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 December 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.
February 2, 1998 14,369,751 shares (excluding 110,956 shares held in treasury)
- ---------------- -------------------------------------------------------------
(Date) (Number of Shares)
NOTE: THIS IS PAGE 1 OF A DOCUMENT CONSISTING OF 16 PAGES.
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
INDEX
-----
<TABLE>
PAGE
----
<S> <C>
PART I: FINANCIAL INFORMATION
- ------ ---------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and June 30, 1997 3-4
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended December 31, 1997 and 1996 5
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, 1997 and 1996 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31, 1997 and 1996 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Six and Three Months Ended December 31, 1997 and 1996 11-14
PART II: OTHER INFORMATION
- ------- -----------------
ITEM 4 Submission of Matters to a Vote of Security Holders 15
ITEM 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------- ---------
(In thousands)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 675 $ 600
Current portion of invested cash 118 69
Accounts receivable, less allowance for
doubtful accounts of $530,000 and $417,000 18,095 21,843
Inventories 28,719 20,319
Deferred income taxes 2,113 2,043
Prepaid expenses and other current assets 1,394 743
-------- --------
Total current assets 51,114 45,617
Invested cash 312 453
Property, plant and equipment, at cost, net 19,988 14,487
Intangible assets acquired in connection with
the purchase of businesses, net 7,962 8,046
Cost in excess of fair value of net assets
of businesses acquired, net 9,978 9,903
Other assets 2,710 2,541
-------- --------
Total assets $ 92,064 $ 81,047
======== ========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ --------
(In thousands, except share information)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Current portion of long-term debt $ 4,928 $ 4,247
Accounts payable 6,831 5,093
Accrued expenses and other current liabilities 10,021 8,564
Income taxes payable 2,746 1,841
-------- --------
Total current liabilities 24,526 19,745
Long-term debt 16,800 14,688
Deferred income taxes 119 334
Other long-term liabilities 2,773 1,259
Senior subordinated convertible debentures - 9,981
-------- --------
Total liabilities 44,218 46,007
-------- --------
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
14,481,000 and 12,658,000 shares 1,448 1,266
Additional paid-in capital 67,639 58,110
Accumulated deficit (20,746) (23,584)
-------- --------
48,341 35,792
Less: Treasury stock, at cost (111,000 and
169,000 shares) 495 752
-------- --------
Total stockholders' equity 47,846 35,040
-------- --------
Total liabilities and stockholders' equity $ 92,064 $ 81,047
======== ========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
December 31,
----------------
1997 1996
---- ----
(In thousands, except per share data)
<S> <C> <C>
Net sales $ 53,210 $ 41,975
Cost of sales 35,079 28,440
-------- --------
Gross profit 18,131 13,535
-------- --------
Selling, general and administrative costs 10,365 8,154
Research and development costs 2,029 1,422
-------- --------
12,394 9,576
-------- --------
Operating income 5,737 3,959
-------- --------
Other expense (income)
Interest expense 1,250 1,551
Other expense (income) 74 (61)
-------- --------
Total other expense (income) 1,324 1,490
-------- --------
Income before income taxes 4,413 2,469
Provision for income taxes 1,575 925
-------- --------
Net income $ 2,838 $ 1,544
======== ========
Net income per common share:
- Basic $ .21 $ .12
===== =====
- Diluted $ .19 $ .12
===== =====
Weighted average number of common
shares and common share equivalents
outstanding:
- Basic 13,547 12,387
====== ======
- Diluted 15,557 14,744
====== ======
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------
1997 1996
---- ----
(In thousands, except per share data)
<S> <C> <C>
Net sales $ 29,325 $ 22,914
Cost of sales 19,406 15,657
-------- --------
Gross profit 9,919 7,257
-------- --------
Selling, general and administrative costs 5,759 4,357
Research and development costs 1,031 739
-------- --------
6,790 5,096
-------- --------
Operating income 3,129 2,161
-------- --------
Other expense (income)
Interest expense 527 741
Other expense (income) (9) (15)
-------- --------
Total other expense (income) 518 726
-------- --------
Income before income taxes 2,611 1,435
Provision for income taxes 925 542
-------- --------
Net income $ 1,686 $ 893
======== ========
Net income per common share:
- Basic $ .12 $ .07
===== =====
- Diluted $ .11 $ .07
===== =====
Weighted average number of common
shares and common share equivalents
outstanding:
- Basic 14,347 12,442
====== ======
- Diluted 15,750 14,654
====== ======
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
December 31,
-----------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,838 $ 1,544
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 2,511 2,220
Amortization of deferred gain (338) -
Other, net (161) (132)
Change in operating assets and liabilities,
net of effects from purchase of business:
Decrease (increase) in accounts receivable 3,624 4,614
Decrease (increase) in inventories (7,265) (2,279)
Decrease (increase) in prepaid expenses, income
tax refund receivable and other assets (1,420) 774
Increase (decrease) in accounts payable, accrued
expenses and other long-term liabilities 1,880 (1,301)
Increase (decrease) in income taxes payable 1,091 223
------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 2,760 5,663
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment, inventory and
technology rights from Lucent Technologies (4,435) -
Capital expenditures (1,348) (1,374)
Other, net (95) 22
------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (5,878) (1,352)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements 6,232 -
Debt repayments (3,439) (4,173)
Proceeds from the exercise of stock options
and warrants 400 226
------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,193 (3,947)
------- -------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 75 364
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 600 661
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 675 $ 1,025
======= =======
<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 December 31, 1997 and the related consolidated
statements of operations for the six and three months ended December 31,
1997 and 1996 and the statements of cash flows for the six months ended
December 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) necessary to present fairly the financial
position, results of operations and cash flows at December 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, 1997 annual report to shareholders. There have been no
changes of significant accounting policies since June 30, 1997, except as
described in Note 2. Certain reclassifications have been made to previously
reported financial statements to conform to current classifications.
Results of operations for the six and three month periods are not
necessarily indicative of results of operations for the corresponding
years.
2. Earnings Per Share
------------------
For the periods ended December 31, 1997, the Company has adopted Statement
of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share" In
accordance with SFAS No. 128, earnings per common share ("Basic EPS") is
computed by dividing net income by weighted average common shares
outstanding. Earnings per common share, assuming dilution ("Diluted EPS")
is computed by dividing net income plus a pro forma addback of debenture
interest by weighted average common shares outstanding plus potential
dilution from the conversion of debentures and the exercise of stock
options and warrants. Earnings per share amounts for prior periods have
been restated to conform to SFAS No. 128.
A reconciliation of the numerators and denominators of the Basic EPS and
Diluted EPS calculations is as follows:
<TABLE>
<CAPTION>
Six Months
Ended December 31,
------------------
(In thousands, except per share data)
1997 1996
---- ----
<S> <C> <C>
Computation of Adjusted Net Income:
Net income for basic earnings per common share $ 2,838 $ 1,544
Add: Debenture interest and amortization
expense, net of income taxes 103 246
-------- --------
Adjusted net income for diluted
earnings per common share $ 2,941 $ 1,790
======== ========
Computation of Adjusted Weighted Average
Shares Outstanding:
Weighted average shares outstanding 13,547 12,387
Add: Effect of dilutive options and warrants
outstanding 1,227 583
Add: Shares assumed to be issued upon
conversion of debentures 783 1,774
-------- --------
Weighted average shares and common share
equivalents used for computation of
diluted earnings per common share 15,557 14,744
======== ========
Net Income Per Common Share:
Basic $ .21 $ .12
===== =====
Diluted $ .19 $ .12
===== =====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended December 31,
-----------------
(In thousands, except per share data)
1997 1996
---- ----
<S> <C> <C>
Computation of Adjusted Net Income:
Net income for basic earnings per common share $ 1,686 $ 893
Add: Debenture interest and amortization
expense, net of income taxes - 123
-------- --------
Adjusted net income for diluted
earnings per common share $ 1,686 $ 1,016
======== ========
Computation of Adjusted Weighted Average
Shares Outstanding:
Weighted average shares outstanding 14,347 12,442
Add: Effect of dilutive options and warrants
outstanding 1,388 438
Add: Shares assumed to be issued upon
conversion of debentures 15 1,774
-------- --------
Weighted average shares and common share
equivalents used for computation of
diluted earnings per common share 15,750 14,654
======== ========
Net Income Per Common Share:
Basic $ .12 $ .07
===== =====
Diluted $ .11 $ .07
===== =====
</TABLE>
Options to purchase 63,000 shares at a weighted average exercise price of
$10.38 per share were outstanding as of December 31, 1997 but were not
included in the computation of Diluted EPS because the exercise prices of
these options were greater than the average market price of the common
shares.
3. Acquisition of Business
-----------------------
Effective July 1, 1997, the Company's subsidiary, MIC Technology
Corporation, acquired certain equipment, inventory, licenses for technology
and patents of two of Lucent Technologies' microelectronics component units
- multi-chip modules and film integrated circuits - for approximately
$4,400,000 in cash. These units manufacture microelectronic modules and
interconnect products. The Company has also signed a multi-year supply
agreement to provide Lucent with film integrated circuits for use in
telecommunications applications. The purchase price has been allocated to
the assets acquired, based on their fair values, and certain obligations
assumed relating to the agreements.
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 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 (8-1/2% at December 31, 1997) plus 1/4% on the revolving credit
borrowings and prime plus 1/2% 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.
<PAGE>
5. Inventories
-----------
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ ---------
(In thousands)
<S> <C> <C>
Raw Materials $ 13,265 $ 11,191
Work in Process 10,490 6,642
Finished Goods 4,964 2,486
-------- --------
$ 28,719 $ 20,319
======== ========
</TABLE>
6. Income Taxes
------------
At June 30, 1997 the Company had net operating loss carryforwards of
approximately $4,000,000 for Federal income tax purposes which expire
through 2006.
The Company is undergoing routine audits by various taxing authorities of
several of its state and local income tax returns covering different
periods from 1994 to 1996. 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 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 will not have a materially
adverse effect on the Company's consolidated financial statements.
8. Conversion of 7-1/2% Debentures
----------------------------------
On September 8, 1997, the Company called for the redemption of all of its
outstanding 7-1/2% Senior Subordinated Convertible Debentures ($9,981,000)
at 104-1/2% of the principal amount. As of October 1997, all of the
principal amount outstanding was converted into Common Stock at $5-5/8 per
share. In connection with the conversions, $599,000 of deferred bond
issuance costs were charged to additional paid-in capital.
<PAGE>
AEROFLEX INCORPORATED
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Aeroflex, founded in 1937, utilizes advanced technologies to provide
state-of-the-art microelectronic module, interconnect and testing solutions used
in communication applications for commercial and defense markets. Its products
are used in satellite, personal wireless, cable television ("CATV") and defense
communications markets. It also designs and manufactures motion control systems
and shock and vibration isolation systems used for commercial, industrial and
defense applications. The Company's operations are grouped into three segments:
Microelectronics; Test, Measurement and Other Electronics; and Isolator
Products. The Company's consolidated financial statements include the accounts
of Aeroflex and its subsidiaries, all of which are wholly-owned.
Effective July 1, 1997, the Company acquired certain equipment, inventory,
licenses for technology and patents of two of Lucent Technologies'
microelectronics component units, multi-chip modules and film integrated
circuits. These units manufacture microelectronic modules and interconnect
products. The Company has also signed a multi-year supply agreement to provide
Lucent with film integrated circuits for use in the telecommunications industry.
Approximately 50% and 65% of the Company's sales for fiscal years 1997 and
1996, respectively, were to agencies of the United States Government or to prime
defense contractors or subcontractors of the United States Government. The
Company's overall dependence on the defense market has been declining as a
result of the acquisition of MIC Technology Corporation, which is more
commercially oriented, and a focusing of resources towards developing standard
products for the commercial market.
Management believes that potential reductions in defense 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.
Six Months Ended December 31, 1997 Compared to Six Months Ended December 31,
1996
Net Sales. Net sales increased 26.8% to $53.2 million for the six months
ended December 31, 1997 from $42.0 million for the six months ended December 31,
1996. Net sales in the Microelectronics segment increased 64.0% to $33.1 million
for the six months ended December 31, 1997 from $20.2 million for the six months
ended December 31, 1996 due to increased sales volume in both thin film
interconnects and microelectronic modules. Sales of thin film interconnects
increased primarily due to the commencement of a strategic supply contract with
Lucent Technologies effective July 1, 1997. Net sales in the Test, Measurement
and Other Electronics segment decreased 18.6% to $11.3 million for the six
months ended December 31, 1997 from $13.9 million for the six months ended
December 31, 1996 primarily as a result of reduced sales volume of frequency
synthesizers which was partially offset by increased sales of stabilization and
tracking devices and of high speed instrumentation test systems. The decrease in
frequency synthesizer sales was due to the early completion of the current
Consolidated Automated Support System ("CASS") contract. Net sales in the
Isolator Products segment increased 11.5% to $8.8 million for the six months
ended December 31, 1997 from $7.9 million for the six months ended December 31,
1996 due to increased sales volume in each of the commercial, industrial and
military isolator product lines.
<PAGE>
Gross Profit. Cost of sales includes materials, direct labor and overhead
expenses such as engineering labor, fringe benefits, allocable occupancy costs,
depreciation and manufacturing supplies. Gross profit increased 34.0% to $18.1
million for the six months ended December 31, 1997 from $13.5 million for the
six months ended December 31, 1996. Gross margin increased to 34.1% for the six
months ended December 31, 1997 from 32.2% for the six months ended December 31,
1996. The increase was primarily a result of increased margins in the
Microelectronics segment reflecting the greater efficiencies of higher volume.
Selling, General and Administrative Costs. Selling, general and
administrative costs include office and management salaries, fringe benefits,
commissions and advertising costs. Selling, general and administrative costs
increased 27.1% to $10.4 million (19.5% of net sales) for the six months ended
December 31, 1997 from $8.2 million (19.4% of net sales) for the six months
ended December 31, 1996. The increase was primarily due to labor related
expenses including additional hires, recruitment and relocation costs in
connection with the Company's growth.
Research and Development Costs. Research and development costs consist of
material, engineering labor and allocated overhead. Company sponsored research
and development costs increased 42.7% to $2.0 million (3.8% of net sales) for
the six months ended December 31, 1997 from $1.4 million (3.4% of net sales) for
the six months ended December 31, 1996. The increase was primarily attributable
to the development of a new low-cost, high speed, high performance frequency
synthesizer intended for commercial communication test systems.
Other Expense (Income). Other expense decreased by 11.1% to $1.3 million for
the six months ended December 31, 1997 from $1.5 million for the six months
ended December 31, 1996. Interest expense decreased 19.4% to $1.3 million for
the six months ended December 31, 1997 from $1.6 million for the six months
ended December 31, 1996. The decrease was primarily due to a reduction of
outstanding debt paid from operating cash flow and the conversion of $10.0
million of debentures. Other expense included $102,000 of debenture redemption
costs for the six months ended December 31, 1997.
Provision for Income Taxes. Income taxes recorded by the Company increased
70.3% to $1.6 million (an effective income tax rate of 35.7%) for the six months
ended December 31, 1997 from $925,000 (an effective income tax rate of 37.5%)
for the six months ended December 31, 1996. 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 and local
income taxes.
Three Months Ended December 31, 1997 Compared to Three Months Ended December 31,
1996
Net Sales. Net sales increased 28.0% to $29.3 million for the three months
ended December 31, 1997 from $22.9 million for the three months ended December
31, 1996. Net sales in the Microelectronics segment increased 68.4% to $18.6
million for the three months ended December 31, 1997 from $11.0 million for the
three months ended December 31, 1996 due to increased sales volume in both thin
film interconnects and microelectronic modules. Sales of thin film interconnects
increased primarily due to the commencement of a strategic supply contract with
Lucent Technologies effective July 1, 1997. Net sales in the Test, Measurement
and Other Electronics segment decreased 17.7% to $6.4 million for the three
months ended December 31, 1997 from $7.8 million for the three months ended
December 31, 1996 primarily as a result of reduced sales volume of frequency
synthesizers which was partially offset by increased sales of high speed
instrumentation test systems. Net sales in the Isolator Products segment
increased 6.0% to $4.3 million for the three months ended December 31, 1997 from
$4.1 million for the three months ended December 31, 1996 due to increased sales
volume in the commercial and industrial product lines.
<PAGE>
Gross Profit. Gross profit increased 36.7% to $9.9 million for the three
months ended December 31, 1997 from $7.3 million for the three months ended
December 31, 1996. Gross margin increased to 33.8% for the three months ended
December 31, 1997 from 31.7% for the three months ended December 31, 1996. The
increase was primarily a result of increased margins in the Microelectronics
segment reflecting the greater efficiencies of higher volume.
Selling, General and Administrative Costs. Selling, general and
administrative costs increased 32.2% to $5.8 million (19.6% of net sales) for
the three months ended December 31, 1997 from $4.4 million (19.0% of net sales)
for the three months ended December 31, 1996. The increase was primarily due to
labor related expenses including additional hires, recruitment and relocation
costs in connection with the Company's growth.
Research and Development Costs. Company sponsored research and development
costs increased 39.5% to $1.0 million (3.5% of net sales) for the three months
ended December 31, 1997 from $739,000 (3.2% of net sales) for the three months
ended December 31, 1996. The increase was primarily attributable to the
development of a new low-cost, high speed, high performance frequency
synthesizer intended for commercial communication test systems.
Other Expense (Income). Other expense decreased by 28.7% to $518,000 for the
three months ended December 31, 1997 from $726,000 for the three months ended
December 31, 1996. Interest expense decreased 28.9% to $527,000 for the three
months ended December 31, 1997 from $741,000 for the three months ended December
31, 1996. The decrease was primarily due to the conversion of $10.0 million of
debentures.
Provision for Income Taxes. Income taxes recorded by the Company increased
70.7% to $925,000 (an effective income tax rate of 35.4%) for the three months
ended December 31, 1997 from $542,000 (an effective income tax rate of 37.8%)
for the three months ended December 31, 1996. 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 and local
income taxes.
Liquidity and Capital Resources
As of December 31, 1997, the Company had $26.6 million in working capital. 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 $22.0 million and a term loan
of $16.0 million. 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 (8-1/2% at December 31, 1997) plus
1/4% on the revolving credit borrowings and prime plus 1/2% 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. At December 31,
1997, the outstanding borrowings under the revolving credit line and term loan
were $9.1 million and $5.3 million, respectively.
During June 1994, the Company completed a sale of $10.0 million principal
amount of 7-1/2% Senior Subordinated Convertible Debentures ("Debentures"). On
September 8, 1997, the Company called for redemption all of its outstanding
Debentures at 104-1/2% of the principal amount. The Debentures were convertible
into the Company's Common Stock at a price of $5-5/8 per share through October
6, 1997. As of October 1997, all of the principal amount outstanding was
converted into Common Stock. In connection with the conversions, $599,000 of
deferred bond issuance costs were charged to additional paid-in capital.
<PAGE>
The Company's order backlog at December 31, 1997 and 1996 was $66.1 million
and $45.8 million, respectively.
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $4.0 million for Federal income tax purposes.
The Company's net cash provided by operating activities was $2.8 million for
the six months ended December 31, 1997. Net cash used in investing activities
was $5.9 million for the six months ended December 31, 1997, consisting
primarily of $4.4 million of cash used to purchase equipment, inventory and
technology rights from Lucent Technologies. Net cash provided by financing
activities was $3.2 million for the six months ended December 31, 1997. For the
six months ended December 31, 1997, the Company borrowed $6.2 million under two
equipment loans.
Management of the Company believes that internally generated funds and
available lines of credit will be sufficient for its working capital
requirements, capital expenditure needs and the servicing of its debt for at
least the next twelve months. At December 31, 1997, the Company's available
unused line of credit was approximately $10.9 million.
<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
A. The Registrant held its Annual Meeting of Stockholders on November 13,
1997.
B. Three directors were elected at the Annual Meeting to serve until the
Annual Meeting of Stockholders in 2000. The name of these Directors and
votes cast in favor of their election and shares withheld are as follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Harvey R. Blau 11,760,855 56,562
Ernest E. Courchene, Jr. 11,766,361 51,056
John S. Patton 11,764,568 52,849
</TABLE>
In addition to the election of directors, the stockholders approved a
deferred compensation agreement between the Company and its Chairman of
the Board permitting him to elect to defer payment of his incentive
compensation.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
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)
February 4, 1998 By: s/Michael Gorin
---------------------------------
Michael Gorin
President, Chief Financial Officer
and Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the six months ended December 31, 1997 and
is qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 675
<SECURITIES> 430
<RECEIVABLES> 18,625
<ALLOWANCES> 530
<INVENTORY> 28,719
<CURRENT-ASSETS> 51,114
<PP&E> 47,182
<DEPRECIATION> 27,194
<TOTAL-ASSETS> 92,064
<CURRENT-LIABILITIES> 24,526
<BONDS> 0
0
0
<COMMON> 1,448
<OTHER-SE> 46,398
<TOTAL-LIABILITY-AND-EQUITY> 92,064
<SALES> 53,210
<TOTAL-REVENUES> 53,210
<CGS> 35,079
<TOTAL-COSTS> 47,473
<OTHER-EXPENSES> 74
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,250
<INCOME-PRETAX> 4,413
<INCOME-TAX> 1,575
<INCOME-CONTINUING> 2,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,838
<EPS-PRIMARY> .21
<EPS-DILUTED> .19
</TABLE>
