UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
( X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended March 31, 1996
( ) Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 (Fee Required)
For the transition period from __________________ to _____________
Commission file Number 0-12712 1-8964
Halifax Corporation
(Exact name of registrant as specified in its charter)
Virginia
(State or other jurisdiction of incorporation of organization
(IRS Employer Identification No.) 54-0829246
5250 Cherokee Avenue, Alexandria, VA 22312
(Address of principal executive offices)
Registrant's telephone number, including area code (703) 750-2202
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock ($.35 par value) American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
None
(Title of class)
(Title of class)
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 for 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. (X)Yes ( )No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (X)
<PAGE>
The aggregate market value of the voting stock held by
non-affiliates of the Registrant as of May 22, 1996 was $7,355,879 computed
by the average of high and low prices of such stock on said date.
Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practicable date.
Class Outstanding at May 22, 1996
Common Stock 1,310,859
$.35 par value
DOCUMENTS INCORPORATED BY REFERENCE
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For a menu of Halifax Corporation news releases available by fax 24 hours
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Internet.
<PAGE>
Item 1. General Development of Business
Halifax Corporation is a Technology Services and Facilities Services Company
for commercial and government activities. Technology Services includes the
integration, systems engineering, installation, maintenance and training for
computer systems, communications systems, and simulation systems.
Facilities Services includes the management, operations and maintenance
support of military bases, prisons, waterways, major office
complexes, and communications sites. Revenues are generated in three primary
markets: commercial, federal government, and state/municipal governments;
and the company regularly conducts offshore and overseas business activities
within these markets. Key elements of the Company's business strategy include
government privatization, commercial outsourcing and enterprise networking.
Services and associated products are developed and delivered by the parent
corporation and/of its three wholly-owned subsidiaries: CMS Automation,
Inc. (CMSA), Halifax Engineering, Inc. (HEI) and Halifax Technical Services,
Inc. HTSI). Computer and network maintenance services and communication
installation services for government and commercial customers are largely
conducted by the parent company. Computer integration and systems
engineering services are primarily conducted by CMSA, especially in the
commercial sector. Communication systems installation and logistics
services are provided for the federal government by HEI. Facilities
operation and support services are provided by HTSI for federal, state,
and municipal governments.
PRIMARY SERVICES PROVIDED
SYSTEMS DESIGN, INTEGRATION, AND SUPPORT
Consulting services, development/design and LAN/WAN solutions,
hardware/software configuration and delivery, installation, training, and
support.
Examples: Wheat First Securities, Hunton & Williams, City of Richmond,
Loudoun County Public Schools, Hamilton Beach Proctor Silex, Federal Reserve
Bank, Defense Information Systems Agency.
COMPUTER MAINTENANCE AND SUPPORT SERVICES
On-Call computer & enterprise systems maintenance provided by a national
network of offices and dispatched by the Company's National Support
Center.
Examples: State of Pennsylvania, Eglin Air Force Base, Consolidated Edison,
Stennis Space Flight Center, Rockwell International, and Computer Language
Research and DEC.
TELECOMMUNICATIONS SERVICES
Engineering, installation, maintenance, and logistics services provided for
telecommunication systems and networks worldwide.
Examples: Defense Information Systems Agency; U.S. Army Communications
Electronics Command; U.S. Army, Ft. Ritchie, and U.S. Immigration and
Naturalization Service.
SIMULATOR SYSTEMS SERVICES
Operation and maintenance of simulators; and integration of simulator
systems.
Examples: Flight Dynamics Lab at Wright-Patterson Air Force Base,
USAMICOM Advanced Simulation Center and USMC/COMS.
FACILITIES OPERATIONS AND MAINTENANCE SERVICES
Operations, logistics and maintenance management and support for facilities,
bases, prisons, and other activities.
Examples: Curran Fromhold Correction Facility (Philadelphia), the Atlantic
Intercostal Waterway, Movable Bridge Operations (Virginia DOT), Social
Security Administration/Philadelphia, PA, and U.S. Mission to U.N./New York
City, NY.
SUBSIDIARIES
Wholly-owned subsidiaries of Halifax Corporation: Halifax Technical
Services, Inc. (HTSI), Halifax Engineering, Inc. (HEI), Halifax Realty, Inc.
(HRI) and CMS Automation, Inc. (CMSA).
<PAGE>
The Company was incorporated in Virginia in 1967 as Halifax Engineering,
Inc., the successor to the business begun as a sole proprietorship in 1967.
On April 1, 1970, Halifax acquired the Field Service Division of United
Industries. This expanded the business base in technical services and
field engineering. In January 1981, the Company acquired all of the
outstanding common stock of ASSET Incorporated ("ASSET"), a marine
engineering and naval architecture company, of Falls Church,
Virginia. Subsequently, in May 1981, ASSET acquired all of the outstanding
common stock of Blyth & Son, Inc. ("Blyth Marine"), a boat repair facility
located in Suffolk, Virginia. On April 1, 1983, ASSET was merged into
the Company.
As of October 1, 1984, the Company, under a plan adopted by the Board of
Directors, ceased operations at the boat repair facility of its wholly-owned
subsidiary, Blyth Marine, and placed the facility on the market for sale.
The remaining operations of Blyth Marine were merged into the Company on
February 1, 1985, and the facility was sold on September 13, 1985.
On October 18, 1984, the Company had a change of management and control as
the result of the founder, chairman and president of the Company selling his
stock and retiring from all activities other than serving until
September 1993, as a member of the Board of Directors.
In February, 1990, the Company purchased the assets of the services business
of Sidereal Corporation, a division of TransTechnology Corporation. The
Sidereal Field Service Division has nationwide customers for
its primary services of maintaining electronic messaging switches. This
division contributed to the expansion of Halifax's nationwide service
offerings.
On April 16, 1990, the Company purchased the assets of Del Net, Inc., a
privately owned Beltsville, Maryland, computer service company with a
Washington/Baltimore customer base which further expanded the
Company's nationwide Electronics Services business.
On September 6, 1991, the Company changed its name from Halifax Engineering,
Inc. to Halifax Corporation to reflect the expanded nature of its business
as a national provider of Electronics Services and Facilities
Support for government and industry.
On December 31, 1991, the Company sold Halifax Security Services, Inc., a
wholly-owned subsidiary which operated security services for the parent
corporation.
On June 30, 1993, the Company acquired the services division of Electronic
Associates, Inc. The division expanded the company's field services
business and provided an additional service line for simulator
operations, maintenance and integration.
On April 1, 1996, the Company completed the acquisition of privately held
CMS Automation, Inc., a Richmond, Virginia computer systems integration
company.
The discontinuation of various service lines since October 1984 have enabled
the Company to focus on Technology Services and Facilities
Services.
The Company maintains its principal executive offices at Halifax Office
Park, 5250 Cherokee Avenue, Alexandria, Virginia 22312. Telephone number
(703) 750-2202.
REVENUES BY SERVICE LINE
($000's)
Years Ended March 31
1996 1995 1994
Technology Services $ 37,537 $ 31,305 $ 21,169
Facilities Services 9,622 14,298 51,332
Total $ 47,159 $ 45,603 $ 72,501
<PAGE>
Federal Government Contracts
A large amount of the Company's revenues are derived from contracts or
subcontracts with the United States Government, or agencies or departments
thereof. In fiscal years 1996, 1995 and 1994, the Company received revenues
from 491, 740, and 369 Government contracts, which accounted for
approximately 73%, 83% and 93%, respectively, of the Company's total
revenues. However, the customer base trend is toward equal parts
commercial, state/municipal government and federal government.
The services of the Company are generally performed under cost reimbursable,
time-and-materials and fixed- price contracts and subcontracts. Under cost
reimbursable contracts the Government reimburses the Company for its
allowable costs permitted by Government regulations and pays the Company
a negotiated fixed fee, incentive fee, award fee or combination of fees.
Under time-and-materials contracts, the Company receives a fixed hourly rate
intended to cover salary costs attributable to work performed on the
contracts and related indirect expenses, as well as profit margin, and is
reimbursed for other direct costs. Under fixed-price contracts, the
Government pays the Company an agreed-upon price for services rendered.
In addition, under certain fixed price contracts, incentive fees are allowed
if established performance goals are met or exceeded and penalties are
imposed if goals are not attained. Under fixed-price contracts
and time-and-materials contracts, the Company bears any risk of increased or
unexpected costs that may reduce its profits or cause it to sustain a loss.
The Company's Government contracts and subcontracts are subject to
termination, reduction or modification as a result of changes in the
Government's requirements or budgetary restrictions. Moreover, when the
Company participates as a subcontractor, it is subject to the risk that the
primary contractor may fail or become unable to perform the prime contract.
All Government contracts are subject to termination at the convenience of
the Government. If a contract were to be terminated for convenience, the
Company would be reimbursed for its allowable costs to date of termination
and would be paid a proportionate amount of the stipulated profits or
fees attributable to the work actually performed. To date, the Government
has only terminated two contracts with the Company for convenience. The
first was a technical documentation contract for the U.S. Air Force on a
radar system for which the Company's claim was settled in fiscal 1988.
The second termination for convenience was made by the Air Force after the
close of fiscal 1989 on a contract which was successfully protested by
another bidder; and Halifax won the rebid.
Contracts with the Government are generally complex in nature, and require
Halifax to comply with numerous Federal regulations regarding discrimination
in the hiring of personnel, fringe benefits for employees, safety,
safeguarding classified information, responsibility for Government property,
fire prevention, equipment maintenance, record keeping and accounting,
management qualifications, drug free work place and numerous
other matters. The Company has not experienced any material difficulty in
complying with applicable federal regulations. Management does not believe
the proposed scaling down of the Federal defense establishment
will have an adverse effect on its revenues since the Company is not R&D
oriented, and Defense Department cutbacks affecting the Company's operation
are not considered significant. However, acquisitions and
reassignment of marketing resources have been accomplished which should,
management believes, reduce dependency on defense contracting.
The Company is sensitive to the present climate in the Government with
respect to fraud, waste and abuse, and has adopted a Code of Business Ethics
and Standards of Conduct and associated Company procedures.
In addition all employees receive training in ethics and associated Company
procedures and a hot line has been established to encourage reporting of
potential ethical violations.
Under certain circumstances the Government can suspend or bar individuals or
firms from obtaining future contracts with the Government for specified
periods of time. Any such suspension or debarment could have a materially
adverse effect upon the Company. The books and records of the Company
are subject to audit by the Defense Contract Audit Agency, which can result
in adjustments to contract costs and fees. Audits by such Agency have been
completed for years through fiscal 1990. While it is not possible to
know the outcome of future audits, it is the opinion of the Company's
management, that unrecorded liabilities, if any, arising from such audits
should not have a material adverse effect on the Company's financial
position or results of operations.
<PAGE>
Commercial and State/Municipal Government Contracts
The Company continues to expand its commercial and state/municipal
government business. Commercial contracts are expected to continue to grow
in revenues through the success of the field sales program which
targets non-federal opportunities and from outsourcing opportunities.
Acquisition strategy and the in-house development of computer network
solutions, integration and management services should significantly
increase this trend in commercial services. State/municipal government
contracts are expected to expand from privatization opportunities.
Type of Contracts
The following table reflects by type of contract the amount of revenues from
continuing operations derived for the periods indicated:
Years Ended March 31,
1996 1995 1994
Cost reimbursable $ 2,232,000 $ 7,953,000 $ 44,958,000
Time & materials 7,333,000 7,270,000 1,316,000
Fixed-price 37,594,000 30,380,000 26,227,000
Total $ 47,159,000 $ 45,603,000 $ 72,501,000
Accounts Receivable
Accounts receivable at March 31, 1996, 1995 and 1994 represented 47%, 50%
and 54% of total assets, respectively. Accounts receivable are comprised of
billed receivables and unbilled receivables. Billed receivables represent
invoices presented to the Customer. Unbilled receivables represent
future payments due from the Customer for which, for various reasons,
invoices have not or cannot be presented until a later period. The reasons
that invoices for payment obligations are not presented may be categorized
into: (1) fee and cost retainage rights of the Government; (2) lack of
billable documents; (3) excess of actual direct and indirect costs over
amounts currently billable under cost reimbursement contracts to the
extent they are expected to be billed and collected; (4) amounts arising on
fixed-price contracts from recognition of revenues
under the percentage of completion method; and (5) claims. The Company has
several claims against the Government which are in various stages of the
settlement process. Management is unable to determine
precisely when these claims will be settled because to some extent,
settlement is dependent on action by Government representatives and other
factors outside the control of the Company. However, in the opinion
of management, adequate provision has been made to cover the settlement of
all claims and ultimate resolution on these matters is not expected to have
a material adverse affect on the Company's financial position or results of
operations.
The financing of receivables requires bank borrowings and the payment of
associated interest expense. Interest expense is a business expense not
permitted as a reimbursable item of cost under Government contracts.
For a listing of the amounts of retainages and unbilled receivables as of
March 31, 1996 and 1995, see Note 3 to the accompanying Consolidated
Financial Statements.
Backlog
The Company's funded backlog for services as of March 31, 1996, 1995 and
1994 was $24,000,000, $17,000,000 and $29,000,000, respectively. "Funded"
backlog represents commercial orders and government
contracts to the extent that funds have been appropriated by Congress and
allotted to the contract by the procuring Government agency. Some of the
Company's contracts orders provide for potential funding
materially in excess of the monies initially provided by the Government.
Additional monies are subsequently and periodically authorized in the form
of incremental funding documents. The excess of potential future
funding over funding provided represents unfunded backlog. A majority of
the Company's customer orders or contract awards and extensions for
contracts previously awarded are received or occur at random during
the year and may have varying periods of performance.
As of March 31, 1996, based on total amounts bid on contracts awarded, the
Company's five-year potential revenues for work remaining to be performed
under existing contracts are approximately $96,000,000. The unfunded
portion is $72,000,000 which includes $45,000,000 in options and $27,000,000
in undefinitized work. The realization of these potential revenues is
dependent upon a variety of contract contingencies beyond the control of the
Company, such as complete funding and the exercise of all existing contract
options by the Government and commercial clients. Accordingly, there can be
no assurance that such revenues will be realized. Commercial contracts
do not typically have multi-year options, and accordingly, increased
proportion of commercial contracting is resulting in lower backlog levels.
Marketing
The Company contracts with Government agencies, industry and commercial
activities each of which requires different marketing approaches. The
Government maintains that it buys from companies rather than having
companies sell to it, and marketing is more related to keeping abreast of
the Government's specified needs versus building markets within the
Government for the Company's services. However, the Company conducts
a sizable portion of its business within the commercial sector, and
consequently uses traditional marketing approaches to determine commercial
customer needs and to assure our services will be considered for those
needs.
The Company's ability to compete successfully for Government work is largely
dependent on recognizing Government requirements and opportunities, the
submission of responsive and cost-effective proposals, and
a solid reputation for the successful completion of Government contracts.
Recognition of Government requirements and opportunities come from inclusion
on bidders lists, from participation in activities of
professional organizations and from literature published by the Government
and other organizations. Associations with large corporations are being
developed to allow the Company to act as a subcontractor on
some contract efforts.
Commercial marketing involves the determination of customer needs that match
the services offered by the Company, and this is accomplished through
individuals that conduct sales calls, attend trade shows, and build
a network of customer knowledge and confidence in the Company. A field
sales program for computer services provides for direct sales by field
personnel to commercial customers. Those activities, along with
the development of strategic alliances and the reputation the Company has
built, provide the normal manner in which the Company's commercial business
is attained.
Our April 1, 1996 acquisition, CMS Automation, Inc., is a network
integration and solutions company, and conducts its marketing and sales
activities largely through Account Managers.
The Company's President provides leadership in long-range marketing and
teaming arrangements. . Operating Vice Presidents direct bid and proposal
efforts for their operating elements.
Competition
The Company has numerous competitors in all areas in which it does
business. Some competitors are large, diversified firms having
substantially greater financial resources and larger technical staffs than
the Company, including, in some cases, the manufacturers of the systems
being supported. The Government's own in-house
capabilities can also be deemed to be competitors of the Company in that
they perform certain services which might otherwise be performed by the
Company. It is not possible to predict the extent of competition
which present or future activities of the Company will encounter because of
changing competitive conditions, customer requirements, technological
developments and other factors. The principal competitive factors for
the type of service business in which the Company is engaged are quality,
responsiveness, ability to perform within estimated time and expense limits
and pricing.
Personnel
On March 31, 1996, the Company had approximately 504 employees of which
approximately 64 were part time employees. Because of the nature of
services provided, many employees are professional or technical
personnel having high levels of training and skills, including engineers,
and skilled technicians and mechanics. The Company believes its employee
relations to be excellent. Although many of the Company's personnel
are highly specialized and there is a nationwide shortage of certain
qualified technical personnel, the Company does not normally experience any
material difficulty in obtaining the personnel it requires to perform under
its contracts and generally does not bid on contracts where difficulty may
be encountered in hiring personnel. The Company interfaces with labor
unions on 3 of its government contracts. To date, relations with these
units has been excellent. Management believes that the future growth and
success of the Company will depend in part upon its continued ability to
retain and attract highly qualified personnel.
Item 2. Properties
On July 18, 1991, the Company purchased a two building complex that includes
its previously leased headquarters building. The complex, named Halifax
Office Park and located on Cherokee Avenue in Fairfax County, Virginia,
contains 76,000 square feet of office space on three landscaped acres.
The Company was able to take advantage of depressed real estate values and
acquire the complex for $3,750,000, a price substantially below replacement
cost and far below the price at which it sold for in 1987.
The cost of ownership of the two buildings is less than the prior lease cost
on one building alone.
The Company has been able to lease over 95% of the building adjacent to the
Headquarters building on leases ranging from one to five years. This space
was in excess of the Company's needs.
The Company is obligated under approximately 30 small short-term facility
leases connected with its nationwide maintenance service operations.
Item 3. Legal Proceedings
Commercial Business Systems, Inc. v. Halifax Corporation, et al.
Plaintiff's claim, which has been the subject of judicial proceedings since
August of 1990 and was consolidated with a similar claim against BellSouth,
went to trial on October 18, 1995, resulting in a jury verdict
against Halifax, a former employee and a non-employee, for wrongful
interference with a prospective business relationship. The jury award for
compensatory damages plus interest has been overturned by the judge in
the case and final judgement entered in favor of Halifax. The plaintiff has
sought the right to appeal this decision.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the security holders in the fourth
quarter of fiscal 1996.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Company's Common Stock, par value $.35, has been traded on the American
Stock Exchange since August 15, 1985. From June 29, 1983 to August 15,
1985, the stock was listed on the NASDAQ National Market System. At May 22,
1996, there were approximately 269 holders of record of the Company's Common
Stock as reported by the Company's transfer agent. American Stock Transfer
& Trust Co. became the Company's transfer agent and registrar on January 1,
1996.
The following table sets forth the quarterly range of high and low sales
prices on the American Stock Exchange.
Fiscal Year 1996 Fiscal Year 1995
Fiscal Quarter High Low High Low
April - June 7-3/8 6-1/4 8-1/8 6-5/8
July - Sept. 7 6-1/4 7-3/4 6-3/8
Oct. - Dec. 7 5-7/8 7-3/4 6-3/8
Jan. - March 7-1/8 6-1/2 7-1/8 6-3/8
In fiscal 1996, the Company paid a cash dividend of $0.065 on June 10, 1995,
September 10, 1995, December 10, 1995 and March 10, 1996 to shareholders of
record May 20, 1995, August 22, 1995, November 22, 1995 and February 23,
1996, respectively.
In fiscal 1995, the Company paid a cash dividend of $0.06 per share on June
10, 1994 to shareholders of record May 25, 1994 and a cash dividend of
$0.065 on September 10, 1994, December 10, 1994 and March 10, 1995 to
shareholders of record August 22, 1994, November 23, 1994 and February 17,
1995 respectively.
In fiscal 1994, the Company paid a cash dividend of $0.12 per share on
September 1, 1993, to stockholders of record August 6, 1993. On December
10, 1993 the Company initiated the payment of dividends quarterly with a
payment of $0.06 per share to shareholders of record November 19, 1993.
Also a quarterly dividend of $0.06 per share was paid on March 10, 1994 to
stockholders of record February 24, 1994.
Item 6. Selected Financial Data
The following table includes certain selected financial data of the Company
for the fiscal years and periods indicated (amounts in thousands except per
share data):
1996 1995 1994 1993 1992
Revenue $47,159 $45,603 $72,501 $58,380 $34,133
Net Income 763 858 853 674 707
per common share .65 .72 .71 .57 .59
Long-term obligations
including current
maturities 3,869 7,230 10,031 6,465 9,286
Cash dividends per
common share .26 .255 .24 .22 .21
Total assets at
year-end 24,828 22,107 24,728 18,977 21,874
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and notes thereto. All information is based on the
Company's fiscal year ending March 31. (Tabular information: dollars
in thousands, except per share amounts).
Results of Operations 1996 Change 1995 Change 1994
Revenues $47,159 3% $45,603 (37%) $72,501
Operating costs and expenses: 45,687 4% 43,918 (38%) 70,718
Percent of revenue 97% 96% 98%
Operating income 1,472 (13%) 1,685 (5%) 1,783
Percent of revenue 3% 4% 2%
Net income 763 (11%) 858 1% 853
Net income per share .65 (10%) .72 1% .71
Revenues
1996 revenues increased 3% over 1995 primarily from fourth quarter delivery
of facilities services for the City of Philadelphia and of communications
hardware to the US Army. The 37% revenue reduction in 1995 reflects
the termination of the Maritime Prepositioning Ship Contract (MPS) with the
United States Marine Corps, completed in the first quarter of fiscal year
1995. The 1995 reduction in revenues from the MPS contract was
partially offset by revenue increases from a contract to provide long-term
support of the U.S. Army's digital switch system and strategic alliances
with Encore Corporation, Computer Language Research Inc. and Trellis
Network Services Inc.
Operating Costs and Expenses 1996 Change 1995 Change 1994
Cost of services $41,675 2% $40,708 (39%) $67,207
Percent of revenues 88% 89% 93%
Selling, general
and administrative 3,692 15% 3,210 (9%) 3,511
Percent of revenues 8% 7% 5%
Litigation expense 320 - -
Percent of revenues 0.7% - -
The Company maintained its 1996 cost of services at 1995 levels through
deliberate cost containment strategies which had been initiated in 1995.
The significant decrease in costs of services in 1995 over 1994
relates primarily to costs associated with the MPS contract. This contract
operated at low margins due to sizable subcontract and material costs, the
revenues of which were reported by the Company but not fee
bearing to the Company. Costs of services as a percent of revenue decreased
from 93% in 1994 to 89% in 1995 due to cost control efficiencies realized
in the electronic operating divisions and administrative areas of
the Company and because of the termination of the MPS contract.
Litigation expenses of $320,000 in the second fiscal quarter ending
September 30, 1995, include legal costs associated with a trial of a lawsuit
described in Item 3.
<PAGE>
Approximately $130,000 of the increase in selling, general and
administrative (S,G&A) expenses was expended on marketing consulting and
proposal efforts company-wide in an effort to expand Revenues and represents
an increase in such activity over 1995. The proportion of S,G&A expense
increased to 8% of Revenues compared with 1995's 7% of Revenues and the
Company's objective of 7%. S,G&A expenses decreased in amount but increased
as a percent of revenues in 1995 as compared to 1994. The 7% relationship
of S,G&A costs to revenues reported in 1995 exceeded the 5% reported for
1994. The Company reduced cost in the S,G&A areas by approximately $.3
million in response to the completion of MPS operations in fiscal year 1995.
The Company achieved the previously reported objective of maintaining
expenditures as a percentage of revenue at 7% in 1995.
Operating Income
Operating income decreased by $213,000 to 3% of Revenue compared with 4% of
Revenue in 1995. Operating income decreased $98,000 in 1995 when compared
to 1994 but increased from 2% of revenues in 1994 to 4% of revenues in 1995.
An increase in the higher profit margin electronics business and
termination of the low margin MPS contract was primarily responsible for
the improved margins.
Interest and other Income or expense 1996 Change 1995 Change 1994
Interest expense $573 (9%) $627 (5%) $661
Other (income) expense net (362) (3%) (375) 40% (268)
Interest expense significantly declined by $54,000 or 9% from 1995. The
decline was accomplished through reducing borrowing requirements by
improving cash flow despite an increase in interest rates over 1995.
Interest expense decreased in 1995 when compared to 1994, because of
decreased capital requirements. This decrease was partially offset by
higher interest rates in 1995 as compared to 1994.
Other income, net of expenses, is sublease income from the company's office
park which is currently over 95% occupied. The office park was purchased in
1993 by the Company's wholly-owned subsidiary HRI.
Income Taxes 1996 Change 1995 Change 1994
Income taxes $498 (13%) $575 7% $537
Effective tax rate 40% 40% 39%
These fluctuations were relatively proportional to changes in pretax income
and the Company's effective tax rate remained relatively unchanged in 1996
compared with the 1995 and 1994 rates. The Company has
adopted Financial Accounting Standard No. 109 "Accounting for Income Taxes"
effective for all periods presented.
Factors That May Affect Future Results
The Company's future operating results may be affected by a number of
factors including uncertainties relative to national economic conditions,
especially as they affect interest rates, industry factors, the Company's
ability to successfully increase its business and effectively manage expense
margins.
The Company must continue to effectively manage expense margins in relation
to revenues by directing new business development towards markets that
complement or improve existing service lines. The Company
must also continue to emphasize operating efficiencies through cost
containment strategies, reengineering efforts and improved service delivery
techniques.
Uncertainties continue to exist relative to the operating level of the
Company's contract with the U.S. Army to provide for long-term life cycle
support of the U.S. Army's AT&T and GTE electronic digital switch systems.
This Army contract is for an indefinite quantity and accordingly, actual
revenues may vary significantly.
The Company participates in the computer industry, providing maintenance and
installation services. This industry has been characterized by rapid
technological advances that have resulted in frequent introduction
of new products and product enhancements and aggressive pricing practices,
which also impacts pricing of service activities. The Company's operating
results could be adversely affected by industry wide pricing
pressures. The Company's operating results could also be adversely impacted
should the Company be unable to effectively achieve the revenue growth
necessary to provide profitable operating margins in its field
maintenance operations. The Company's plan for growth includes intensified
marketing efforts, an expanding commercial sales program, strategic
alliances such as those obtained with AT&T, GTE Computer Language
Resources, Inc. and Trellis Network Services, Inc. and, where appropriate,
acquisitions that expand our market share such as our CMSA and EAI Services
Division acquisitions. The Company intends to expand upon
recent alliances, acquisitions and new contracts to provide the density
necessary to maintain profitability in the competitive electronics industry.
Because of the foregoing factors as well as other factors affecting the
Company's profitability, it is difficult to project future operating results
although there is indeed cause for optimism in light of the Company's recent
marketing success and improvement in operating income margins.
Liquidity and Capital Resources 1996 1995 1994
Cash $ 2,473,000 $ 18,000 $ 509,000
Working capital 5,924,000 8,845,000 10,789,000
Cash provided (used) by
operations 7,110,000 3,519,000 (389,000)
Cash (used) in investment
activities (644,000) (786,000) (3,022,000)
Cash provided (used) by
financing activities (3,741,000) (3,224,000) 3,344,000
The Company's financial condition remains strong at March 31, 1996 with
working capital of $5.9 million and a current ratio of 1.50 due to a large
prepayment on a hardware delivery order in the fourth quarter. The
current ratio adjusted for that transaction would have been 2.4, consistent
with 1995.
The Company's strong financial position continued to improve in 1996 as a
result of cash provided by operations of $7.1 million which compares to $3.5
million in 1995. The increase in cash generated in 1996 as compared with
1995 is primarily a result of the large prepayment previously
mentioned. Accounts receivable increased by 5% or $0.5 million. Net income
for the year was 11% below 1995 on somewhat higher revenue due to litigation
expenses for a trial in the second quarter in which judgement was entered
in Halifax's favor.
The Company leases approximately 30 field sites. Disclosure of the future
minimum lease payment is in Note 9 to the financial statements. The Company
anticipates capital expenditures in 1997 to approximate 1996 levels. A
wholly owned subsidiary operates the office park including leasing one
of the two buildings.
<PAGE>
Cash flows used in financing activities increased in 1996 representing a
larger net reduction in the credit line with Crestar Bank. Cash flows used
in financing activities increased in 1995 compared to 1994 payment for
the EAI acquisition financing which is also provided by Crestar Bank.
The Company believes that its balances of cash and cash equivalents in
conjunction with funds generated from operations and from short term
borrowings should be sufficient to meet its operating cash requirements
for the foreseeable future.
Item 8. Financial Statements and Supplementary Data
Financial statements and supplementary data of the Company are attached
hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following paragraphs set forth the name and age of each executive
officer and the members of the Board of Directors of the Company, together
with their respective periods of service as officers and
directors and other positions with the Company. All directors hold office
for one (1) year or until their successors are duly elected and qualified.
DIRECTORS
Howard C. Mills, age sixty-two, has since October 16, 1984, been President,
Chief Executive Officer and a Director of the Company. Prior to that time
he served as Vice President and Executive Vice President of
the Company. Mr. Mills joined Halifax in 1981 when it acquired ASSET Inc.
of which Mr. Mills was President and Chief Executive Officer. Mr. Mills has
forty years experience in the management, engineering and technical services
business, including twelve years as President of ASSET Inc., three
years as President of Blyth Marine, five years as a Division Vice President
of the Stanwick Corporation, and eight years in engineering management with
the Newport News Shipbuilding and Dry Dock Company.
Arch C. Scurlock, age seventy-six, presently Chairman of the Board of
Directors, has been a Director of the Company since 1973. He had served
from 1969 to 1992 as Chairman of the Board of TransTechnology
Corporation, a manufacturer of aerospace-defense and other industrial
products. Since 1968, he has been President and a Director and controlling
shareholder of Research Industries Incorporated, a private investment
company.
John H. Grover, age sixty-eight, has been a Director of the Company since
1984. He has served as Executive Vice President, Treasurer and Director of
Research Industries Incorporated, since 1968 and as a
Director of TransTechnology Corporation from 1969 to 1992.
Clifford M. Hardin, age eighty, elected Director of the Company on March 25,
1985, is a Director of SRI, Inc. Lincoln, Nebraska. Dr. Hardin is also a
Trustee of Winrock International, the American Assembly and
the University of Nebraska Foundation. Dr. Hardin's past positions have
included Chancellor of the University of Nebraska (1954-1969), Secretary,
United States Department of Agriculture (1969-1971), Vice
Chairman of the Board and Director of Corporate Research for Ralston Purina
Company (1971-1980) and Director of the Center for the Study of American
Business at Washington University (1980-1982). Dr. Hardin also served as an
economist at Washington University until 1985. From 1981 to 1987 Dr. Hardin
served as a Director of Stifel Financial Corporation, The parent corporation
of Stifel Nicolaus & Company, a St. Louis Securities brokerage firm
registered with the Securities and Exchange Commission.
Ernest L. Ruffner, age sixty-one, elected Director of the Company on March
25, 1985, is an attorney engaged in the private practice of law as a member
of the firm of Pompan, Ruffner & Werfel in Alexandria, Virginia. He has
been an attorney for 32 years. Mr. Ruffner is a graduate of the
United States Military Academy, served as a First Lieutenant in the United
States Army Corps of Engineers and has been a Director of Research
Industries Incorporated. since 1983. Mr. Ruffner has been Secretary
of the Company since 1985. In January 1992, he was given the additional
designation of Counsel of the Company, and in September 1994, he was elected
General Counsel (See Item 13).
<PAGE>
Alvin E. Nashman, age sixty-nine, elected director of the Company on
September 17, 1993, is a director and consultant of Computer Sciences
Corporation (CSC). He also serves on the Boards of NYMA Corporation and
MILTOPE Corporation, where he is Chairman. Dr. Nashman headed
the multi-division systems groups of CSC for 27 years and served two terms
as Chairman of the Board of the Armed Forces Communications and
Electronics Associates (AFCEA).
John Toups, age seventy, elected Director of Company on September 17, 1993,
served as President and CEO of Planning Research Corporate (PRC) from 1978
to 1987. He also served as interim Chairman of Board and CEO of the
National Bank of Washington and Washington Bancorp. and is currently
a Director of CACI International, NVR and Telepad Corporation.
OTHER EXECUTIVE OFFICERS
Richard J. Smithson, age seventy-two, is Vice President and Treasurer of the
Company, responsible for all corporate financial activities. Mr. Smithson
has over forty-five years experience in varied executive
financial positions including twenty-three years with the Company, seventeen
years with Atlantic Research Corporation and subsidiaries, and five years
with the law firm of Rhyne and Rhyne.
James L. Sherwood, IV, age fifty-four, is Vice President, Contracts and
Administration. He previously served as Vice President of the Company's
Facilities Services Division. In addition, he served as Assistant Vice
President and Manager for various divisions of the Company and ASSET
Inc., which he joined in 1978. Prior to joining ASSET Inc., Mr. Sherwood
held various electrical engineering positions with Potomac Electric Power
Company and Newport News Shipbuilding and Dry Dock Company. He is a
Registered Professional Engineer in several states including Virginia.
Melvin L. Schuler, age fifty-two, is a Vice President managing the Company's
Communication Services Division. He is also Vice President for operations
of the Company's wholly-owned subsidiary, Halifax Engineering, Inc. Mr.
Schuler has been with Halifax since 1972, serving in various management
positions within this service line.
James C. Dobrowolski, age thirty-three, joined Halifax as a result of the
Company acquiring EAI Services which he had managed for two years. Mr.
Dobrowolski currently serves as the Vice President in charge of
the Simulation on Facilities Services Division. Prior to joining EAI as
Director of Contracts in April 1988, he was with Engineering and
Professional Services Inc. where he served as Manager of Subcontract
Administration for two years.
Thomas F. Nolan, age fifty-one, has been Vice President, Computer Services
Division for four months. Before joining the Company, Mr. Nolan worked six
years as an independent executive in Financial Services Management. Prior
to that, he was Senior Vice President, Marketing for Decision Data Services,
Inc, a nation wide computer maintenance firm. For sixteen years Mr. Nolan
held various executive positions with Bell Atlantic Corporation's SORBUS
Service Divison.
John D. D'Amore, age forty-six, Vice President and Controller, joined
Halifax on April 10, 1996. He previously served as Vice President Finance
for CTA International, Inc., a subsidiary of CTA Incorporated.
Prior to that he served in various executive finance positions including
five years as Vice President Finance with Presearch Inc. Mr. D'Amore is a
Certified Public Accountant and a member of the Virginia Bar.
Thomas L. Mountcastle, age forty-two is president of CMS Automation, Inc., a
wholly owned subsidiary of Halifax and Vice President of Halifax's Network
Integration Services Division. Mr. Mountcastle joined Halifax as a result
of the Company acquiring CMS Automation, Inc. on April 1, 1996 where
he had served as President since 1990. Prior to that he served in various
capacities in computer technology including two years as President of Data
Support Systems.
<PAGE>
Item 11. Executive Compensation
The following table sets forth information on the Chief Executive Officer
and the only other officers whose compensation exceeded $100,000 serving at
the close of the fiscal year ended March 31, 1995 for services rendered in
all capacities during the fiscal years ended March 31, 1996, 1995, and 1994.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long Term Compensation
Awards Payouts
Other All
Name and Annual Restricted Other
Principle Compen- Stock Options LTIP Compen-
Position Salary Bonus sation Awards SARs payouts sation
Year ($) ($) ($) (1) ($) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Howard C. Mills 1996 149.925 28,336 5,623 none 4,800 none 2,999(2)
CEO/President 1995 150,188 27,067 3,331 none 9,600 none 2,604(2)
1994 134,811 20,276 2,971 none 2,000 none 2,692(2)
Christopher K. Jones 1996 115,013 7,245 3,075 none 1,200 none 2,300(2)
1995 115,118 15,467 3,007 none 4,800 none 2,302(2)
1994 101,512 none 3,153 none 1,000 none 3,103(2)
James L. Sherwood III 1996 96,785 13,970 none none 1,200 none 5,284(3)
1995 96,962 21,886 none none 3,600 none 1,939(2)
1994 88,554 14,227 none none 600 none 7,966(3)
James C. Dobrowolski 1996 96,940 13,627 2,400 none 2,400 none 599(2)
1995 95,099 23,672 none none 3,600 none 5,855(3)
Donald R. Morrell 1996 98,392(4) 6,437 none none 1,200 none 10,457(3)
1995 81,597 7,017 none none 3,600 none 1,632(2)
1994 73,449 5,097 none none 600 none 1,468(2)
Melvin L. Schuler 1996 89,733 19,712 none none 1,000 none 1,794(2)
1995 89,902 8,999 none none 2,000 none 1,798(2)
1994 81,496 none none none 500 none 1,630(2)
<FN>
(1) Value of Company furnished auto
(2) Amounts contributed to officer under 401(k) plan
(3) Amounts contributed to officer under 401(k) plan and paid vacation
(4) Includes amounts reimbursed employee from deferred compensation plan.
</TABLE>
Director Compensation
During the year, Directors who are not officers of or otherwise compensated
by the Company receive an annual fee of $1,000 and also receive $2,000 and
reimbursement of expenses incurred for each meeting of the Board of
Directors which they attend.
Stock Option Plans
In 1984, the Company's shareholders approved the 1984 Incentive Stock Option
and Stock Appreciation Rights Plan (the 1984 "Plan"). The Company's key
employees, including officers, were eligible to participate. Directors who
were not officers were not eligible.
At the 1988 Annual Meeting of Shareholders, the shareholders approved
amendments to the 1984 Plan which increased to 110,000 the number of shares
authorized for issuance pursuant to the 1984 Plan and brought the 1984 Plan
into conformity with the Tax Reform Act of 1986.
In fiscal year 1993, options totaling 2,000 common shares were offered to an
employee with an exercise price of $8.50, the market price on date of
issue.
In fiscal year 1994, options totaling 12,100 shares were offered to
employees with an exercise price of $7.50, the market price on the date of
issuance.
The 1984 Plan terminated May 15, 1994; however options continue to be
outstanding to officers and employees of the Company covering 31,100 shares
of Common stock. These options all expire prior to July 18, 1998. See note
7 to financial statements.
At the September 16, 1994 annual meeting the shareholders approved the new
Key Employee Stock Option Plan ("1994 Plan").
The maximum number of shares subject to the 1994 Plan and approved for
issuance is 120,000 shares of the Company's Common Stock either authorized
and unissued or shares held in treasury. This number is
subject to adjustment in the event of stock splits, stock dividends or other
recapitalization of the Company's Common Stock. The Company is under no
obligation to register either the Option or the Option Stock under either
Federal or State securities laws, however, the Committee has the power and
sole discretion to register the 1994 Plan. If the 1994 Plan is not
registered, both the Option and the Option Stock will be "restricted
securities" as defined in Rule 144 of the General Rules and Regulations
of the Securities Act of 1933.
The 1994 Plan will be administered by a Committee selected by the Board and
comprised of not less than three members of the Board. The Committee has
the sole and absolute discretion to establish from time-
to-time the criteria for participation in the 1994 Plan and to select the
officers and other key employees to whom Options may be granted, to
determine all claims for benefits under the 1994 Plan, to impose such
conditions and restrictions on Options as it determines appropriate, with
the consent of the recipient, to cancel Options and to substitute new
Options for previously awarded Options which, at the time of such
substitution, have an exercise price in excess of fair market value of the
underlying shares of Company Common Stock.
The Committee also has the sole and absolute discretion to grant options
entitling the Participants to purchase shares of Company Common Stock from
the Company in such number, at such price and on such terms and subject to
such conditions, not inconsistent with the terms of the 1994 Plan, as may be
established by the Committee. The Company will receive no consideration
with regard to the granting of any Option granted under this 1994 Plan. Due
to the broad discretion of the committee, it is not possible
to determine at this time the benefits or amounts that will be received by
or allocated to the participants, if any.
Except as otherwise expressly provided in the 1994 Plan, the Committee may
designate, at the time of the grant of an Option, the Option as an
Incentive Stock Option under Section 422 of the Internal Revenue
Code. The Purchase Price of each share of Company Common Stock which may be
purchased upon exercise of any Option granted under the 1994 Plan shall be
established by the committee in its discretion, and in the case of Incentive
Stock Options, such Purchase Price shall not be less than 100% of the Fair
Market Value on the Date of Grant.
Each Option granted under the 1994 Plan shall be exercised by written notice
to the Company. The Purchase Price of shares purchased upon exercise of an
Option granted under the 1994 Plan shall be paid in full.
No option may be exercised in whole or in part prior to six months from the
Date of Grant.
The Board has complete power and authority to amend the 1994 Plan at any
time as it deems necessary or appropriate and no approval by the
stockholders of the Company or by any other person, committee or
entity of any kind is required to make any amendment; provided, however,
that the Board shall not, without the affirmative approval of stockholders
of the Company, increase the number of shares of Company Common Stock
available for Option grants hereunder or make any other amendment which
requires stockholder approval under Rule 16b-3 of the Code.
In fiscal year 1995, options totaling 32,000 shares were offered to
employees at an exercise price of $7.00, the market price on date of
issuance.
In fiscal year 1996, options totaling 13,600 shares were offered to
employees at exercise prices ranging from $6.875 to $7.25 the market prices
on the dates of issuance.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of May 22, 1996 (1) the number of shares
of the Company's Common Stock owned beneficially by each person who owned of
record, or was known by the Company to have owned beneficially, more than 5%
of such shares then outstanding, (2) the number of shares owned
beneficially by each director of the Company, and (3) the number of shares
owned beneficially by all officers and directors as a group. Information as
to the beneficial ownership is based upon statements furnished to the
Company by such persons.
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent
Research Industries 410,000 31.3
Incorporated (1)(2)(3)
123 North Pitt Street
Alexandria, VA 22314
Arch C. Scurlock (1)(5) 411,000 31.4
123 North Pitt Street
Alexandria, VA 22314
Howard C. Mills (4) 47,418 3.6
5250 Cherokee Avenue
Alexandria, VA 22312
Alvin E. Nashman 3,000 0.2
3170 Fairview Park Drive
Falls Church, VA 22042
John Toups 3,000 0.2
1209 Stuart Robeson Dr.
McLean, VA 22101
John H. Grover (2) 1,000 0.1
123 North Pitt Street
Alexandria, VA 22314
Clifford M. Hardin 1,000 0.1
10 Roan Lane
St. Louis, MO 63124
Ernest L. Ruffner (3) 100 0
209 North Patrick Street
Alexandria, VA 22314
All officers and directors 520,966 39.7
as a group, including
the above
(14 persons) (5)
<PAGE>
(1) Research Industries Incorporated is 95% owned by Arch C. Scurlock,
Chairman of the Company's Board of Directors. Dr. Scurlock is
also President and a director of Research Industries Incorporated.
(2) Mr. Grover is also a 5% owner, a director and Executive Vice
President and Treasurer of Research Industries Incorporated.
(3) Mr. Ruffner is a director of Research Industries Incorporated.
(4) Includes 300 shares held by Mr. Mills' wife.
(5) Includes 410,000 shares owned by Research Industries Incorporated.
Item 13. Certain Relationships and Related Transactions
Ernest L. Ruffner, Secretary and General Counsel and a Director of the
Company, is a member of the law firm of Pompan, Ruffner & Werfel. During
the fiscal year ended March 31, 1996, the firm received fees of $9,077
from the Company.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Consolidated Financial Statements
o Reports of Independent Auditors
o Consolidated Statements of Earnings for the years ended
March 31, 1996, 1995 and 1994
o Consolidated Balance Sheets as of March 31, 1996 and 1995
o Consolidated Statements of Cash Flows for the years ended
March 31, 1996, 1995 and 1994
o Consolidated Statements of Changes in Stockholders'
Equity for the years ended March 31, 1996, 1995 and 1994
o Notes to Consolidated Financial Statements
2. Financial Statement Schedules
o Schedule II, Valuation & Qualifying Accounts
All other schedules are omitted since they are not applicable, not required
or the required information is included in the financial statements
or notes thereto.
3. Exhibits
3.1 Articles of Incorporation, as amended. (Incorporated by
reference to Exhibit 3.1 to Form 10-K for
the year ended March 31, 1995.)
3.2 By-laws, as amended. (Incorporated by reference to Exhibit
3.2 to Form 10-K for the year ended March 31, 1995.)
4.1 Loan and Security Agreement dated January 30, 1989 between
the Company and Crestar Bank. (Incorporated by reference to
Exhibit 4.1 to Form 10-K for the year ended March 31, 1989.)
4.2 First Amendment to Amended and Restated Loan and Security
Agreement between the Company and Crestar Bank dated
Dec. 11, 1992 and Amended and restated revolving note.
(Incorporated by reference to Exhibit 4.2 to Form 10K for
the Year ended March 31, 1993)
4.3 Loan agreement dated June 30, 1993 between the Company and
Crestar Bank. (Incorporated by reference to Exhibit 4.3 to
Form 10-K for the year ended March 31, 1994.
4.4 Second Amendment to Amended and Restated Loan and Security
Agreement between the Company and Crestar Bank dated
November 14, 1994 and amended and restated revolving note.
(Incorporated by reference to Exhibit 4.4 to Form 10-K for the
year ended March 31, 1995.)
10.1 1984 Incentive Stock Option and Stock Appreciation Rights
Plan, as amended. (Incorporated by reference to Exhibit
10.3 to the 1989 10-K.)
10.2 Agreement of purchase and sale with amendments dated
June 7, 1992, between the Company and ReCap Inc. for
the Halifax Office Complex. (Incorporated by reference
to Exhibit 10.5 of the 1992 10-K.)
10.3 1994 Key Employee Stock Option Plan. (Incorporated by
reference to Exhibit 10.3 to Form 10-K for the year ended
March 31, 1995.)
22. Subsidiaries of the registrant
(b) Reports on Form 8-K
No Reports on Form 8-K were filed during the 4th Quarter ended
March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HALIFAX CORPORATION
By
Howard C. Mills
President and Chief Executive Officer Date: 6/28/96
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
President and
Howard C. Mills Chief Executive
Principal Executive Officer Officer
Vice President
Richard J. Smithson and Treasurer
Principal Financial Officer
Vice President
John D. D'Amore and Controller
Principal Accounting Officer
Chairman of the
Arch C. Scurlock Board of Directors
Director
John H. Grover
Director
Clifford M. Hardin
Director
Ernest L. Ruffner
Director
Alvin E. Nashman
Director
John Toups
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HALIFAX CORPORATION
By /s/Howard C. Mills
Howard C. Mills
President and Chief Executive Officer Date: 6/28/96
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Howard C. Mills President and 6/28/96
Howard C. Mills Chief Executive
Principal Executive Officer Officer
/s/Richard J. Smithson Vice President 6/28/96
Richard J. Smithson and Treasurer
Principal Financial Officer
/s/John D. D'Amore Vice President 6/28/96
John D. D'Amore and Controller
Principal Accounting Officer
Chairman of the
Arch C. Scurlock Board of Directors
/s/John H. Grover Director 6/28/96
John H. Grover
Director
Clifford M. Hardin
/s/Ernest L. Ruffner Director 6/28/96
Ernest L. Ruffner
Director
Alvin E. Nashman
/s/John Toups Director 6/28/96
John Toups
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Halifax Corporation
We have audited the accompanying consolidated balance sheets of Halifax
Corporation and its subsidiaries as of March 31, 1996 and 1995, and the
related consolidated statements of earnings, changes in stockholders'
equity and cash flows for each of the two years in the period ended
March 31, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Halifax
Corporation and its subsidiaries at March 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for
each of the two years in the period ended March 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
June 5, 1996
<PAGE>
Report of Independent Certified Public Accounts
Stockholders
Halifax Corporation
We have audited the accompanying consolidated statements of earning,
stockholders' equity and cash flows for the year ended March 31, 1994, of
Halifax Corporations (a Virginia corporation). These financial statements
are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statement referred to above,
present fairly, in all material respects, the results of operations of
Halifax Corporation and its cash flows for the year ended March 31, 1994, in
conformity with generally accepted accounting principles.
We have also audited Schedules V, VI, and VIII as of March 31, 1994. In our
opinion, the schedules present fairly the information required to be set
forth therein.
/s/ Grant Thornton LLP
Vienna, Virginia
June 3, 1994
<PAGE>
HALIFAX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Revenues (Note 1) $ 47,159,000 $ 45,603,000 $ 72,501,000
Operating costs and expenses:
Cost of services 41,675,000 40,708,000 67,207,000
Litigation expense 320,000 - -
Selling, general and administrative 3,692,000 3,210,000 3,511,000
Total operating costs and expenses 45,687,000 43,918,000 70,718,000
Operating income 1,472,000 1,685,000 1,783,000
Interest expense 573,000 627,000 661,000
Other (income) expense-net (362,000) (375,000) (268,000)
Income before income taxes 1,261,000 1,433,000 1,390,000
Income taxes (Note 8) 498,000 575,000 537,000
Net income $ 763,000 $ 858,000 $ 853,000
Net income per common share $ 0.65 $ 0.72 $ 0.71
Weighted average number of common shares
outstanding 1,171,254 1,189,671 1,196,400
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
HALIFAX CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
<CAPTION>
March 31
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 2,743,000 $ 18,000
Trade accounts receivable (Note 3) 11,639,000 11,077,000
Other receivables 95,000 96,000
Inventory 2,792,000 3,480,000
Prepaid expenses and other current assets 207,000 284,000
Income taxes receivable - 40,000
Deferred income taxes (Notes 1 and 8) 512,000 361,000
TOTAL CURRENT ASSETS 17,988,000 15,356,000
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization (Notes 1 and 4) 4,527,000 4,717,000
INTANGIBLES AND OTHER ASSETS, net of accumulated
amortization (Notes 1 and 2) 2,313,000 2,034,000
TOTAL ASSETS $ 24,828,000 $ 22,107,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
expenses (Note 6) $ 11,418,000 $ 5,916,000
Income taxes payable 90,000 -
Current portion of long-term debt & mortgage
note payable (Note 5) 556,000 595,000
TOTAL CURRENT LIABILITIES 12,064,000 6,511,000
LONG-TERM DEBT (Note 5) 739,000 3,995,000
MORTGAGE NOTE PAYABLE (Note 5) 2,574,000 2,640,000
DEFERRED INCOME TAXES (Notes 1 and 8) 667,000 560,000
TOTAL LIABILITIES 16,044,000 13,706,000
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (Note 7)
Common stock, $.35 par value:
Authorized - 3,000,000 shares
Issued- 1,480,015 in 1996 and 1995
Outstanding - 1,168,229 in 1996; 1,180,329
in 1995 518,000 518,000
Additional paid-in capital 3,401,000 3,401,000
Retained earnings 5,253,000 4,795,000
9,172,000 8,714,000
Less treasury stock - at cost 311,786 shares in
1996; 299,686 in 1995 388,000 313,000
TOTAL STOCKHOLDERS' EQUITY 8,784,000 8,401,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,828,000 $ 22,107,000
<FN>
See notes to financial statements
</TABLE>
<PAGE>
HALIFAX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 763,000 $ 858,000 $ 853,000
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 599,000 658,000 652,000
(Gain) on sale of equipment - (2,000) -
Provision for losses on accounts receivable
and contracts - -
(Increase) decrease in accounts receivable (562,000) 2,315,000 (3,194,000)
(Increase) decrease in other current
receivables 1,000 (15,000) 5,000
(Increase) decrease in inventory 688,000 (43,000) 786,000
(Increase) decrease in other current assets 77,000 189,000 63,000
(Increase) decrease in other assets (44,000) 55,000 (85,000)
(Increase) decrease income tax receivable (111,000) (40,000) -
Increase (decrease) in accounts payable and
accrued expenses 5,502,000 (583,000) 522,000
Increase (decrease) in income taxes payable 90,000 (154,000) (15,000)
Increase (decrease) in deferred income taxes 107,000 281,000 24,000
Total adjustment 6,347,000 2,661,000 (1,242,000)
Net cash provided (used) by operating
activities 7,110,000 3,519,000 (389,000)
Cash flows from investing activities:
Acquisition of property and equipment (247,000) (393,000) (436,000)
Proceeds from sale of property and
equipment 3,000 7,000 12,000
Acquisitions (400,000) (400,000) (2,598,000)
Net cash used in investing activities (644,000) (786,000) (3,022,000)
Cash flows from financing activities:
Proceeds from borrowing of long-term debt 16,271,000 17,199,000 47,855,000
Retirement of long-term debt (19,632,000) (20,000,000) (44,289,000)
Cash dividends paid (305,000) (303,000) (288,000)
Proceeds from sale of stock upon exercise of
stock options - - 66,000
Purchase of treasury stock (75,000) (120,000) -
Net cash provided (used) by financing
activities (3,741,000) (3,224,000) 3,344,000
Net (decrease) increase in cash 2,725,000 (491,000) (67,000)
Cash at beginning of year 18,000 509,000 576,000
Cash at end of year $ 2,743,000 $ 18,000 $ 509,000
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
HALIFAX CORPORATION
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
<CAPTION>
Common Stock Additional Treasury Stock
Paid-In Retained
Shares Par Value Capital Earnings Shares Cost Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance
March 31, 1993 1,468,765 $ 514,000 $ 3,339,000 $ 3,675,000 282,586 $ (193,000) $ 7,335,000
Cash Dividends
($.24 per share) - - - (288,000) - - (288,000)
Net Income - - - 853,000 - - 853,000
Exercise of
Stock options 11,250 4,000 62,000 - - - 66,000
Balance
March 31, 1994 1,480,015 $ 518,000 $ 3,401,000 $ 4,240,000 282,586 $ (193,000) $ 7,966,000
Cash Dividends
($.255 per share) - - - (303,000) - - (303,000)
Net Income - - - 858,000 - - 858,000
Purchase of
Treasury stock - - - - 17,100 (120,000) (120,000)
Balance
March 31, 1995 1,480,015 $ 518,000 $ 3,401,000 $ 4,795,000 299,686 $ (313,000) $ 8,401,000
Cash Dividends
($.26 per share) - - - (305,000) - - (305,000)
Net Income - - - 763,000 - - 763,000
Purchase of
Treasury stock - - - - 12,100 (75,000) (75,000)
Balance
March 31, 1996 1,480,015 $ 518,000 $ 3,401,000 $ 5,253,000 311,786 $ (388,000) $ 8,784,000
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
HALIFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1. SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS ACTIVITY
Business Activity - Halifax Corporation, (the Company) provides
Electronic services and Facilities support to
Government and industry. These services include installation,
maintenance, field engineering, operations and logistics support
for equipment systems and facilities from the most technically
sophisticated electronics to common hardware. Revenues from
services rendered to the United States Government and the relative
percentages of such revenues to total revenues for the years ended
March 31, 1996, 1995 and 1994 are $34,420,000 (73%), $37,750,000
(83%) and $67,643,000 (93%), respectively. For the years ended
March 31, 1996, 1995 and 1994, the Company derived 0%, 15% and 60%,
respectively, of its revenue from its MPS contract with the U.S.
Marine Corps. The MPS contract was completed in the first quarter
of fiscal year 1995.
Principles of Consolidation - The Company's consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions are
eliminated in consolidation.
Revenue Recognition - On cost-type contracts, revenues are recorded
as reimbursable costs are incurred and related fixed and award fees
are recorded using the percentage of completion method. On time and
materials contracts, revenues are recorded at the contractual rates
as labor hours and other direct expenses are incurred. On fixed
price contracts, revenues are recorded using the percentage of
completion method. Revenues collected in advance for commercial
maintenance contracts are deferred and recognized over the term of
the related agreements. For all contracts, recognition is made of
any anticipated losses when identified. Disputes involving amounts
owed the Company by customers arise in the normal course of the
Company's business. These disputes are primarily due to changes in
contract specifications and disagreements over the interpretation
of contract provisions. Such disputes are recorded at the lesser of
their estimated net realizable value or actual costs incurred.
Claims against the Company and contract losses are recognized when
loss is considered probable and reasonably determinable in amount.
Use of Estimates - The preparation of financial statements in
conformity 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 those
estimates.
Property and Depreciation - Property and equipment is stated at cost.
Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets.
Inventory - Inventory consists principally of spare computer parts
valued at the lower of cost or market on the first-in first-out basis
and is displayed on the consolidated balance sheet net of allowances
for inventory obsolence of $804,000 and $611,000 at March 31, 1996
and 1995, respectively.
Income Taxes - The Company has adopted the provisions of Statement of
Financial Accounting Standards Number 109, "Accounting for Income
Taxes" (SFAS 109). Under SFAS 109, deferred taxes are provided on
all temporary differences measured using enacted tax rates expected
to be in effect during the periods in which the temporary
differences reverse.
Intangibles and Other Assets - Other assets includes cost in excess
of net assets of acquired companies described in Note 2 which is
being amortized using the straight-line method over 25 years.
Management regularly reviews the valuation and amortization to
determine possible impairment by comparing the carrying value to
the undiscounted future cash flows of the related assets.
New Accounting Pronouncements - In 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS
No. 121 requires that certain long-lived assets to be held and used
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS No. 121 also requires that certain
long-lived assets to be disposed of be reported at the lower of the
carrying amount or fair value less the cost to sell. The Company
will adopt SFAS No. 121 in fiscal 1997, as required, and is in the
process of evaluating the impact of adopting this standard.
Reclasses - Certain prior years balances have been reclassed to
conform to the 1996 presentation.
2. ACQUISITION
On April 1, 1996, the Company completed the acquisition of CMS
Automation, Inc. (CMSA), a private Richmond, VA based computer
network integration and solutions company. Financial consideration
was in the Company's stock with an assumption of debt. There was an
initial payment of approximately 140,000 shares from Treasury
Stock representing approximately 12% of Halifax outstanding
shares at closing and there may be additional
payments of common stock over the next three years based on the
annual earnings of CMSA. The Company filed reports of the
Acquisition Transaction with the SEC on Form 8-K on April 16, 1996
and on June 17, 1996.
The following proforma information is unaudited and reflects the
acquisition as if CMSA had been acquired as of April 1, 1995.
<TABLE>
<CAPTION>
FY96 (Unaudited) Proforma
(000) Halifax CMSA Adjustments Tax Effect Total
<S> <C> <C> <C> <C> <C>
Revenues $47,159 $21,249 - - $68,408
Net Income 763 (109) 226 89 791
Earnings per share 0.65 .60
Weighted Average Number of
Common Shares Outstanding #1,171,254 #1,310,884
</TABLE>
The acquisition will be accounted for as a purchase with the purchase
price allocated to the assets and liabilities based on their
estimated fair value. The initial purchase price and
estimated costs of the transaction exceed the fair value of net
assets purchased by $348,000 which will be capitalized as part
of the purchase price in excess of the fair value of the net assets
acquired.
On June 30, 1993, the Company purchased substantially all of the
assets and liabilities of the Field Services Division of Electronic
Associates, Inc. (EAI) which is primarily engaged in the
maintenance of electronic equipment and software for an initial
purchase price of approximately $2.4 million. Additional payments
of $1,000,000 were paid over the next 3 years since certain revenue
objectives were achieved. The Company paid $200,000 relating to
this requirement in 1994 and $400,000 in both 1995 and 1996.
<PAGE>
The acquisition was accounted for as a purchase with the purchase
price having been allocated to the assets and liabilities based on
their estimated fair market value. The initial purchase price and
related costs exceeded the fair value of the net assets purchased by
$1,235,000. A portion of the purchase price was allocated to
contract rights ($400,000) and a covenant not to compete ($150,000)
which are being amortized on a straight- line-basis over 10 and 3
years, respectively. The additional payments noted above have
been capitalized as part of the purchase price in excess of the fair
value of the net assets acquired. Accumulated amortization of costs
in excess of net assets acquired, contract rights and covenants not
to compete at March 31, 1996 are $138,000, $110,000 and $107,000,
respectively.
The pro forma information provided below is unaudited and reflects
the acquisition as if EAI had been acquired as of the beginning of
the year presented, after accounting for the effect of costs in
excess of net assets acquired, contract rights, capitalized
acquisition costs and noncompetition covenant amortization, and the
increased interest expense on funds used to finance the
acquisition. The pro forma information (in 000s) is not
necessarily indicative of operations that would have occurred had
the transaction been consummated at the beginning of the period
presented.
<TABLE>
<CAPTION>
Proforma Tax
FY94 (Unaudited) Halifax EAI Adjustments Effect Total
<S> <C> <C> <C> <C> <C>
Revenues $72,501 $ 3,546 $76,047
Net Income 853 155 (67) (29) 913
Earnings per share 0.71 0.13 (0.06) (0.02) 0.77
</TABLE>
3. ACCOUNTS RECEIVABLE
<TABLE>
Accounts receivable consists of:
<CAPTION>
March 31,
1996 1995
<S> <C> <C>
Amounts Billed $ 10,886,000 $ 9,415,000
Amounts currently billable 511,000 1,048,000
Retainages and amounts awaiting audit 423,000 482,000
Claims 7,000 302,000
Total 11,827,000 1,832,000
Allowance for possible losses on accounts
receivable and claims (188,000) (170,000)
Total $ 11,639,000 $ 11,077,000
</TABLE>
Retainages are generally billable upon acceptance of work by
customers or completion of contract audits by the Government. It is
anticipated that the accounts receivable balance at March 31,
1996 will be substantially collected within one year. The Company
has a several claims against the Government which are in various
stages of the settlement process. Management is unable to determine
precisely when these claims will be settled because, to some extent,
settlement is dependent on action by Government representatives
and other factors outside the control of the Company. However, in
the opinion of management, adequate provision has been
made to cover the settlement of all claims and ultimate resolution
of these matters is not expected to have a material adverse effect
on the Company's consolidated financial position or results of
operations.
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment consists of:
March 31,
Estimated
1996 1995 Useful Lives
<S> <C> <C> <C>
Automotive equipment $ 336,000 $ 312,000 4 years
Machinery and equipment 2,605,000 2,413,000 3 - 10 years
Furniture and fixtures 576,000 602,000 5 - 10 years
Building and improvements 3,834,000 3,812,000 32 years
Land 648,000 648,000
Total 7,999,000 7,787,000
Accumulated depreciation and amortization 3,472,000 3,070,000
Total $ 4,527,000 $ 4,717,000
</TABLE>
<PAGE>
5. LONG-TERM DEBT AND MORTGAGE NOTE PAYABLE
<TABLE>
<CAPTION>
March 31,
1996 1995
<S> <C> <C>
Long-term debt consists of:
Revolving credit agreement amended effective
December 11, 1992, with a maximum credit line of
$7,000,000. Amounts available under this agreement
are determined by applying stated percentages to
the Company's eligible billed receivables and
inventory. Interest accrues at either the prime
rate of the lending bank or the LIBOR rate plus 2.0%
based on borrowings equal to or less than eligible
billed receivables and at either the prime rate plus
1/2% or the LIBOR rate plus 2.5% for borrowings in
excess of billed receivables. At March 31, 1996 the
interest rate was 8.25% This agreement expires
July 31, 1996, at which time all borrowings will
become due. $ - $ 2,765,000
Other notes payable and capital lease obligations with interest
rates ranging from 1/2% over the prime rate to 15%, due in
monthly installments and maturing at dates through 1997. The
prime rate was 8.25% at March 31, 1996. $ 20,000 $ 50,000
Mortgage note payable in monthly installments of $5,533 plus
interest at prime plus 1/2% through July 1, 1996.
At March 31, 1996 the prime rate was 8.25%. The note can be
extended through July 1, 2001 for a fee of 1/4% of the
outstanding balance at July 1, 1996. The note is collateralized
by buildings and land. $ 2,640,000 $ 2,707,000
Acquisition term loan facility dated June 30, 1993. Note is
payable in 60 equal monthly installments of $41,666 plus
interest. Interest accrues at prime plus 1/2%. The prime
rate was 8.25% at March 31, 1996. 1,209,000 1,708,000
$ 3,869,000 $ 7,230,000
Less: Current maturities 556,000 595,000
Total $ 3,313,000 $ 6,635,000
</TABLE>
<PAGE>
Advances under the revolving credit agreement and term loan facilities are
collateralized by a first priority security interest in all the Company's
assets except for land and buildings. Additionally, advances under the term
loan facilities are secured by the acquired assets.
The revolving credit agreement also contains covenants which require the
Company to maintain certain net worth and financial statement ratios.
The aggregate annual maturities of long-term debt are:
1997 - $ 556,000
1998 - 573,000
1999 - 233,000
2000 - 67,000
2001 - 66,000
Thereafter - 2,374,000
Total - $ 3,869,000
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
March 31,
1996 1995
Accrued expenses $ 1,151,000 $ 1,200,000
Accounts payable 7,915,000 2,181,000
Accrued payroll 346,000 297,000
Accrued vacation 646,000 614,000
Bank overdraft 847,000 367,000
Payroll taxes accrued and withheld 220,000 330,000
Deferred maintenance revenue 293,000 927,000
$ 11,418,000 $ 5,916,000
<PAGE>
7. COMMON STOCK
Stock Options - Under the Company's 1984 Incentive Stock Option and
Stock Appreciation Rights Plan (as amended), options to purchase
shares of the Company's common stock have been granted to officers
and key employees at a price not less than the fair market value of
the stock at the date of grant. Any grants of options
or stock appreciation rights under the plan are limited to a maximum
of 110,000 shares of the Company's common stock. Options and/or
stock appreciation rights expire five years after the date of
grant. The 1984 plan terminated May 15, 1994. On September 16,
1994 the shareholders approved the new Key Employee Stock
Option Plan ("1994 Plan"). The maximum number of shares subject to
the 1994 Plan and approved for issuance is 120,000 shares of the
Company's common stock either authorized and unissued or shares
held in treasury. This number is subject to adjustment in the event
of stock splits, stock dividends or other recapitalization of the
Company's common stock.
<TABLE>
<CAPTION>
A summary of options activity is as follows: Optioned Option Price
Shares Per Share Total
<S> <C> <C> <C>
1984 Plan
Balance March 31, 1993 41,250 $ 5.88-8.50 $ 276,000
Options exercised (11,250) 5.88 (66,000)
Options granted 12,100 7.50 91,000
Balance March 31, 1994 42,100 $ 6.88-8.50 $ 301,000
Options forfeited upon retirement/
termination of employee (3,000) 6.88-7.50 (21,000)
Balance March 31, 1995 39,100 $ 6.88-8.50 $ 280,000
Options forfeited upon retirement/
termination of employees (4,000) 6.88-7.50 (28,140)
Balance March 31, 1996 35,100 $ 6.88-7.50 $ 251,860
Options exercisable at
March 31, 1996 24,500 $ 6.88-8.50 $ (170,990)
1994 Plan
Balance April 1, 1995 - $ - $ -
Options granted 32,000 7.00 224,000
Balance March 31, 1995 32,000 $ 7.00 $ 224,000
Options Granted 15,800 6.875-7.25 114,175
Options forfeited upon retirement/
termination of employee (3,000) 7.00-7.25 (21,250)
Balance March 31, 1996 44,800 $ 7.00-7.25 $ 316.925
Options exercisable at
March 31, 1996 - $ - $ -
</TABLE>
<PAGE>
Employee Plans - During fiscal 1985, the Company adopted a 401(k)
retirement plan covering substantially all non-union employees
with more than 3 months of service. The plan provides that the
Company will contribute an amount equal to 50% of a participant's
contribution up to 4% of salary, and at the Company's discretion,
additional amounts based upon the profitability of the Company. The
Company's contributions were $157,000 in 1996, $163,000 in 1995 and
$102,000 in 1994. The Company has an Employee Stock Purchase
Plan under which all employees of the Company are eligible to
contribute funds for the purchase of the Company's common
stock on the open market at market value. Under the Plan, the
Company agrees to pay all brokerage commissions associated with such
purchases.
8. INCOME TAXES
Deferred tax assets and liabilities on the balance sheet reflect the
net tax effect of temporary differences between carrying amounts of
assets and liabilities for financial statement purposes and the
amounts used for income tax purposes. The deferred assets and
liabilities are classified on the balance sheet as current or
noncurrent based on the classification of the related assets and
liabilities. The Company believes a valuation allowance is not
required.
The components of income tax expense are as follows for the years
ended March 31:
1996 1995 1994
Current:
Federal $ 335,000 $ 250,000 $ 440,000
State 75,000 43,000 73,000
Total current: 430,000 293,000 513,000
Deferred 68,000 282,000 24,000
Total $ 498,000 $ 575,000 $ 537,000
The components of the Company's deferred tax assets and liabilities
consist of the following at March 31:
1996 1995
Deferred tax assets - current:
Accounts receivable $ 71,000 $ (194,000)
Inventory 214,000 390,000
Accrued compensation 227,000 187,000
Sublease rental income - (22,000)
$ 512,000 $ 361,000
Deferred tax liability - noncurrent:
Contract Claims $ 40,000 $ -
Sublease rental income 21,000 -
Depreciation/Amortization 606,000 560,000
$ 667,000 $ 560,000
<PAGE>
The sources and tax effects of temporary differences resulting in
deferred tax expense (benefit) are as follows for the years ended
March 31:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Depreciation\amortization $ 77,000 $ 471,000 $ (5,000)
Allowance and reserves for accounts
receivable (18,000) 147,000 (41,000)
Income from contracts (201,000) 28,000 (3,000)
Vacation expense 8,000 3,000 (8,000)
Inventory cost capitalized for tax
purposes 187,000 (270,000) (10,000)
Sublease rental income - 2,000 (13,000)
Deferred contract costs - (90,000) 92,000
Deferred compensation expense 15,000 (9,000) 16,000
Other - - (4,000)
Total $ 68,000 $ 282,000 $ 24,000
</TABLE>
The differences between the provision for income taxes at the
expected statutory rate and those shown in the consolidated
statements of earnings are as follows for the years ended March 31:
1996 1995 1994
Provision for income taxes
at statutory rate 34.0% 34.0% 34.0%
State taxes net of
federal benefit 4.3 3.6 3.6
Permanent differences 1.4 2.0 1.3
Other (.2) .5 (.3)
Total 39.5% 40.1% 38.6%
<PAGE>
9. LEASING ACTIVITY
The Company is obligated under operating leases of office space and
certain equipment. The following is a schedule of the future
minimum lease payments under operating leases as of March 31, 1996.
Year ending March 31,
1997 $ 305,000
1998 83,000
1999 74,000
2000 71,000
2001 72,000
Total minimum lease payments $ 605,000
Total rental expense under operating leases was $201,000, $376,000
and $366,000 for the years ended March 31, 1996, 1995 and 1994,
respectively.
10. RELATED PARTY TRANSACTIONS
During the years ended March 31, 1996, 1995, 1994, the Company paid
$9,000, $14,000 and $56,000; respectively, to a law firm in which a
Company Board member is a partner.
11. COMMITMENTS AND CONTINGENCIES
The Company's contracts with the U.S. government are subject to cost
audits by Government authorities. Such audits have been completed
through March 31, 1990. It is not possible to predict the outcome
of future audits but it is the opinion of the Company's management
that unrecorded liabilities, if any, arising from such audits
would not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Upon the death of a Company officer or a certain former officer and
at the option of their estates, the Company is committed to
repurchase their shares (64,619) at current book value. At March
31, 1996, the aggregate book value of such shares was approximately
$460,000.
The Company is defendant or co-defendant in various lawsuits. In
the opinion of management, none of these lawsuits could
materially affect the consolidated financial position or results of
operations of the Company.
<PAGE>
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company paid the following amounts for interest and income taxes
during the years ended March 31:
1996 1995 1994
Interest $ 573,000 $ 627,000 $ 661,000
Income taxes $ 457,000 $ 487,000 $ 537,000
13. QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
(In thousands, except on a per share basis)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1996
<S> <C> <C> <C> <C>
Revenues $ 8,894 $ 9,076 $ 11,217 $ 17,920
Income before income taxes 309 47 314 591
Net income 188 27 191 357
Per share
Earnings per share .16 .02 .16 .30
Dividends per share .065 .065 .065 .065
Market price
High 7-3/8 7 7 7-1/8
Low 6-1/4 6-1/4 5-7/8 6-1/2
<FN>
EPS totals to $.64 rather than $.65 due to rounding during computation at fiscal quarters.
</TABLE>
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1995
<S> <C> <C> <C> <C>
Revenue $ 14,071 $ 10,638 $ 9,510 $ 11,384
Income before income taxes 304 350 347 432
Net income 187 215 209 247
Per share
Earnings per share .16 .18 .18 .20
Dividends per share .06 .065 .065 .065
Market price 8-1/8 7-3/4 7-3/4 7-1/8
Low 6-5/8 6-3/8 6-3/8 6-3/8
</TABLE>
Halifax Corporation
<TABLE>
<CAPTION>
Valuation and Qualifying Accounts
Schedule II
March 31, 1996
Balance at Balance at
Beginning Additions end of
of year at Cost Deductions year
Year Ended March 31, 1996:
<S> <C> <C> <C> <C>
Allowance for possible
losses on contract
receivables and claims $ 170,000 $ 20,000 $ 2,000 $ 188,000
Allowance for inventory $ 611,000 $ 1,195,000 $ 1,002,000 $ 804,000
obsolescence
Year Ended March 31, 1995:
Allowance for possible
losses on contract
receivables and claims $ 242,000 $ 39,000 $ (111,000) $ 170,000
Allowance for inventory
obsolescence $ 539,000 $ 575,000 $ (503,000) $ 611,000
Year Ended March 31, 1994:
Allowance for possible
losses on contract
receivables and claims $ 212,000 $ 57,000 $ 27,000 $ 242,000
Allowance for inventory
obsolescence $ 422,000 $ 296,000 $ 179,000 $ 539,000
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 10K-MARCH-1996
<MULTIPLIER> 1
<CURRENCY> 0
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 2,743,000
<SECURITIES> 0
<RECEIVABLES> 111,734,000
<ALLOWANCES> 0
<INVENTORY> 2,792,000
<CURRENT-ASSETS> 17,988,000
<PP&E> 4,527,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,828,000
<CURRENT-LIABILITIES> 12,064,000
<BONDS> 0
<COMMON> 518,000
0
0
<OTHER-SE> 8,266,000
<TOTAL-LIABILITY-AND-EQUITY> 24,828,000
<SALES> 47,159,000
<TOTAL-REVENUES> 47,159,000
<CGS> 41,675,000
<TOTAL-COSTS> 45,687,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 573,000
<INCOME-PRETAX> 1,261,000
<INCOME-TAX> 498,000
<INCOME-CONTINUING> 763,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 763,000
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
