<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 MARCH 31, 1995
COMMISSION FILE NUMBER: 0-4384
MICRODYNE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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)
(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 APRIL 30, 1995
---------------------------- -----------------------------
Common stock, $.10 par value 12,100,367
<PAGE> 2
MICRODYNE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Statements of Earnings
Three months and six months ended
March 31, 1995 and March 31, 1994 3
Condensed Balance Sheets
March 31, 1995 and September 30, 1994 4
Statements of Cash Flows
Three months ended March 31, 1995
and March 31, 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
<PAGE> 3
MICRODYNE CORPORATION
Consolidated Statements of Earnings
(In Thousands except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -------------------------
March 31, March 31, March 31, March 31,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $40,577 $23,568 $72,396 $45,403
Cost of goods sold 27,922 17,448 49,951 33,050
--------- --------- --------- ---------
Gross Profit 12,655 6,120 22,445 12,353
Selling, general and administrative
expense 5,819 3,719 10,554 7,573
Research and development 1,344 796 2,506 1,748
--------- --------- --------- ---------
Earnings from operations 5,492 1,605 9,385 3,032
Other income (expense)
Interest expense (571) (134) (791) (179)
Other income (expense) 16 16 (819) 36
--------- --------- --------- ---------
Earnings before income taxes 4,937 1,487 7,775 2,889
Provision for income taxes 1,925 580 3,032 1,127
--------- --------- --------- ---------
Net earnings $3,012 $907 $4,743 $1,762
========= ========= ========= =========
Net earnings per share $0.24 $0.07 $0.38 $0.13
========= ========= ========= =========
Weighted Average Shares Outstanding 12,669 13,497 12,564 13,967
========= ========= ========= =========
</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>
March 31, September 30,
1995 1994
(Unaudited) (Audited)
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $1,863 $2,628
Accounts receivable, net 46,633 30,249
Inventories 19,680 11,725
Income tax receivable - 140
Prepaid expenses and other 2,188 1,819
Deferred income taxes 1,552 1,698
----------- -----------
Total current assets 71,916 48,259
PROPERTY AND EQUIPMENT, net 4,413 4,086
PRODUCT LINE ACQUISITION COST 8,886 2,057
OTHER ASSETS 1,183 1,438
----------- -----------
$86,398 $55,840
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of l-t obligations 4,882 3,195
Accounts payable 18,924 12,286
Accrued liabilities 15,506 9,608
Income tax payable 2,094 426
----------- -----------
Total current liabilities 41,406 25,515
LONG-TERM OBLIGATIONS, net of current
maturities 20,378 11,675
DEFERRED INCOME TAX PAYABLE 359 360
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized
50,000,000 shares, 12,051,512 shares
issued and outstanding at March 31, 1995
and 11,814,697 issued and outstanding at
September 30, 1994 1,205 1,181
Additional paid-in capital 2,819 1,621
Retained earnings 20,318 15,575
Unrealized loss on marketable equity security (87) (87)
----------- -----------
24,255 18,290
----------- -----------
$86,398 $55,840
=========== ===========
</TABLE>
The notes on the following pages are an integral part of these statements.
4
<PAGE> 5
MICRODYNE CORPORATION
Consolidated Statement of Cash Flows
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
3/31/95 3/31/94
------------ ------------
<S> <C> <C>
Increase (Decrease) in Cash:
Cash flows from operating activities:
Net earnings $ 4,743 $ 1,762
Adjustments to reconcile earnings to net cash
from operating activities, exclusive of effect of
acquisitions and dispositions:
Depreciation and amortization 834 694
Provisions for doubtful accounts receivable and
inventory obsolescence 1,113 180
Changes in assets and liabilities
Increase in accounts receivable (16,486) (119)
Increase in inventories (2,304) (1,085)
Increase in prepaid expenses (58) (294)
Decrease in other assets 45 541
Decrease in income tax receivable 140 2,499
Decrease in deferred tax asset 146 1,110
Increase in accounts payable and other accruals 12,042 127
------------ ------------
Net cash provided by operating activities 215 5,415
Cash flows from investing activities:
Eagle product line acquisition (12,100) -
Additions to property and equipment (891) (87)
Cash from sale of subsidiary net assets - 1,000
------------ ------------
Net cash (used) provided by investing activities (12,991) 913
Cash flows from financing activities:
Net payments on notes payable - (5,990)
Net borrowings on long term debt 12,900 12,000
Repayments on long-term debt (1,741) (49)
Issuance (purchase) of common stock 852 (11,801)
------------ ------------
Net cash used in financing activities 12,011 (5,840)
------------ ------------
Net (decrease) increase in Cash (765) 488
Cash at beginning of period 2,628 2,135
------------ ------------
Cash at end of period $ 1,863 $ 2,623
============ ============
</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 six
months ended March 31, 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 March 31, 1995 also
includes intangibles acquired under the Eagle Technology purchase agreement.
The anticipated amortization period for these intangibles is five years.
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 $22.6 million, of which $4.2 million is
classified as short-term and $18.4 million as long-term on the Condensed
Balance Sheet as of March 31, 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 (six months ended March 31,
1994), and the effect of the Eagle Technology acquisition (six months ended
March 31, 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 add and 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 initiated in fiscal 1994's third quarter and 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 (the last of these extended the Company's existing
family 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 sell many of the same Ethernet adapter cards
through similar channels of distribution.
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 also introduced the ACS 4400, a new remote
access communications server that combines industry-standard software with
advanced user features.
The effect of the Company's acquisitions and new products can be seen
in the Company's improved, most recent gross profit and gross profit
percentage. Second quarter fiscal 1995's gross profit of $12.7 million was the
highest in the Company's history and gross profit percentage of 31.2% was the
highest quarterly percentage since the fourth quarter of fiscal 1993.
The Company's program to effectively control the level of Selling,
General & Administrative (SG&A) expense has borne success. As a percentage of
sales, SG&A expense at 14.3% 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.
Nonetheless, the Company's operating results could be affected by a
number of factors, including: the availability and cost of components; the
maintenance of its current revenue base as new networking products are
introduced; the continued strength of its distribution channels; an unexpected
inability to manage expense growth relative to revenue growth in anticipation
of continued downward price pressures; the capability of competing with
companies having significantly greater financial, technical, and marketing
resources than the Company; and a continued good relationship with its major
strategic partners.
7
<PAGE> 8
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. This trend accelerated in the second quarter 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 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 MARCH 31, 1995 COMPARED TO THREE MONTHS ENDED MARCH 31, 1994
Revenue for the second quarter of fiscal year 1995 was $40.6 million
compared to $23.6 million in the second quarter of fiscal year 1994, an
increase of $17.0 million, or 72%.
Networking Products revenue was $33.8 million in 1995 compared to
$19.3 million in 1994. Networking Products sales benefited from both new
acquisitions and growth within the Company's core businesses. Largely as a
result of the Eagle acquisition, Ethernet sales increased $9.3 million, from
$6.7 million in 1994 to $16.0 million in 1995. Token Ring sales of $3.9 million
represented new sales in 1995. Bundled Software sales were $10.4 million in
1995 compared to $7.4 million in 1994, a $3.0 million increase. Reflecting the
industry trend, sales of Traditional products (which allow connectivity among
minicomputers) decreased from $2.1 million in 1994 to $900,000 in 1995.
Aerospace Telemetry sales increased from $2.7 million in 1994 to $4.2
million in 1995, reflecting the resolution of U.S. government procurement
delays that affected 1994 sales. Based on bookings received to-date, it is
anticipated that Aerospace Telemetry sales will increase from fiscal 1994 to
fiscal 1995. Manufacturer Support Services (MSS) revenue grew from $1.7 million
in 1994 to $2.7 million in 1995, reflecting continued growth in support
activities for the Company's customer in both southern California and
Indianapolis, Indiana.
8
<PAGE> 9
Gross profit increased from $6.1 million in 1994 to $12.7 million in
1995, and as a percentage of sales increased from 26.0% to 31.2%. These
absolute dollar and percentage improvements were primarily the result of both
higher levels of sales and a more favorable product mix within Networking
Products.
SG&A expense increased from $3.7 million in 1994 to $5.8 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 15.8% to 14.3%. Specific major contributors to the
dollar increase were $1.3 million in additional sales and marketing expenses
and $270,000 in new amortization associated with the Eagle acquisition
intangibles.
Research and development was $1.3 million (3.3% of sales) in 1995
compared to $800,000 (3.4% of sales) in 1994. The higher cost in 1995 was
largely due to the addition of a Token Ring engineering capability as a result
of the DCA 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 were a result of the Eagle acquisition.
Provision for income taxes was $1.9 million (39% of pretax earnings)
in 1995 compared to $580,000 (39% of pretax earnings) in 1994. Each rate
reflected the rate anticipated for the full year.
SIX MONTHS ENDED MARCH 31, 1995 COMPARED TO THREE MONTHS ENDED MARCH 31, 1994
Revenue for the first half of fiscal year 1995 was $72.4 million
compared to $45.4 million in the first half of fiscal year 1994, an increase of
$27.0 million, or 59%.
Networking Products revenue increased from $35.5 million in 1994 to
$59.1 million in 1995. Networking Products sales benefited from both new
acquisitions and growth within the Company's core businesses. Token Ring sales
of $10.3 million represented new sales in 1995. Bundled Software sales
increased $8.1 million, from $11.5 million in 1994 to $19.6 million in 1995.
Largely as a result of the Eagle acquisition, Ethernet sales increased $7.9
million, from $14.2 million in 1994 to $22.1 million in 1995. Traditional
product sales decreased from $3.5 million in 1994 to $1.9 million in 1995.
Aerospace Telemetry sales increased from $6.0 million in 1994 to $8.1
million in 1995. Manufacturer Support Services (MSS) revenue grew from $3.3
million in 1994 to $5.4 million in 1995. The reasons for the Aerospace
Telemetry and MSS revenue gains are the same as in the quarter-to-quarter
comparative discussion.
9
<PAGE> 10
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 $12.4 million in 1994 to $22.4 million in
1995, and as a percentage of sales increased from 27.2% to 31.0%. 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 $7.6 million in 1994 to $10.6 million in 1995,
a $3.0 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 16.7% to 14.6%. Specific major
contributors to the dollar increase were $2.1 million in additional sales and
marketing expenses and $270,000 in new amortization associated with the Eagle
acquisition intangibles.
Research and development grew from $1.7 million (3.9% of sales) in
1994 to $2.5 million (3.5% 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 were a result of 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 $3.9 million (39% of pretax earnings)
in 1995 compared to $1.1 million (39% of pretax earnings) in 1994. Each rate
reflected the rate anticipated for the full year.
10
<PAGE> 11
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 March 31, 1995 At September 30, 1994
----------------- ---------------------
<S> <C> <C>
Cash $ 1,863 $ 2,628
Total Assets 86,398 55,840
Working Capital 33,288 22,744
Unused Bank Revolving Line
of Credit 4,100 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 March 31, 1995, the Company owes its bank lenders $22.6 million (For a
description of this facility, see the Current Report on Form 8-K dated January
6, 1995 and the Loan Commitment letter from Crestar Bank filed as an exhibit to
that Report.) Management believes its subsequent cash flows from operations,
including those generated by the Eagle acquisition, will be sufficient to meet
its debt service.
The three acquisitions the Company has made in the past nine months
have utilized a significant portion of the Company's liquidity as they have
been integrated into the Company. Notwithstanding this, management anticipates
that cash generated by operations and bank borrowings will continue to be
adequate in meeting the Company's liquidity and capital resource requirements.
11
<PAGE> 12
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of the Registrant was held on
February 21, 1995. At the annual meeting, the election of directors was as
follows:
<TABLE>
<CAPTION>
Votes Votes
Received Withheld
---------- ----------
<S> <C> <C>
Philip T. Cunningham 11,114,947 6,709
Christopher M. Maginniss 11,114,947 6,709
Robert L. Cantor 11,114,947 6,709
Gregory W. Fazakerley 11,114,947 6,709
H. Brian Thompson 11,114,947 6,709
</TABLE>
Item 6. Exhibits and Reports.
(a) The following exhibits are enclosed herein:
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -------------------
<S> <C>
11 Statement regarding
primary computation
of per share earnings
27 Financial Data Schedule
</TABLE>
(b) A Form 8-K dated January 6, 1995 was filed, indicating the
execution of an Asset Purchase Agreement whereby the
Registrant agreed to buy the Eagle Technology business from
Artisoft, Inc.
A Form 8-K dated January 26, 1995 was filed, indicating
closure of the Asset Purchase Agreement between the Registrant
and Artisoft, Inc.
12
<PAGE> 13
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: May 15, 1995 /s/ Philip T. Cunningham
----------------------- -----------------------------
Philip T. Cunningham
President and Chief Executive Officer
[Duly Authorized Officer]
Date: May 15, 1995 /s/ Christopher M. Maginniss
----------------------- -----------------------------
Christopher M. Maginniss
Executive Vice President and
Chief Financial Officer
[Principal Financial Officer]
13
<PAGE> 1
Exhibit 11
Microdyne Corporation
Statement re: Computation of Per Share Earnings
for the Three and Six Months Ended March 31, 1995
<TABLE>
<CAPTION>
Three Months Six Months
-------------------------------- -----------------------------
Fully Fully
Primary Diluted Primary Diluted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares Outstanding at
Beginning of Period 11,830,660 11,830,660 11,814,697 11,814,697
Net Shares Issued
During the Period 118,163 118,163 69,964 69,964
Dilutive Effect of
Stock Options 719,941 751,679 679,014 768,649
------------ ------------ ------------ ------------
Weighted Average Shares
Outstanding 12,668,764 12,700,502 12,563,675 12,653,310
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MICRODYNE CORPORATION (THE "COMPANY") FOR THE SIX MONTHS
ENDED MARCH 31, 1995 CONTAINED WITHIN THE FORM 10Q OF THE COMPANY FILED ON
MAY 15, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FORM 10Q AND THE FINANCIAL STATEMENTS CONTAINED THEREIN.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-1-1994
<PERIOD-END> MAR-31-1995
<CASH> 1,863
<SECURITIES> 22
<RECEIVABLES> 47,237
<ALLOWANCES> 604
<INVENTORY> 19,680
<CURRENT-ASSETS> 71,916
<PP&E> 10,001
<DEPRECIATION> 5,588
<TOTAL-ASSETS> 86,398
<CURRENT-LIABILITIES> 41,406
<BONDS> 20,378
<COMMON> 1,205
0
0
<OTHER-SE> 23,050
<TOTAL-LIABILITY-AND-EQUITY> 86,398
<SALES> 72,396
<TOTAL-REVENUES> 72,396
<CGS> 49,951
<TOTAL-COSTS> 49,951
<OTHER-EXPENSES> 13,879
<LOSS-PROVISION> 102
<INTEREST-EXPENSE> 791
<INCOME-PRETAX> 7,775
<INCOME-TAX> 3,032
<INCOME-CONTINUING> 4,743
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,743
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
