<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 1-6620
INSTRUMENT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-1893410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 JERICHO QUADRANGLE, JERICHO, NEW YORK 11753
(Address of principal executive offices) (Zip Code)
(516) 938-5544
(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.
X Yes No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 30,767,392 shares of Common
Stock as of January 31, 1995.
<PAGE>
FORM 10-Q
CONTENTS
PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 1994
and September 30, 1994
Condensed Consolidated Statements of Income for the Three
Months Ended December 31, 1994 and 1993
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 1994 and 1993
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
Signature
<PAGE>
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
(Unaudited) (Note 1)
------------ -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 14,861,000 $ 28,659,000
Marketable securities 4,142,000 29,727,000
Accounts receivable, less allowance
for doubtful accounts 57,159,000 59,191,000
Contract costs and recognized
income not yet billed 27,680,000 29,194,000
Inventories (Note 2) 75,526,000 68,918,000
Prepaid expenses and other current
assets 7,767,000 6,987,000
------------ ------------
Total current assets 187,135,000 222,676,000
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation
and amortization of $46,682,000 at
December 31, 1994 and $44,843,000 at
September 30, 1994 49,787,000 49,890,000
OTHER ASSETS 24,156,000 20,649,000
------------ ------------
$261,078,000 $293,215,000
============ ============
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
(Unaudited) (Note 1)
------------ -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES (Note 4):
Accounts and notes payable $ 37,328,000 $ 33,704,000
Other current liabilities 52,028,000 67,924,000
------------ ------------
Total current liabilities 89,356,000 101,628,000
------------ ------------
LONG-TERM DEBT 15,971,000 15,538,000
------------ ------------
SHAREHOLDERS' EQUITY (Note 5):
Preferred stock, par value $.25 per share,
authorized 3,000,000 shares --
Second Preferred Stock, Series I,
authorized 1,950,000 shares, issued
1,673,903 shares at December 31, 1994
and 1,677,129 shares at September 30,
1994 (liquidation value $16,739,000
and $16,771,000, respectively) 418,000 419,000
Common Stock, par value $.25 per share,
authorized 85,000,000 shares, issued
30,890,095 shares at December 31, 1994
and 33,887,739 shares at September 30,
1994, and 151,700 shares and 34,500
shares in treasury at December 31, 1994
and September 30, 1994, respectively 7,722,000 8,472,000
Other shareholders' equity 147,611,000 167,158,000
------------ ------------
Total shareholders' equity 155,751,000 176,049,000
------------ ------------
$261,078,000 $293,215,000
============ ============
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1994 1993
------------ ------------
<S> <C> <C>
Net sales $133,562,000 $116,155,000
Cost of sales 95,216,000 81,788,000
------------ ------------
Gross profit 38,346,000 34,367,000
Selling, general and administrative
expenses 25,611,000 22,917,000
------------ ------------
Income from operations 12,735,000 11,450,000
------------ ------------
Other income (expense):
Interest expense (515,000) (461,000)
Interest income 619,000 452,000
Other, net 31,000 92,000
------------ ------------
135,000 83,000
------------ ------------
Income before income taxes 12,870,000 11,533,000
------------ ------------
Provision for income taxes:
Federal 4,250,000 3,892,000
State and other 898,000 836,000
------------ ------------
5,148,000 4,728,000
------------ ------------
Net income $ 7,722,000 $ 6,805,000
============ ============
Net income per share of common stock (Note 3) $ .22 $ .18
============ ============
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,722,000 $ 6,805,000
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,068,000 2,359,000
Provision for losses on accounts receivable 302,000 191,000
Change in assets and liabilities:
Decrease in accounts receivable and contract
costs and recognized income not yet billed 6,741,000 13,901,000
Increase in inventories (3,134,000) (3,112,000)
Increase in prepaid expenses and other assets (779,000) (541,000)
Decrease in accounts payable and accrued
liabilities (15,425,000) (11,043,000)
Other changes, net 684,000 (8,000)
------------ ------------
Total adjustments (9,543,000) 1,747,000
------------ ------------
Net cash provided by (used in) operating
activities (1,821,000) 8,552,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in marketable securities 25,585,000 (13,075,000)
Acquisition of property, plant and equipment (1,498,000) (804,000)
Proceeds from sale of stock of affiliate --- 11,615,000
Acquired businesses (7,758,000) ---
(Increase) decrease in equipment lease deposits
and other (17,000) 1,219,000
------------ ------------
Net cash provided by (used in) investing
activities 16,312,000 (1,045,000)
------------ ------------
</TABLE>
<PAGE>
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of common shares (28,166,000) (3,338,000)
Payment of long-term debt (9,127,000) (3,249,000)
Short-term borrowings 9,000,000 ---
Other, net 4,000 164,000
------------ ------------
Net cash used in financing activities (28,289,000) (6,423,000)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,798,000) 1,084,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,659,000 26,466,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,861,000 $ 27,550,000
============ ============
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation -
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The balance sheet at September 30, 1994 has
been derived from the audited financial statements at that date. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended December 31, 1994 are not necessarily
indicative of the results that may be expected for the year ended September 30,
1995. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report to shareholders
for the year ended September 30, 1994. The Company adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," for the year beginning October 1, 1994. Adoption
of this standard did not have a material effect on the Company's financial
position or results of operations.
At the February 8, 1995 Annual Meeting of Stockholders, the stockholders
approved changing the Company's name to "Griffon Corporation." The name change
will become effective in March 1995.
(2) Inventories -
Inventories, stated at the lower of cost (first-in, first-out or average)
or market, are comprised of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
------------ -------------
<S> <C> <C>
Finished goods . . . . . . . . . . $20,321,000 $16,664,000
Work in process . . . . . . . . . 26,933,000 26,674,000
Raw materials and supplies . . . . 28,272,000 25,580,000
----------- -----------
$75,526,000 $68,918,000
=========== ===========
</TABLE>
<PAGE>
(3) Net Income Per Share -
Net income per share is calculated using the weighted average number of
shares of common stock, and where dilutive, common stock equivalents outstanding
during each period. Shares used in computing per share results were 35,294,000
and 37,928,000 for the three months ended December 31, 1994 and 1993,
respectively.
(4) Notes Payable -
In December 1994, $9,000,000 which was outstanding under a long-term debt
agreement was refinanced under a short-term line of credit. Interest on this
obligation is at approximately the prime rate.
(5) Self-Tender Offer -
In December 1994, the Company completed a self-tender offer for 3,002,840
shares of the Company's Common Stock, which were then retired, at a price of
$8.75 per share. During the quarter, approximately $28,200,000 was expended to
purchase a total of 3,120,040 shares of Common Stock.
(6) Acquisitions -
During the quarter ended December 31, 1994, the Company acquired two
companies for the building products business for an aggregate price of
$7,758,000. The acquisitions have been accounted for as purchases.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales were $133.6 million in the three-month period ended December 31,
1994, an increase of $17.4 million or 15.0% over last year.
Net sales of the building products business were $79.9 million, an
increase of $18.8 million or 30.8% over last year. Acquired businesses
accounted for $7.3 million of the higher sales; the remainder of the increase
was principally due to increased unit sales of garage doors ($8.5 million),
improved product mix and increased prices.
Net sales of the specialty plastic films business were $26.6 million
compared to $26.9 million last year. As previously reported, a major customer
of the specialty plastic films business has made a design change which will
phase out the specialty plastic's thin laminate program through the first half
of 1995. During the quarter, increased unit sales ($2.9 million) of health care
and film products other than thin laminate to this and other customers and the
effect of higher selling prices ($1.2 million) were offset by decreased thin
laminate sales.
Net sales of the electronic information and communication systems business
were $17.5 million, decreasing $1.7 million or 8.7% compared to last year. The
lower sales were principally due to decreased revenues on certain military
programs that are nearing completion, partially offset by increased commercial
business and increased funding of continuing programs.
Income from operations for the three-month period ended December 31, 1994
was $12.7 million, an increase of $1.3 million or 11.2% over last year.
Operating income of the building products business increased $2.8 million over
last year primarily due to the increased sales. Operating income of the
specialty plastic films business decreased by $1.2 million compared to last year
primarily due to the phase-out of the thin laminate program and raw material
price increases for polyethylene resin used in its business in excess of selling
price increases. It is expected that prices for this material will increase
further in fiscal 1995. The Company has been able to pass on such increases to
its customers in the past, although there is no assurance as to the timing or
extent that it will be able to do so during fiscal 1995. Operating income of
the electronic information and communication systems business decreased by $.4
million principally due to the sales decrease partially offset by slightly lower
G&A expenses.
<PAGE>
Liquidity and Capital Resources
Cash flow used by operations was $1.8 million, reflecting a reduction of
current liabilities of approximately $15.4 million.
In December 1994, the Company completed a self-tender offer for 3,002,840
shares of its Common Stock at a price of $8.75 per share. During the quarter,
a total of $28.2 million was used to acquire 3,120,040 shares of Common Stock.
These purchases were funded by existing cash and marketable securities, which
decreased due to the stock purchases and $7.8 million used for two acquisitions
for the building products business.
Anticipated cash flows from operations, together with existing cash and
lease line availability, should be adequate to finance presently anticipated
working capital and capital expenditure requirements.
<PAGE>
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
There are no material changes in the information previously reported
under this item.
Item 2 Changes in Securities
Amendment to Rights Agreement dated as of November 8, 1994 between
Registrant and American Stock Transfer Company (Exhibit 4.1 of
Current Report on Form 8-K dated November 8, 1994).
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
February 8, 1995.
(b) Not applicable.
(c) (i) A proposal to amend the Certificate of Incorporation to
change the name of the Company to "Griffon Corporation" was
approved at the Annual Meeting. Votes cast at this meeting
were 24,457,471 shares for, 532,622 shares against and 253,621
shares abstaining.
(ii) A proposal to adopt a 1995 Stock Option Plan was
approved at the Annual Meeting. Votes cast at this meeting
were 23,585,433 shares for, 1,344,880 shares against and
313,401 shares abstaining.
(iii) Four directors were elected at the Annual Meeting of
Stockholders to serve until the Annual Meeting of Stockholders
in 1998 or until their successors are chosen and qualified.
The names 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>
Abraham M. Buchman 24,911,830 331,884
Rear Admiral Clarence A.
Hill, Jr. (Ret.) 24,913,080 330,634
William H. Waldorf 24,914,623 329,091
Henry A. Alpert 24,912,968 330,746
</TABLE>
<PAGE>
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
27 -- Financial Data Schedule (for electronic submission only)
Report on Form 8-K dated November 8, 1994 covering Item 5 -- Other
Events and Item 7 -- Financial Statements and Exhibits.
<PAGE>
SIGNATURE
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.
INSTRUMENT SYSTEMS CORPORATION
By Robert Balemian
---------------------------
Robert Balemian
President
(Principal Financial Officer)
Date February 8, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated financial statements for the quarter ended December 31, 1994 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> DEC-31-1994
<CASH> 14,861,000
<SECURITIES> 4,142,000
<RECEIVABLES> 88,954,000
<ALLOWANCES> 4,115,000
<INVENTORY> 75,526,000
<CURRENT-ASSETS> 187,135,000
<PP&E> 96,469,000
<DEPRECIATION> 46,682,000
<TOTAL-ASSETS> 261,078,000
<CURRENT-LIABILITIES> 89,356,000
<BONDS> 15,971,000
<COMMON> 7,722,000
0
418,000
<OTHER-SE> 147,611,000
<TOTAL-LIABILITY-AND-EQUITY> 261,078,000
<SALES> 133,562,000
<TOTAL-REVENUES> 133,562,000
<CGS> 95,216,000
<TOTAL-COSTS> 95,216,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 302,000
<INTEREST-EXPENSE> 515,000
<INCOME-PRETAX> 12,870,000
<INCOME-TAX> 5,148,000
<INCOME-CONTINUING> 7,722,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,722,000
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
