash flows at
March 31, 1997 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, 1996 annual report to
shareholders. There have been no changes of significant accounting policies
since June 30, 1996.
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 Business
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 acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities assumed were recorded at their estimated
fair values at the date of acquisition. The operating results of MIC are
included in the consolidated statements of operations from the acquisition
date.
The Company 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 $ 6,190,000
Identifiable intangible assets 8,453,000
In-process research and development 23,200,000
-----------
$37,843,000
===========
</TABLE>
-8-
<PAGE>
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 was not
considered to have reached technological feasibility and, in
accordance with generally accepted accounting principles, the value of
such was expensed in the third quarter of fiscal 1996.
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.
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Nine Months
Year Ended Ended
June 30, 1996 March 31, 1996
------------- --------------
(in thousands, except per share data)
<S> <C> <C>
Net Sales $ 90,097 $ 60,030
Net Income (Loss) (19,392) (22,474)
Earnings (Loss) Per Share
Primary $ (1.62) $ (1.83)
Fully Diluted * *
<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.
3. 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 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 current rate substantially equivalent to the
prime rate (8.5% at March 31, 1997) on the revolving credit borrowings and
prime plus 1/4% 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.
4. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
--------- ---------
<S> <C> <C>
Raw Materials $ 11,332,000 $ 9,352,000
Work in Process 8,030,000 5,301,000
Finished Goods 2,751,000 2,263,000
------------ ------------
$ 22,113,000 $ 16,916,000
============ ============
</TABLE>
-9-
<PAGE>
5. Income Taxes
At June 30, 1996 the Company had net operating loss carryforwards of
approximately $8,000,000 for Federal income tax purposes which expire
through 2006. The income tax provisions for the nine and three months ended
March 31, 1996 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 Federal, state and local income tax returns covering
different periods from 1993 to 1996. Management believes that the probable
outcome of these various audits should not materially affect the
consolidated financial statements of the Company.
6. 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. This action is in the early stages of discovery. Based upon available
information and 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.
-10-
<PAGE>
AEROFLEX INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Nine Months Ended March 31, 1997 Compared to Nine Months Ended March 31, 1996
- --------------------------------------------------------------------------------
Net sales increased to $64,912,000 for the nine months ended March 31, 1997 from
$44,300,000 for the nine months ended March 31, 1996. Operating profits
increased 63% from last year, exclusive of a one-time write-off of $23,200,000
in 1996 for in-process research and development related to the purchase of MIC
Technology Corporation ("MIC"). Net income for the nine months ended March 31,
1997 was $2,461,000. The net loss for the comparable period of the prior year
was $(20,479,000) including the special write-off of $23,200,000.
Net sales in the electronics segment increased to $52,591,000 for the nine
months ended March 31, 1997 from $33,186,000 for the nine months ended March 31,
1996 primarily as a result of the acquisition of MIC in March 1996 and an
increase in volume of existing microelectronic product sales. Operating profits,
exclusive of the special write-off of $23,200,000 in 1996, increased by
$2,190,000 as a result of both the increased sales volume and higher profit
margins in the existing product lines offset, in part, by the addition of MIC's
selling, general and administrative costs.
Net sales in the isolator products segment increased to $12,321,000 for the nine
months ended March 31, 1997 from $11,114,000 for the nine months ended March 31,
1996. The increase reflects increased sales volume in the commercial and
industrial divisions offset, in part, by decreased sales volume in the military
isolator division. Operating profits increased by $344,000 primarily due to the
higher sales volume and higher profit margins, offset, in part, by increased
selling, general and administrative expenses.
Cost of sales as a percentage of sales decreased to 67.2% from 69.2% between the
two periods primarily as a result of increased margins in microelectronics and
isolator products divisions during the nine months ended March 31, 1997.
Selling, general and administrative costs (exclusive of the special charge in
the prior year) as a percentage of sales increased to 23.4% from 22.4% primarily
as a result of the addition of MIC which has a higher S,G&A cost structure than
the balance of the Company.
Interest expense for the period increased to $2,263,000 from $936,000 for
the prior period due to increased levels of borrowings related to the MIC
acquisition in March 1996. Interest and other income decreased to $71,000 from
$595,000 as a result of lower interest income on reduced cash amounts due to the
acquisition of MIC.
The income tax provisions for the two periods differed from the amount computed
by applying the U.S. Federal income tax rate to income before income taxes
primarily due to state income taxes for the nine months ended March 31, 1997 and
primarily as a result of the tax benefits of loss carryforwards (both unrealized
and realized) for the nine months ended March 31, 1996. The income tax rates
were 37% and 20% for 1997 and 1996, respectively, exclusive of the special
charge in 1996.
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.
-11-
<PAGE>
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
- --------------------------------------------------------------------------------
Net sales increased to $22,937,000 for the three months ended March 31, 1997
from $15,956,000 for the three months ended March 31, 1996. Operating profits
increased 47% from last year, exclusive of a one-time write-off of $23,200,000
in 1996 for in-process research and development related to the purchase of MIC
Technology Corporation ("MIC"). Net income was $917,000 for the three months
ended March 31, 1997. The net loss for the comparable period in the prior year
was $(22,084,000) including the special charge of $23,200,000.
Net sales in the electronics segment increased to $18,549,000 for the three
months ended March 31, 1997 from $11,790,000 for the three months ended March
31, 1996 primarily as a result of the acquisition of MIC in March 1996 and an
increase in volume of existing microelectronics product sales. Operating
profits, exclusive of the special write-off of $23,200,000 in 1996, increased by
$786,000 as a result of both the increased sales volume and higher profit
margins in existing product lines (specifically microelectronics) partially
offset by the addition of MIC's selling, general and administrative costs.
Net sales in the isolator products segment increased to $4,388,000 for the
three months ended March 31, 1997 from $4,166,000 for the three months ended
March 31, 1996. The increase is attributable to higher sales volume in both the
commercial and industrial isolator divisions offset, in part, by decreased sales
volume in the military isolators division. Operating profits increased by
$121,000 primarily due to the higher sales volume and higher profit margins,
offset, in part, by increased selling, general and administrative expenses.
Cost of sales as a percentage of sales decreased to 66.2% from 68.6% between the
two periods primarily as a result of improved margins in the microelectronics
and isolator products divisions. Selling, general and administrative costs
(exclusive of the special charge in 1996) as a percentage of sales increased to
24.5% from 22.3% primarily as a result of the addition of MIC which has a higher
S,G&A cost structure than the balance of the Company.
Interest expense for the period increased to $712,000 from $320,000 for the
prior period due to increased levels of borrowings related to the MIC
acquisition in March 1996. Interest and other income decreased to $10,000 from
$262,000 as a result of lower interest income on reduced cash amounts due to the
acquisition of MIC.
The income tax provisions for the two quarters differed from the amount computed
by applying the U.S. Federal income tax rate to income before income taxes
primarily due to state income taxes for the three months ended March 31, 1997
and primarily as a result of the tax benefits of loss carryforwards (both
unrealized and realized) for the three months ended March 31, 1996. The income
tax rates were 36% and 20% for 1997 and 1996, respectively, exclusive of the
special charge in 1996.
Financial Condition
- -------------------
The Company's working capital at March 31, 1997 was $24,772,000 as compared to
$24,736,000 at June 30, 1996. The current ratio was 2.3 to 1 at both dates.
Cash provided by operating activities of $5,119,000 for the nine months
ended March 31, 1997 was primarily due to the continued profitability of the
Company and the collection of receivables partially offset by an increase of
inventory. Cash used by investing activities of $2,181,000 was comprised
primarily of capital expenditures.
The cash provided by operating activities net of the cash used by investing
activities for the nine month period was used to reduce debt by $3,228,000.
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
and the servicing of its debt.
-12-
<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.
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 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 current rate
substantially equivalent to the prime rate (8.5% at March 31, 1997) on the
revolving credit borrowings and prime plus 1/4% 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. As of March 31, 1997, $19,000 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. This action is in the
early stages of discovery. Based upon available information and 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, 1997 and 1996 was $49,000,000 and
$44,000,000, respectively.
At June 30, 1996 the Company had net operating loss carryforwards of
approximately $8,000,000 for Federal income tax purposes. The Company is
undergoing routine audits by various taxing authorities of several of its
Federal, state and local income tax returns covering different periods from 1993
to 1996. Management believes that the probable outcome of these various audits
should not materially affect the consolidated financial statements of the
Company.
-13-
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
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 Per Common Share
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
-14-
<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 9, 1997 By: /s/ Michael Gorin
------------------------
Michael Gorin
President, Chief Financial Officer
and Principal Accounting Officer
-15-
Exhibit 11
AEROFLEX INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Nine Months Three Months
Ended March 31, Ended March 31,
---------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
COMPUTATION OF ADJUSTED NET INCOME (LOSS):
Net income (loss) for primary earnings
per common share $ 2,461,000 $(20,479,000) $ 917,000 $(22,084,000)
============= =============
Add: Debenture interest and amortization
expense, net of income taxes 369,000 Note 1 123,000 Note 1
------------ ------------
Adjusted net income (loss) for fully diluted
earnings per common share $ 2,830,000 $ 1,040,000
============ ============
COMPUTATION OF ADJUSTED WEIGHTED AVERAGE
SHARES OUTSTANDING:
Weighted average shares outstanding 12,432,000 11,876,000 12,523,000 11,937,000
=========== ===========
Add: Effect of options and warrants
outstanding 749,000 469,000
------------ ------------
Weighted average shares and common share
equivalents used for computation of primary
earnings per common share 13,181,000 12,992,000
Add: Effect of additional options and warrants
outstanding for fully diluted computation 46,000 -
Add: Shares assumed to be issued upon
conversion of debentures 1,774,000 1,774,000
------------ ------------
Weighted average shares and common share
equivalents used for computation of fully
diluted earnings per common share 15,001,000 14,766,000
============ ============
NET INCOME (LOSS) PER COMMON SHARE AND COMMON
SHARE EQUIVALENT:
Primary $ .19 $(1.72) $ .07 $(1.85)
===== ======= ===== ======
Fully Diluted $ .19 Note 1 $ .07 Note 1
===== =====
<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,
1997 and is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 586,000
<SECURITIES> 69,000
<RECEIVABLES> 18,445,000
<ALLOWANCES> 417,000
<INVENTORY> 22,113,000
<CURRENT-ASSETS> 43,451,000
<PP&E> 38,915,000
<DEPRECIATION> 24,511,000
<TOTAL-ASSETS> 79,220,000
<CURRENT-LIABILITIES> 18,679,000
<BONDS> 9,981,000
0
0
<COMMON> 1,266,000
<OTHER-SE> 31,815,000
<TOTAL-LIABILITY-AND-EQUITY> 79,220,000
<SALES> 64,912,000
<TOTAL-REVENUES> 64,912,000
<CGS> 43,618,000
<TOTAL-COSTS> 58,809,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,263,000
<INCOME-PRETAX> 3,911,000
<INCOME-TAX> 1,450,000
<INCOME-CONTINUING> 2,461,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,461,000
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
