<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
COMMISSION FILE NUMBER: 0-4384
MICRODYNE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MARYLAND 52-0856493
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3601 EISENHOWER AVENUE, ALEXANDRIA, VA 22304
(Address of principal executive office) (Zip Code)
</TABLE>
(703) 739-0500
(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 (or such shorter period that the registrant
was required to file such reports), 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:
CLASS OUTSTANDING AT JULY 31, 1995
---------------------------- ----------------------------
Common stock, $.10 par value 12,755,187
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MICRODYNE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Earnings
Three months and nine months ended
June 30, 1995 and June 30, 1994 3
Condensed Balance Sheets
June 30, 1995 and September 30, 1994 4
Statements of Cash Flows
Nine months ended June 30, 1995
and June 30, 1994 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports. 12
SIGNATURES 13
</TABLE>
2
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MICRODYNE CORPORATION
Consolidated Statements of Earnings
(In Thousands except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------- -------------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $47,663 $24,261 $120,059 $69,664
Cost of goods sold 32,827 17,792 82,778 50,842
-------- -------- -------- --------
Gross Profit 14,836 6,469 37,281 18,822
Selling, general and administrative
expense 6,687 3,950 17,241 11,523
Research and development 1,426 717 3,932 2,465
-------- -------- -------- --------
Earnings from operations 6,723 1,802 16,108 4,834
Other income (expense)
Interest expense (549) (172) (1,340) (351)
Other income (expense) 12 14 (807) 50
-------- -------- -------- --------
Earnings before income taxes 6,186 1,644 13,961 4,533
Provision for income taxes 2,413 641 5,445 1,768
-------- -------- -------- --------
Net earnings $3,773 $1,003 $8,516 $2,765
======== ======== ======== ========
Net earnings per share $0.29 $0.08 $0.66 $0.21
======== ======== ======== ========
Weighted Average Shares Outstanding 13,149 12,231 12,958 13,392
======== ======== ======== ========
</TABLE>
The notes on the following pages are an integral part of these statements.
3
<PAGE> 4
MICRODYNE CORPORATION
Consolidated Balance Sheets
(Condensed - Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $2,159 $2,628
Accounts receivable, net 57,723 30,249
Inventories 19,696 11,725
Income tax receivable - 140
Prepaid expenses and other 2,066 1,819
Deferred income taxes 1,685 1,698
----------- ------------
Total current assets 83,329 48,259
PROPERTY AND EQUIPMENT, net 4,849 4,086
PRODUCT LINE ACQUISITION COST 8,361 2,057
OTHER ASSETS 1,197 1,438
----------- ------------
$97,736 $55,840
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of l-t obligations 5,483 3,195
Accounts payable 20,369 12,286
Accrued liabilities 19,278 9,608
Income tax payable 2,785 426
----------- ------------
Total current liabilities 47,915 25,515
LONG-TERM OBLIGATIONS, net of current
maturities 18,107 11,675
DEFERRED INCOME TAX PAYABLE 214 360
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized
50,000,000 shares, 12,533,460 shares
issued and outstanding at June 30, 1995
and 11,814,697 issued and outstanding at
September 30, 1994 1,253 1,181
Additional paid-in capital 6,156 1,534
Retained earnings 24,091 15,575
----------- ------------
31,500 18,290
----------- ------------
$97,736 $55,840
=========== ============
</TABLE>
The notes on the following pages are an integral part of these statements.
4
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MICRODYNE CORPORATION
Consolidated Statement of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
6/30/95 6/30/94
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash:
Cash flows from operating activities:
Net earnings $ 8,516 $ 2,765
Adjustments to reconcile earnings to net cash
from operating activities, exclusive of effect of
acquisitions and dispositions:
Depreciation and amortization 1,616 1,012
Provisions for doubtful accounts receivable and
inventory obsolescence 984 181
Changes in assets and liabilities
Increase in accounts receivable (27,626) (3,443)
(Increase) decrease in inventories (949) 592
Increase in prepaid expenses (33) (224)
Decrease in other assets 27 896
Decrease in income tax receivable 140 2,424
Decrease in deferred tax asset 13 1,793
Increase in accounts payable and other accruals 17,845 355
----------- -----------
Net cash provided by operating activities 533 6,351
Cash flows from investing activities:
Eagle product line acquisition (12,109) -
Additions to property and equipment (1,105) (561)
Cash from sale of subsidiary net assets - 1,000
----------- -----------
Net cash (used in) provided by investing activities (13,214) 439
Cash flows from financing activities:
Net payments on notes payable - (5,990)
Net borrowings on long term debt 12,000 12,000
Repayments on long-term debt (2,361) (53)
Issuance (purchase) of common stock 2,573 (12,021)
Net cash used in financing activities 12,212 (6,064)
----------- -----------
Net (decrease) increase in Cash (469) 726
Cash at beginning of period 2,628 2,135
----------- -----------
Cash at end of period $ 2,159 $ 2,861
=========== ===========
</TABLE>
The notes on the following pages are an integral part of these statements.
5
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The interim financial information is unaudited. In the opinion of
management, financial statements included in this report reflect all normal
recurring adjustments which Microdyne Corporation considers necessary for a
fair presentation of the results of operations for the interim periods covered
and of the financial position of Microdyne at the date of the interim balance
sheet. The results for interim periods are not necessarily indicative of the
results for the entire year.
2. Included in other expense in the Statements of Earnings for the nine
months ended June 30, 1995 is a one-time charge of $875,000, reflecting an
agreement to settle a stockholder class action lawsuit against the Company.
3. The provision for income taxes presented in the Statements of Earnings is
based upon the estimated effective tax rate at fiscal year- end, and is largely
determined by management's estimate as of the interim date of projected taxable
income for the entire fiscal year.
4. In the Condensed Balance Sheets, Product Line Acquisition Cost includes
the long-term portion of minimum royalties due DCA under the Token Ring
purchase agreement. Product Line Acquisition Cost at June 30, 1995 also
includes intangibles acquired under the Eagle Technology purchase agreement.
The anticipated amortization period for these Eagle intangibles is based on an
estimate of the useful life of the underlying technology.
5. In January 1995, the Company borrowed an additional $12.0 million under a
new bank borrowing facility to fund its Eagle Technology acquisition. The
Company owes its bank lenders $21.1 million, of which $4.8 million is
classified as short-term and $16.3 million as long-term on the Condensed
Balance Sheet as of June 30, 1995.
6. In the Consolidated Statements of Cash Flow, changes to assets and
liabilities are exclusive of: the effect of the sale of the net assets of the
Company's subsidiary, Wireless Data Corporation (nine months ended June 30,
1994), and the effect of the Eagle Technology acquisition (nine months ended
June 30, 1995).
6
<PAGE> 7
PART I. - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
In the past year, the Company has sought ways to enrich its revenue mix
through the acquisition of product lines and the development of new products.
In July 1994, the Company added a new business with its acquisition of the
Token Ring product line from Digital Communications Associates (DCA). In a
transaction completed in September 1994, Microdyne acquired the assets of
Gateway Communications, Inc. Gateway's products included Ethernet adapter
cards, stackable hubs, and a line of remote access products. In the largest
acquisition to-date, the Company acquired Artisoft Inc.'s Eagle Technology
adapter card business in January 1995. Microdyne and Eagle shared a unique
niche in the Ethernet adapter card market.
New in the first quarter of fiscal 1995 were sales of the Company's
internally-developed "Plug and Play" ISA- and PCI-bus adapter cards and remote
access LAN Expanders. Microdyne has also introduced the ACS 4400, a new remote
access communications server that combines industry- standard software with
advanced user features; and the NMSLplus, a new generation adapter card that
allows file servers on networks to back up data more quickly.
The effect of the Company's acquisitions and new products can be seen in
the Company's record operating results in fiscal 1995's third quarter. Net
earnings were $3,773,000 on sales of $47.7 million. These results compare to
net earnings of $1,003,000 on sales of $24.3 million in fiscal 1994's third
quarter. Third quarter fiscal 1995's gross profit of $14.8 million was the
highest in the Company's history and gross profit percentage of 31.1% was the
second highest quarterly percentage since the fourth quarter of fiscal 1993.
Fueling the strong revenue growth were significant gains in sales in the
Company's Ethernet and Software networking product lines. Combined, sales in
these two product lines grew 127% from the third quarter of 1994 to the third
quarter of 1995.
The Company continued to effectively control the level of Selling,
General & Administrative (SG&A) expense. As a percentage of sales, SG&A expense
at 14.0% was the lowest in the Company's history. Keeping SG&A expense in line
with the Company's sales and gross profit profile remains a key, ongoing
corporate objective.
7
<PAGE> 8
Continued growth in sales and earnings is predicated on maintaining the
Company's current revenue base as new networking products are developed or
acquisitions are made.
In addition, the Company's operating results could be affected by a
number of other factors, including but not necessarily limited to the
availability and cost of components. The Company has begun to see higher
commodity costs and longer production lead times in some key components as a
result of vendor limited capacity in the face of greater demand.
Two product line sales within Networking Products suffered during fiscal
1995's third quarter. Token Ring sales fell well short of expectations. Sales
of this product line, which was acquired late in fiscal 1994, are largely
dependent upon the efforts of Attachmate Corporation, which by virtue of that
acquisition has assumed certain contractual sales obligations. Sales of the
Company's Asynchronous product line have declined over the last three quarters.
Competition in this market and constrained marketing resources have resulted in
lower-than-expected sales of new Asynchronous products.
A significant percentage of the Company's Networking Products bookings
and sales to major customers historically has occurred during the last month of
the quarter. As a result of the Eagle acquisition, this trend accelerated in
the second and third quarters of fiscal 1995. Changes in purchasing patterns
by one or more of the Company's major customers; in customer policies
pertaining to desired inventory levels; in the ability of the Company to
anticipate in advance the mix of customer orders; and/or in the capacity to
produce and ship large quantities of product near the end of a fiscal quarter
could result in material fluctuations in quarterly operating results.
Any shortfall in revenue or earnings from the levels expected by
securities analysts could have an immediate and significant effect on the
trading price of the Company's common stock in any given period. Moreover, in
view of historical selling patterns, the Company may not learn of such
shortfalls until late in the fiscal quarter, which could result in an even more
immediate and adverse effect on the trading price of the Company's stock.
Finally, the Company participates in an intensely competitive industry marked
by rapidly changing technology, which may result in significant volatility of
the Company's common stock price.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 COMPARED TO THREE MONTHS ENDED JUNE 30, 1994
Revenue for the third quarter of fiscal year 1995 was $47.7 million
compared to $24.3 million in the third quarter of fiscal year 1994, an increase
of $23.3 million, or 96%.
Networking Products revenue was $40.3 million in 1995 compared to $19.4
million
8
<PAGE> 9
in 1994. Networking Products sales benefited from both new acquisitions and
growth within the Company's core businesses. Ethernet sales increased $12.8
million, from $6.3 million in 1994 to $19.1 million in 1995. This significant
growth in Ethernet sales was the result of both the Eagle acquisition and
broader acceptance of the Company's products in this market. Token Ring sales
of $4.2 million represented new sales in 1995. Bundled Software sales were
$13.4 million in 1995 compared to $8.0 million in 1994, a $5.4 million
increase. Wide Area Connectivity sales decreased from $2.5 million in 1994 to
$1.9 million in 1995. For reasons described previously, Asynchronous sales
declined from $1.4 million in 1994 to $700,000 in 1995. Net sales of all other
product lines combined were relatively unchanged from 1994 to 1995.
Aerospace Telemetry sales increased from $2.7 million in 1994 to $4.5
million in 1995, reflecting increased demand for telemetry receiver upgrades
and new antenna sales in 1995. Manufacturer Support Services (MSS) revenue grew
from $2.2 million in 1994 to $3.2 million in 1995, reflecting continued growth
in support activities for the Company's customer in both southern California
and Indianapolis, Indiana.
Due to the higher level of sales, gross profit increased from $6.5
million in 1994 to $14.8 million in 1995. Gross profit as a percentage of sales
increased from 26.7% to 31.1%, primarily as a result of the more favorable
product mix within Networking Products realized due to the Token Ring and Eagle
Technology acquisitions.
SG&A expense increased from $4.0 million in 1994 to $6.7 million in
1995. Generally, this higher level of SG&A expense was commensurate with the
growth in the size of the Company. SG&A expense as a percentage of revenue
actually decreased from 16.3% to 14.0%. Specific major contributors to the
dollar increase were $1.8 million in additional sales and marketing expenses
and new amortization associated with the Eagle acquisition intangibles.
Research and development was $1.4 million (3.0% of sales) in 1995
compared to $800,000 (3.0% of sales) in 1994. The higher cost in 1995 was
largely due to the engineering resources added as a result of the Token Ring
acquisition.
Other expense in both 1995 and 1994 includes interest expense associated
with outstanding borrowings against the Company's line of credit. The higher
interest expense in 1995 was due to larger outstanding borrowings which
financed the Eagle acquisition.
Provision for income taxes was $2.4 million (39% of pretax earnings) in
1995 compared to $641,000 (39% of pretax earnings) in 1994. Each rate
reflected the rate anticipated for the full year.
9
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NINE MONTHS ENDED JUNE 30, 1995 COMPARED TO NINE MONTHS ENDED JUNE 30, 1994
Revenue for the first nine months of fiscal year 1995 was $120.1 million
compared to $69.7 million in the first nine months of fiscal year 1994, an
increase of $50.4 million, or 72%.
Networking Products revenue increased from $54.9 million in 1994 to
$99.3 million in 1995. As a result of the Eagle acquisition and internal
growth, Ethernet sales increased $20.7 million, from $20.5 million in 1994 to
$41.2 million in 1995. Token Ring sales of $14.4 million represented new sales
in 1995. Bundled Software sales increased $13.3 million, from $19.6 million in
1994 to $32.9 million in 1995. The growth in Bundled Software sales reflects
the Company's continued success in expanding its distribution channels for this
product line. Reflecting the industry trend for minicomputers, Traditional
product sales decreased from $4.5 million in 1994 to $2.9 million in 1995. Wide
Area Connectivity sales decreased from $6.9 million in 1994 to $5.6 million in
1995. Asynchronous sales declined from $3.3 million in 1994 to $2.6 million in
1995.
Based largely on a significant U.S. government contract award at the end
of fiscal 1994, Aerospace Telemetry sales increased from $8.7 million in 1994
to $12.5 million in 1995. Based on increased bookings, Aerospace Telemetry
sales in 1995's first nine months have already surpassed sales during all of
fiscal 1994. Manufacturer Support Services (MSS) revenue grew from $5.5 million
in 1994 to $8.6 million in 1995. The reasons for the Aerospace Telemetry and
MSS revenue gains are the same as in the quarter-to-quarter comparative
discussion.
Industrial Telemetry sales were $800,000 in 1994. The net assets and
operations of that business were sold in the first quarter of fiscal 1994.
Gross profit increased from $18.8 million in 1994 to $37.3 million in
1995, and as a percentage of sales increased from 27.0% to 31.1%. The reasons
for these absolute dollar and percentage improvements were the same as in the
quarter-to-quarter comparative discussion.
SG&A expense grew from $11.5 million in 1994 to $17.2 million in 1995, a
$5.7 million increase. Generally, this higher level of SG&A expense was
commensurate with the growth in the size of the Company. SG&A expense as a
percentage of revenue actually decreased from 16.5% to 14.4%. Specific major
contributors to the dollar increase were $3.9 million in additional sales and
marketing expenses and new amortization associated with the Eagle acquisition
intangibles.
Research and development grew from $2.5 million (3.5% of sales) in 1994
to $3.9
10
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million (3.3% of sales) in 1995. The reason for the higher cost in 1995 is the
same as in the quarter-to-quarter comparative discussion.
Other expense in both 1995 and 1994 includes interest expense associated
with outstanding borrowings against the Company's line of credit. The higher
interest expense in 1995 was due to larger outstanding borrowings which
financed the Eagle acquisition. Also included in 1995 other expense is a
one-time charge of $875,000, reflecting an agreement to settle a stockholder
class action lawsuit against the Company.
Provision for income taxes was $5.4 million (39% of pretax earnings) in
1995 compared to $1.8 million (39% of pretax earnings) in 1994. Each rate
reflected the rate anticipated for the full year.
LIQUIDITY AND CAPITAL RESOURCES
The table below shows financial highlights (in thousands) which reflect
the Company's liquidity position and the availability of capital resources:
<TABLE>
<CAPTION>
At June 30, 1995 At September 30, 1994
---------------- ---------------------
<S> <C> <C>
Cash $ 2,159 $ 2,628
Total Assets 97,736 55,840
Working Capital 35,414 22,744
Unused Bank Revolving Line
of Credit 5,000 5,000
</TABLE>
In January 1995, the Company borrowed an additional $12.0 million under
a new bank borrowing facility to fund its Eagle Technology acquisition. As of
June 30, 1995, the Company owes its bank lenders $21.1 million. Management
believes its subsequent cash flows from operations, including those generated
by the Eagle acquisition, will be sufficient to meet its debt service.
11
<PAGE> 12
PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports.
(a) The following exhibits are enclosed herein:
Exhibit Number Description Page
-------------- ----------------- ----
11 Statement regarding 14
primary computation
of per share earnings
(b) A Form 8-K was filed on April 11, 1995, providing audited and
proforma financial statements of the Eagle Technology business.
12
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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.
MICRODYNE CORPORATION
---------------------
Registrant
Date: August 14, 1995 /s/ Philip T. Cunningham
------------------------- -----------------------------
Philip T. Cunningham
President and Chief Executive Officer
[Duly Authorized Officer]
Date: August 14, 1995 /s/ Christopher M. Maginniss
------------------------- -----------------------------
Christopher M. Maginniss
Executive Vice President and
Chief Financial Officer
[Principal Financial Officer]
13
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Exhibit 11
Microdyne Corporation
Statement re: Computation of Per Share Earnings
for the Three and Nine Months Ended June 30, 1995
<TABLE>
<CAPTION>
Three Months Nine Months
-------------------------- --------------------------
Fully Fully
Primary Diluted Primary Diluted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares Outstanding at
Beginning of Period 12,051,512 12,051,512 11,814,697 11,814,697
Net Shares Issued
During the Period 248,110 248,110 208,818 208,818
Dilutive Effect of
Stock Options 849,640 876,497 934,503 1,086,279
------------ ------------ ------------ ------------
Weighted Average Shares
Outstanding 13,149,262 13,176,119 12,958,018 13,109,794
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 2159
<SECURITIES> 0
<RECEIVABLES> 58388
<ALLOWANCES> 665
<INVENTORY> 19696
<CURRENT-ASSETS> 83329
<PP&E> 10844
<DEPRECIATION> 5995
<TOTAL-ASSETS> 97736
<CURRENT-LIABILITIES> 47915
<BONDS> 18107
<COMMON> 1253
0
0
<OTHER-SE> 30247
<TOTAL-LIABILITY-AND-EQUITY> 97736
<SALES> 120059
<TOTAL-REVENUES> 120059
<CGS> 82778
<TOTAL-COSTS> 82778
<OTHER-EXPENSES> 21980
<LOSS-PROVISION> 153
<INTEREST-EXPENSE> 1340
<INCOME-PRETAX> 13961
<INCOME-TAX> 5445
<INCOME-CONTINUING> 8516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8516
<EPS-PRIMARY> .66
<EPS-DILUTED> .65
</TABLE>
