<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 DECEMBER 31, 1998
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) 329-3700
(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 DECEMBER 31, 1998
----------------------------- --------------------------------
Common stock, $.10 par value 13,111,201
Page 1 of 13 pages
Exhibit Index appears on page 13
<PAGE> 2
MICRODYNE CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
PART I - FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Consolidated Financial Statements
Statements of Earnings
Three months ended December 31, 1998
and December 31, 1997 3
Balance Sheets
September 30, 1998 and December 31, 1998 4
Statements of Cash Flows
Three months ended December 31, 1998
and December 31, 1997 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports. 12
SIGNATURES 12
</TABLE>
2
<PAGE> 3
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------
December 31, December 31,
1998 1997
------------------- --------------------
(In thousands)
<S> <C> <C>
Revenue:
Microdyne Communication Technologies Incorporated $ 10,024 $ 7,271
Microdyne Outsourcing Incorporated 6,784 5,414
------------------- --------------------
Total revenue 16,808 12,685
Cost of products sold and service provided:
Microdyne Communication Technologies Incorporated 5,017 3,548
Microdyne Outsourcing Incorporated 5,420 4,059
------------------- --------------------
Total cost of products sold and service provided 10,437 7,607
------------------- --------------------
Gross profit 6,371 5,078
Operating expenses:
Selling, general and administrative expense 4,483 2,425
Research and development 1,197 397
------------------- --------------------
Total operating expenses 5,680 2,822
------------------- --------------------
Earnings from continuing operations 691 2,256
Interest and other expense, net (462) (228)
------------------- --------------------
Earnings from continuing operations
before income taxes 229 2,028
Provision for income taxes: - -
------------------- --------------------
Net earnings from continuing operations 229 2,028
------------------- --------------------
Net earnings $ 229 $ 2,028
=================== ====================
Basic earnings per share, continuing operations $ 0.02 $ 0.16
=================== ====================
Weighted average shares outstanding, basic 13,110 12,966
=================== ====================
Diluted earnings per share, continuing operations $ 0.02 $ 0.15
=================== ====================
Weighted average shares outstanding, diluted 13,207 13,390
=================== ====================
</TABLE>
The notes on the following pages are an integral part of these statements
3
<PAGE> 4
MICRODYNE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1998
-------------- -------------
(audited) (unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash $ 994 $ 1,040
Accounts receivable, net 17,672 19,673
Inventories 7,397 8,179
Income tax receivable 1,517 1,517
Prepaid expenses and deposits 324 1,202
Current assets of discontinued operations 245 337
Deferred income tax asset 4,103 4,103
--------- ---------
Total current assets 32,252 36,051
PROPERTY AND EQUIPMENT, net 5,849 5,661
GOODWILL 5,467 5,412
PRODUCT ACQUISITION COST 825 704
DEFERRED INCOME TAX ASSET 128 128
NONCURRENT ASSETS
OF DISCONTINUED OPERATIONS 8 8
OTHER ASSETS 92 88
--------- ---------
Total assets $ 44,621 $ 48,052
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term obligations $ 1,636 $ 1,668
Accounts payable - trade 3,900 3,451
Accrued liabilities 8,871 7,416
Current liabilities of discontinued operations - -
--------- ---------
Total current liabilities 14,407 12,535
LONG-TERM OBLIGATIONS, net of current maturities 20,821 25,887
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, $.10 par value, authorized 50,000,000 shares, 13,103,891
shares issued and outstanding at September 30, 1998 and 13,111,201
shares issued and
outstanding at December 31, 1998 1,310 1,311
Additional paid-in capital 11,007 11,014
Retained (deficit) earnings (2,924) (2,695)
--------- ---------
Total stockholders' equity 9,393 9,630
--------- ---------
Total liabilities and stockholders' equity $ 44,621 $ 48,052
========= =========
</TABLE>
The notes on the following pages are an integral part of these statements
4
<PAGE> 5
MICRODYNE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
December 31, December 31,
1998 1997
------------------ ------------------
(In thousands)
<S> <C> <C>
Increase (decrease) in Cash:
Cash flows from operating activities:
Net earnings $ 229 $ 2,028
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 656 284
Forgiveness of debt 400 -
Changes in assets and liabilities,
net of effect of discontinued operations
Increase in accounts receivable (2,466) (2,990)
(Increase) decrease in inventories (782) 295
(Increase) decrease in prepaid expenses (878) 12
Decrease in other assets 4 143
(Decrease) increase in accounts payable and other accruals (1,839) 247
------------------ ------------------
Net cash (used in) provided by continuing operations (4,676) 19
Net cash used in discontinued operations (92) (1,044)
------------------ ------------------
(4,768) (1,025)
Cash flows from investing activities:
Additions to property and equipment (292) (1,716)
------------------ ------------------
Net cash used in investing activities (292) (1,716)
Cash flows from financing activities:
Net borrowings on bank debt 5,495 1,805
Proceeds from issuance of long-term obligations - 1,227
Payments on notes payable and capital lease obligations (397) (687)
Issuance of common stock 8 50
------------------ ------------------
Net cash provided by financing activities 5,106 2,395
Net increase (decrease) in Cash 46 (346)
Cash at beginning of period 994 1,056
------------------ ------------------
Cash at end of period $ 1,040 $ 710
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial 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 (the "Company"
or "Microdyne") considers necessary for a fair presentation of the
results of operations for the interim periods covered, and of the
financial position of the Company at the date of the interim balance
sheet. The results for interim periods are not necessarily indicative of
the results for the entire year. In addition, preparation of financial
statements in conformance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q, and therefore certain
footnote disclosures normally accompanying financial statements have been
substantially omitted. These condensed financial statements should be read
in conjunction with complete disclosures accompanying the financial
statements contained in the Company's most recent Annual Report on Form
10-K.
2. The provision for income taxes presented in the Statements of Operations
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. At December 31, 1998
the Company has a deferred tax asset of approximately $4.2 million arising
principally as a result of a net operating loss carry-forward of
approximately $26 million at December 31, 1998. Thus, the Company has no
tax provision or benefit for the period ending December 31, 1998.
3. During the first quarter of fiscal year 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share". This statement establishes new standards for computing and
presenting earnings per share. Basic earnings per share excludes
dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the earnings of the
entity. Diluted earnings per share were calculated as net income divided
by the diluted weighted-average number of common shares. Diluted
weighted-average number of common shares was calculated using the
treasury stock method for Common Stock equivalents, which included Common
Stock available pursuant to stock options. The following is a
reconciliation of the earnings per share calculations:
<TABLE>
<CAPTION>
For the three months ended:
December 31, 1998 December 31, 1997
--------------------------------------------------
<S> <C> <C>
Income:
Net earnings from continuing operations $ 229 $ 2,028
==================================================
Basic weighted average shares 13,110 12,966
Effect of dilutive shares:
Stock Options 97 424
--------------------------------------------------
Diluted weighted average shares 13,207 13,390
==================================================
</TABLE>
4. In August 1998, the Company negotiated a loan agreement with NationsBank,
N.A. The agreement provided for a $16.5 million acquisition loan as well
as a $10 million line of credit facility. Principal payments on the
acquisition loan are due in fixed monthly payments of $275,000 beginning
October 1999 and ending October 31, 2004. At December 31, 1998, the
balance of the acquisition loan agreement was $16.5 million. Under the
Company's credit facility, the amount outstanding at December 31, 1998 was
$6.8 million with $3.0 available for borrowing. Under the terms of the
credit facility, the amount available under the facility is calculated as
the lesser of the borrowing base or $10.0 million as of August 11, 1998
until October 31, 2000. The amount outstanding on the credit facility is
payable on October 31, 2000 when the credit agreement expires. See Note 7
regarding the assumption of the Company's debt.
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<PAGE> 7
5. The Company operates in two businesses in two industries: aerospace
electronics and communications and outsourced technical support services.
Information about the Company's operations in the segments for the three
months ended December 31, 1998 and December 31, 1997 is as follows:
<TABLE>
<CAPTION>
In Thousands of Dollars
Corporate Consolidated
MCTI MOI and Other Total
----------------------------------------------- -------------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Net sales to unaffiliated customers
-----------------------------------
First Quarter, Fiscal 1999 10,024 6,784 - 16,808
First Quarter, Fiscal 1998 7,271 5,414 - 12,685
Pretax earnings from continuing operations
------------------------------------------
First Quarter, Fiscal 1999 690 445 (906) 229
First Quarter, Fiscal 1998 1,948 724 (644) 2,028
Identifiable assets
-------------------
As of September 30, 1998 32,204 5,195 6,969 44,368
As of December 31, 1998 33,405 6,889 7,548 47,842
</TABLE>
The consolidated total for identifiable assets above excludes assets of
the discontinued Networking Products Division. As of September 30, 1998
and December 31, 1998 the discontinued operations of the Networking
Products Division had identifiable assets totaling approximately $253,000
and $345,000 respectively.
6. As of October 1, 1997, Microdyne entered into an agreement with an officer
of the company. Under the terms of the agreement, the officer exchanged a
$506,000 note receivable for 116,702 shares of the Company's stock. The
shares were available to the officer pursuant to the exercise of stock
options granted under the Company's stock option plans. On December 2,
1998, the Company's Board of Directors elected to forgive $400,000 of this
note receivable, effective January 2, 1999. At December 31, 1998
approximately $134,000 of this note remains outstanding of which $27,000
represents accrued interest. The note was paid in full during January of
1999.
Beginning March 1, 1998, Microdyne provided a bridge loan to an officer of
the company in the amount of $400,000 for the purchase of his principal
residence. A non-interest bearing note receivable was established for that
amount. On October 21, 1998 the Company's Board of Directors elected to
forgive $200,000 of this note receivable in lieu of a bonus, which
forgiveness made effective December 2, 1998. At December 31, 1998,
$200,000 of this note receivable remains outstanding.
7. The Company entered into an Agreement and Plan of Merger dated December
3, 1998 with L-3 Communications Corporation and its wholly owned
subsidiary, L-M Acquisition Corporation, (the "Merger Agreement")
pursuant to which L-M Acquisition Corporation commenced a tender offer
for all shares of the Company's common stock outstanding. Under the
terms of the agreement, L-3 Communications, or an affiliate thereof, is
to assume all of the outstanding debt of the Company. The execution of
the Merger Agreement and certain agreements related thereto constituted a
default under the Credit Agreement dated as of August 11, 1998 between
the Company and NationsBank, N.A. The Company obtained from Nationsbank
a waiver of such default through July 31, 1999, after which date the
Company would be in default under the Credit Agreement if all the
transactions contemplated by the Company's definitive agreement with L3
Communications have not been consummated, including the merger of L-M
Acquisition Corporation with and into the Company whereby the Company
would become a wholly-owned subsidiary of L3 Communications
(the"Merger"). On January 8, 1999, L-M Communications Corporation
accepted for payment all shares tendered in the tender offer, or
approximately 91.9% of the outstanding shares of the Company's common
stock. On January 20, 1999, L-M Acquisition Corporation delivered notice
to the remaining stockholders of the Company of its intention to effect
the Merger promptly after expiration of the required 30 day period
following delivery of such notice.
7
<PAGE> 8
PART 1. - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Microdyne Corporation ("the Company" or "Microdyne") is engaged in two
businesses in two industries: aerospace electronics and communications
equipment, and outsourced technical support services. Microdyne Communication
Technologies Incorporated (MCTI) manufactures telemetry products and provides
systems integration services for the aerospace industry. The Advanced Technology
Group (ATG), which represents the Companies acquired in August 1998 and are
included in the results of MCTI, provides hardware development, design and
production of wideband digital receiving and processing equipment used in signal
collection and processing. In addition, ATG manufactures data acquisition,
recording, and generation products used in electronic test and measurement
equipment. Microdyne Outsourcing Incorporated (MOI) provides telephone technical
support and repair services on an insourcing and outsourcing basis for major
electronics manufacturers.
On August 11, 1998 the Company, through its wholly owned subsidiary MCTI
Acquisition Corporation, acquired all of the outstanding stock of Apcom, Inc.
(Apcom), and Celerity Systems Inc. (Celerity) as well as certain assets and
liabilities of two other affiliated companies Acceleration Systems, Inc. and
Digital Telcom for consideration of $16 million plus a contingent earnout
payment of $1 million. The Company refers to the acquired companies as the
Advanced Technology Group (ATG). ATG financial results for the quarter have been
included with those of MCTI in the Consolidated Financial Statements.
FORWARD LOOKING INFORMATION
The information included in this Management's Discussion and Analysis,
and elsewhere in the Form 10Q, contains forward-looking statements that involve
risks and uncertainties. Important factors that could cause actual results to
differ materially include: rapid changes in products and technology that may
displace products sold by Microdyne; the competitive industries within which
Microdyne operates; the Company's success in identifying, acquiring and
incorporating commercially successful technology, products or businesses, and in
identifying and taking advantage of growth opportunities; the effect on cash
flow and liquidity of differences between the expected and the actual timing of
collection of accounts receivable; uncertainty associated with certain future
events outside of Microdyne's control which could affect the adequacy of the
amount of the loss estimated for the disposal of the Networking Products
Division; dependence upon a limited customer base at MOI and several large
customers at MCTI; fluctuations in call volume at the Company's outsourced
telephone technical support facility; limited product lines and service
offerings relative to other suppliers; contractual agreements between Microdyne
and other companies; fluctuations in the Company's quarterly results of
operations and the timing of orders from customers; the Company's relationships
with sources of external financing; and the risk factors listed from time to
time in the Company's SEC filings, including but not limited to the Annual
Report on Form 10-K for the year ended September 30, 1998. In addition, 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
Microdyne's common stock in any given period.
RESULTS OF OPERATIONS
Quarter Ended December 31, 1998 Compared to Quarter Ended December 31, 1997
Consolidated revenue from continuing operations for the first quarter of
fiscal year 1999 increased by 33% to $16.8 million from $12.7 million in the
first quarter of fiscal year 1998.
First quarter 1999 MCTI revenue increased 38% to $10.0 million from $7.3
million in the first quarter of fiscal year 1998. ATG represented $6.4 million
of first quarter 1999 revenue and MCTI represented $3.6 million of the first
quarter revenue. MCTI's revenues, excluding ATG, continue to reflect a changing
mix of product and system integration sales in 1999 compared to the prior
period. Systems integration sales represented 18% of 1999 first quarter sales
compared to 20% during the same period in fiscal year 1998. In the first fiscal
quarter of 1999, system sales decreased to $.7 million from $1.5 million during
the same period in 1998, while first quarter 1999 MCTI product and other sales
decreased 50% to $2.8 million from $5.7 million in 1998. Systems, product, and
other sales decreased primarily due to delays in the receipt of orders from
customers during the quarter. The Company believes
8
<PAGE> 9
these delays are primarily timing issues and should be recovered during the
remainder of fiscal 1999.
MOI revenue increased 25% to $6.8 million in the first quarter of 1999
from $5.4 million in 1998. The increase in revenue reflects continued demand for
established support services, as well as demands for technical support and
warranty work provided by MOI's outsourcing facility in Southern California.
Revenue earned at the customer's facilities ("in-sourced" revenue), increased to
$4.6 million in the first quarter of 1999 compared to $4.2 million during the
same period in 1998. Revenue earned at the Company's facilities ("out-sourced"
revenue) represented $2.2 million in revenue in the first quarter of 1999
compared to $1.2 million during the same period of 1998.
For the first quarter of fiscal 1999, consolidated gross profit from
continuing operations increased 25% to $6.4 million from $5.1 million in fiscal
1998. As a percentage of revenue, gross profit decreased to 38% from 40% during
the first quarter of fiscal 1998 primarily due to lower gross profit at MOI. The
lower overall gross profits as a percentage of revenue at MOI is the result of
the Company's continued investment in sales, marketing, and administrative
infrastructure at its telephone technical support facility. Gross profit margins
at MCTI, including ATG, were comparable to the year ago quarter at 50% during
the first quarter of fiscal 1999, versus 51% in 1998.
SG&A expense increased $2.1 million in 1999 to $4.5 million in the first
quarter of 1999 from $2.4 million in 1998. This increase is primarily the result
of the $1.5 million in SG&A expenses generated by ATG during the first quarter
of 1999. In addition, the Company forgave $0.4 million of notes receivable due
from an officer of the Company, which was charged to SG&A expense during the
quarter.
Research and Development (R&D) expense was $1.2 million in the first
quarter of 1999, compared to $0.4 million in the first quarter of 1998. ATG
represented $0.6 million of this $0.8 million increase. The remaining $0.2
million increase in R&D reflects MCTI's continued efforts to improve and develop
new products and services. R&D expenses as a percentage of revenue were 7% in
the first quarter of 1999 compared to 3% in the same period in 1998.
Interest and other expense increased to approximately $0.4 million in the
first quarter of 1999 from $0.2 million during the same period in 1998. This
increase is primarily due to interest expense of $0.3 million incurred on the
$16.5 million acquisition loan obtained in August 1998. The higher interest
expense was partially offset by a decrease in interest expensed incurred on
Company's line of credit facility and other long term debt due to a lower
outstanding balance on this debt at December 31, 1998 compared to December 31,
1997.
Microdyne's income tax expense during the first fiscal quarter of 1999
was offset by an adjustment to the Company's deferred tax asset valuation
account, resulting in no tax provision for the quarter. The deferred tax assets,
as shown on the Balance Sheets, are net of valuation adjustments of $7.7 million
as of December 31, 1998 and $7.8 million as of September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the past three years, Microdyne has financed its continuing
operations principally through internally generated funds. However, Microdyne
has secured external financing in connection with acquisitions and repurchases
of common stock.
External financing has been primarily provided through bank borrowings.
As of December 31, 1998, Microdyne had $6.8 million of bank debt under a
revolving line of credit facility. On December 31, 1998, Microdyne had $1.0
million in cash and $3.0 million available for borrowing under its revolving
credit facility. Microdyne is required to repay its bank borrowings by October
31, 2000, unless such agreements are renewed. See Note 7 of the Notes to
Consolidated Financial Statements regarding the assumption of the Company's
debt.
On August 11, 1998 the Company secured a $16.5 million acquisition loan
for the purchase of ATG. As of December 31, 1998, the amount outstanding was
$16.5 million with principal payments due in fixed monthly payments of $275,000
beginning October 1999 and ending October, 2004. See Note 7 of the Notes to
Consolidated Financial Statements regarding the assumption of the Company's
debt.
In April 1996, Microdyne utilized cash and notes to purchase from Novell,
Inc. ("Novell") the exclusive, royalty-free perpetual right to market certain
hardware and related technology which were previously sold by Microdyne under
license from Novell, and to convert certain accounts payable into notes payable.
As of December 31, 1998, notes payable due Novell totaled $3.0 million, of which
$1.2 million has been classified as a short-term obligation and
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$1.8 million as a long-term obligation on the December 31, 1998 Balance Sheet.
See Note 7 of the Notes to Consolidated Financial Statements regarding the
assumption of the Company's debt.
During the three months of fiscal year 1999, net cash used in operations
was $4.8 million. Cash used in continuing operations was $4.7 million, while
cash used in discontinued operations was $0.1 million. Cash used in continuing
operations was primarily the result of an increase in accounts receivable of
$2.5 million and a decrease in accounts payable and other accruals of $1.8
million. Cash used in investing activities was $0.3 million. Microdyne has no
material commitments for future capital expenditures. Cash provided by financing
activities was $5.1 million, representing net bank borrowings under the
Company's line of credit facility of $5.5 million offset by cash payments on
notes payable and capital lease obligations of $0.4 million.
Microdyne believes its available cash, funds generated from operations,
and funds available under its credit facility should be sufficient to finance
its continuing operations in fiscal 1999. In addition, Microdyne may from time
to time consider the acquisition of businesses, products, or technologies that
may require additional funds.
YEAR 2000 CONVERSION
Microdyne is currently evaluating the impact of the year 2000 on
operations, suppliers and customers. The Company has already begun to upgrade
its internal financial and operating systems to bring them into compliance with
year 2000 requirements. We are also in the process of verifying whether our
current products are year 2000 compliant. We expect to complete our evaluation,
testing, and implementation of our Year 2000 plan by the end of fiscal year
1999. Based on our evaluation to date, the Company does not expect the costs for
compliance to be material to the results of operations or to have an impact on
our liquidity or capital resources. Although the Company expects to be in
compliance with Year 2000 requirements on or before December 31, 1999, the
Company can not predict that third party systems will be year 2000 compliant or
that failure to achieve compliance will not have a material impact on
operations. However, nothing has come to the attention of the Company at this
point in our evaluation that would indicate a material impact on the results of
operations of the Company.
SALE OF COMPANY
The Company entered into an Agreement and Plan of Merger dated December
3, 1998 with L-3 Communications Corporation and its wholly owned subsidiary, L-M
Acquisition Corporation, (the "Merger Agreement") pursuant to which L-M
Acquisition Corporation commenced a tender offer for all shares of the Company's
common stock outstanding. Under the terms of the agreement, L-3 Communications,
or an affiliate thereof, is to assume all of the outstanding debt of the
Company. The execution of the Merger Agreement and certain agreements related
thereto constituted a default under the Credit Agreement dated as of August 11,
1998 between the Company and NationsBank, N.A. The Company obtained from
Nationsbank a waiver of such default through July 31, 1999, after which date the
Company would be in default under the Credit Agreement if all the transactions
contemplated by the Company's definitive agreement with L3 Communications have
not been consummated, including the merger of L-M Acquisition Corporation with
and into the Company whereby the Company would become a wholly-owned subsidiary
of L-3 Communications (the"Merger"). On January 8, 1999, L-M Communications
Corporation accepted for payment all shares tendered in the tender offer, or
approximately 91.9% of the outstanding shares of the Company's common stock. On
January 20, 1999, L-M Acquisition Corporation delivered notice to the remaining
stockholders of the Company of its intention to effect the Merger promptly after
expiration of the required 30 day period following delivery of such notice.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company has a Line of Credit agreement with a commercial bank for a
total of $10 million. As of December 31, 1998 the amount outstanding under the
line of credit was $6.8 million with an interest rate of approximately 7.0%.
Interest is payable monthly and is variable based on either: 1) the London
Inter-bank Offer Rate (LIBOR) plus a premium, 2) the Federal Funds rate plus
0.50% plus a premium, or 3) the Prime Rate plus a premium. The Line of Credit
exposure to market rate fluctuations is limited due to the interest rate paid on
a monthly basis being variable and based on current market conditions.
At December 31, 1998, the Company has a $16.5 million acquisition loan
with an interest rate of 7.1% at December 31, 1998. Interest is payable monthly
at either LIBOR plus a premium, the Federal Funds Rate plus 0.50% plus a
premium, or the Prime Rate plus 0.50%. The loan exposure to market rate
fluctuations is limited due to the interest rate paid on a monthly basis being
variable and based on current market conditions.
The Company does not engage in hedging or derivative transactions with
respect to the interest paid on the line of credit agreement or other
obligations.
11
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PART II. - OTHER INFORMATION
Item 6. Exhibits and Reports
(a) See exhibit index
(b) Reports on Form 8-K:
On October 26, 1998 the Company filed a report on Form 8-K/A amending its
previously filed Form 8-K dated August 11, 1998 to include certain
Financial Statements and Pro Forma Financial information in connection
with the Company's acquisition of four affiliated privately held
Companies.
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: February 10, 1999 /s/ Michael E. Jalbert
----------------------------------- ----------------------
Michael E. Jalbert
Chief Executive Officer
[Duly Authorized Officer]
Date: February 10, 1999 /s/ Massoud Safavi
----------------------------------- ----------------------
Massoud Safavi
Chief Financial Officer
[Principal Financial Officer]
12
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EXHIBIT INDEX
The following exhibits are included in this Quarterly Report on Form 10-Q.
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description
- -------------- --------------------------------------------
<S> <C>
3.2 Articles of Amendment and Restatement of Articles of Incorporation of
the Registrant (1)
3.3 Bylaws of Registrant (2)
4.1 Specimen Common Stock Certificate (3)
27 Financial Data Schedule
1 Incorporated by reference to Exhibit 4 (A) (1) to the Registrant's 1989
Form S-2 Registration Statement.
2 Incorporated by reference to Exhibit 4 (B) (1) to the Registrant's 1990
Form S-3 Registrant Statement.
3 Incorporated by reference to Exhibit 49 (A) to the Registrant's 1979
Registration Statement (File No. 2-634130).
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM
(A) FORM 10-Q AS OF DECEMBER 31, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,040
<SECURITIES> 0
<RECEIVABLES> 19,808
<ALLOWANCES> 0
<INVENTORY> 8,179
<CURRENT-ASSETS> 36,186
<PP&E> 11,590
<DEPRECIATION> 5,929
<TOTAL-ASSETS> 48,187
<CURRENT-LIABILITIES> 12,670
<BONDS> 0
0
0
<COMMON> 1,311
<OTHER-SE> 8,319
<TOTAL-LIABILITY-AND-EQUITY> 48,187
<SALES> 9,197
<TOTAL-REVENUES> 16,808
<CGS> 4,590
<TOTAL-COSTS> 10,437
<OTHER-EXPENSES> 5,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 462
<INCOME-PRETAX> 229
<INCOME-TAX> 0
<INCOME-CONTINUING> 229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
