UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended to
Commission file number 0-3936
Orbit International Corp.
(Exact name of registrant as specified in its charter)
Delaware ID # 11-1826363
(State or other jurisdiction (I.R.S. Employer Identification
incorporation or organization) Number)
80 Cabot Court, Hauppauge, New York 11788
(Address of principal executive offices (Zip Code)
(516) 435-8300
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed
since last report)
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 month (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.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15 (d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable date:
September 30, 1997. 6,196,000
ORBIT INTERNATIONAL CORP.
The financial information herein is unaudited. However, in the
opinion of management, such information reflects all adjustments
(consisting only of normal recurring accruals) necessary to a fair
presentation of the results of operations for the periods being
reported. Additionally, it should be noted that the accompanying
condensed financial statements do not purport to contain complete
disclosures in conformity with generally accepted accounting
principles.
The results of operations for the nine months ended September 30,
1997 are not necessarily indicative of the results of operations for
the full fiscal year ending December 31, 1997.
The consolidated balance sheet as of December 31, 1996 was
condensed from the audited consolidated balance sheet appearing in the
1996 annual report on Form 10-K.
These condensed consolidated statements should be read in
conjunction with the Company's financial statements for the fiscal year
ended December 31, 1996.
PART I - FINANCIAL INFORMATION
ITEM - I
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............... $ 582,000 $ 927,000
Investment in marketable securities..... 1,948,000 782,000
Accounts receivable (less allowance for
doubtful accounts)..................... 3,185,000 3,114,000
Inventories ............................ 6,626,000 6,657,000
Restricted investments, related to
discontinued operations................ 689,000 2,453,000
Assets held for sale, net............... 382,000 712,000
Other current assets.................... 267,000 246,000
Total current assets.................. 13,679,000 14,891,000
Property, plant and equipment - at cost
less accumulated depreciation and
amortization........................... 2,293,000 2,347,000
Excess of cost over the fair value of
assets acquired....................... 965,000 1,019,000
Investment in marketable securities..... 395,000 1,150,000
Other assets............................ 627,000 524,000
TOTAL ASSETS............................ $17,959,000 $19,931,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(continued)
September 30, December 31,
1997 1996
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.. $ 1,624,000 $1,656,000
Accounts payable.......................... 955,000 940,000
Accrued expenses.......................... 1,922,000 2,545,000
Notes payable............................. 102,000 65,000
Accounts payable, accrued expenses and
reserves for discontinued operations..... 1,009,000 2,636,000
Due to factor............................. 609,000 852,000
Total current liabilities............... 6,221,000 8,694,000
Long-term obligations, less current
portion................................... 3,618,000 4,352,000
Accounts payable, accrued expenses and
reserves for discontinued operations,
less current portion...................... 1,026,000 1,424,000
Other liabilities.......................... 315,000 315,000
Total liabilities....................... 11,180,000 14,785,000
STOCKHOLDERS' EQUITY
Common stock - $.10 par value.............. 908,000 907,000
Additional paid-in capital................. 23,527,000 23,518,000
Accumulated deficit........................ (7,949,000) (9,515,000)
Less treasury stock, at cost............... (9,588,000) (9,588,000)
Less deferred compensation................. (116,000) (174,000)
Less unrealized loss in marketable
securities................................ (3,000) (2,000)
Total stockholders' equity................ 6,779,000 5,146,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,959,000 $19,931,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales........... $13,047,000 $12,568,000 $ 4,651,000 $ 4,798,000
Cost of sales....... 7,626,000 7,024,000 2,725,000 2,648,000
Gross profit........ 5,421,000 5,544,000 1,926,000 2,150,000
Selling, general and
administrative
expense............ 3,915,000 4,115,000 1,251,000 1,462,000
Interest expense.... 151,000 73,000 74,000 49,000
Investment and
other(income)...... ( 211,000) (1,224,000) ( 71,000) (102,000)
Income from
continuing
operations......... 1,566,000 2,580,000 672,000 741,000
Discontinued
operations:
(Loss)from operations (4,200,000)
(Loss)from disposal (3,801,000) _________ __________
NET INCOME (LOSS)... $ 1,566,000 $(5,421,000) $ 672,000 $ 741,000
Primary earnings per share:
Continuing operations $ .23 $ .43 $ .10 $ .12
Discontinued operations ( 1.33) ________
NET INCOME (LOSS) $ .23 $( .90) $ .10 $ .12
Fully diluted earnings per share:
Continuing operations $ .22 $ .41 $ .10 $ .12
Discontinued operations ( 1.28) ________
NET INCOME (LOSS) $ .22 $( .87) $ .10 $ .12
</TABLE>
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income(loss)............................ $1,566,000 $(5,421,000)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization............... 105,000 90,000
Amortization of goodwill.................... 54,000 86,000
Write-off of goodwill....................... 793,000
Write-off of foreign currency translation... 1,234,000
Compensatory issuance of stock.............. 58,000 39,000
Change in value of marketable securities.... (1,000) 22,000
Disposal of discontinued operations......... 3,008,000
Changes in operating assets and liabilities:
Accounts receivable......................... (71,000) (2,896,000)
Inventories................................. 31,000 1,138,000
Other current assets........................ (21,000) 1,032,000
Accounts payable............................ 15,000 625,000
Accrued expenses............................ (623,000) (555,000)
Assets held for sale........................ 330,000 2,206,000
Accounts payable, accrued expenses and
reserves for discontinued operations....... (2,025,000)
Other assets................................ (103,000) (151,000)
Net cash (used in) provided by
operating activities...................... (685,000) 1,250,000
Cash flows from investing activities:
Acquisitions of fixed assets................ (51,000) (141,000)
Purchase of net assets of acquired company.. (3,779,000)
Purchase of marketable securities........... (3,608,000) (14,547,000)
Proceeds from sales of marketable securities 4,961,000 25,143,000
Net cash provided by investing activities.... 1,302,000 6,676,000
(continued)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from financing activities:
Proceeds from issuance of performance shares 30,000
Due to factor............................... (243,000) (8,118,000)
Repayments of debt.......................... (796,000) (2,427,000)
Proceeds of debt............................ 67,000 2,417,000
Stock option exercises...................... 10,000 __________
Net cash (used in) financing activities...... (962,000) (8,098,000)
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. (345,000) (172,000)
Cash and cash equivalents - January 1........ 927,000 2,274,000
CASH AND CASH EQUIVALENTS -September 30...... $ 582,000 $ 2,102,000
Supplemental disclosures of cash flow
information:
Cash paid for:
Interest.............................. $ 407,000 $ 1,364,000
Taxes................................. $ 31,000 $ 29,000
See accompanying notes.
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(NOTE 1) - Income (Loss) Per Share:
Income (loss) per share is based on the weighted average number of
common and common equivalent shares (where appropriate) outstanding
during each period. The average number of shares and equivalent shares
outstanding for the nine month and three month periods ended
September 30, 1997 and 1996 are as follows:
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
Primary 6,814,000 6,005,000 6,857,000 6,072,000
Fully diluted 6,977,000 6,252,000 6,979,000 6,343,000
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share, which is required to be adopted
on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will
be excluded. The impact is expected to result in an increase in
primary earnings per share for the nine months and third quarter ended
September 30, 1997 of $.03 per share and $.01 per share, respectively,
and to be immaterial for the comparable periods of the prior year. The
impact of Statement 128 on the calculation of fully diluted earnings
per share for these periods is not expected to be material.
(NOTE 2) - Cost of Sales:
For interim periods, the Company estimates its inventory and
related gross profit.
(NOTE 3) - Inventories:
Inventories are comprised of the following:
September 30, December 31,
1997 1996
Raw Materials.............. $ 2,345,000 $ 2,332,000
Work-in-process............ 4,281,000 4,325,000
Finished goods............. - ______-____
TOTAL $ 6,626,000 $ 6,657,000
(continued)
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(continued)
(NOTE 4) - Available-For-Sale Securities:
Under the terms of certain credit facilities, the Company's
investment portfolio and certain cash balances must be maintained at a
minimum collateral value. On September 30, 1997, this collateral
requirement amounted to approximately $689,000.
The following is a summary of available-for-sale securities as of:
September 30, 1997
Estimated
Fair
Cost Value
U.S. Treasury bills......................... $ 2,637,000 $ 2,637,000
Corporate debt securities .................. 398,000 395,000
___________ ___________
3,035,000 3,032,000
Restricted value of portfolio
used to collateralize credit facility...... 689,000 689,000
Balance of securities portfolio............. $ 2,346,000 $ 2,343,000
The amortized cost and estimated fair value of debt and marketable
equity securities at September 30, 1997 by contractual maturity, are
shown below. Expected maturities will differ from contractual
maturities because the issuers of the securities may have the right to
repay obligations without prepayment penalties.
Due in one year or less.................... $ 2,637,000 $ 2,637,000
Due after one year through three years..... 15,000 15,000
Due after three years...................... 383,000 380,000
3,035,000 3,032,000
Restricted value of portfolio used to
collateralize credit facilities........... 689,000 689,000
$ 2,346,000 $ 2,343,000
(continued)
ITEM - II
ORBIT INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Results of Operations
Nine month period ended September 30, 1997 v. September 30, 1996
In August, 1996, the Company adopted a plan to sell its apparel
segments. The plan of disposal of such segments left the Company
solely with its Electronics Segment which consists of its Orbit
Instrument Division and Behlman subsidiary.
Consolidated net sales for the nine month period ended
September 30, 1997 increased to $13,047,000 from $12,568,000 for the
nine month period ended September 30, 1996 due principally to
additional sales recorded by the Company's Behlman subsidiary acquired
during the first quarter of 1996, offset by decreased sales from the
Company's Orbit Instrument division.
Income from continuing operations for the nine month period ended
September 30, 1997 decreased to $1,566,000 from $2,580,000 for the nine
month period ended September 30, 1996 due principally to the recording
of $815,000 in the first quarter of 1996, which represented a portion
of a one-time royalty fee received from a former affiliate. Had this
royalty income not been recorded, income from continuing operations for
the nine month period ended September 30, 1997 would have decreased
slightly to $1,566,000 from $1,765,000 for the nine months ended
September 30, 1996. This decrease is attributed to lower sales and
profitability recorded by the Orbit Instrument division and lower
investment income earned on available balances for investment.
Net income for the nine month period ended September 30, 1997
increased to $1,566,000 from a loss of $5,421,000 for the nine month
period ended September 30, 1996 due principally to an operating loss in
the prior period of $4,200,000 incurred from the Company's discontinued
apparel operations and to the estimated loss of $3,801,000 resulting
from reserves taken on an expected loss on the disposal of such apparel
operations.
Gross profit, as a percentage of sales, for the nine month period
ended September 30, 1997 decreased to 41.5% from 44.1% for the nine
month period ended September 30, 1996 due principally to lower sales
from the Orbit Instrument division and weaker gross margins from the
Behlman subsidiary due to product mix.
Selling, general and administrative expenses for the nine month
period ended September 30, 1997 decreased slightly to $3,915,000 from
$4,115,000 for the nine month period ended September 30, 1997 due
principally to lower selling, general and administrative costs incurred
by the Orbit Instrument division, lower corporate costs offset by
higher costs incurred by the Behlman subsidiary. Selling, general and
administrative expenses, as a percentage of sales for the nine month
period ended September 30, 1997, decreased to 30.0% from 32.7% for the
comparable period in 1996 due to the aforementioned reasons and to
increased sales.
Interest expense for the nine month period ended September 30,
1997 increased to $151,000 from $73,000 for the nine month period ended
September 30, 1996 due to an increase in outstanding borrowings during
the current period.
Investment and other income for the nine month period ended
September 30, 1997 decreased to $211,000 from $1,224,000 for the nine
month period ended September 30, 1996 due principally to $815,000 of
royalty income recorded in the prior period which represented a portion
of a one time royalty fee received from a former affiliate and due to a
reduction in available balances for investment in the current period.
The Company did not record any tax benefit on the current year's
pre-tax loss because of the uncertainty of future realization.
Three Month period ended September 30, 1997 v. September 30, 1996
Consolidated net sales for the three month period ended September
30, 1997 decreased to $4,651,000 from $4,798,000 for the three month
period ended September 30, 1996 due principally to lower sales recorded
by the Company's Behlman subsidiary offset, in part, by increased sales
from the Orbit Instrument division.
Net income for the three month period ended September 30, 1997
decreased to $672,000 from $741,000 for the three month period ended
September 30, 1996 due principally to lower sales and a lower gross
profit on sales offset, in part, by lower selling, general and
administrative expenses.
Gross profit, as a percentage of sales, for the three months ended
September 30, 1997 decreased to 41.4% from 44.8% for the three months
ended September 30, 1996 due to lower sales from the Behlman subsidiary
and a slight increase in overhead costs.
Selling, general and administrative expenses for the three months
ended September 30, 1997 decreased to $1,251,000 from $1,462,000 for
the three months ended September 30, 1996 and decreased as a percentage
of sales to 26.9% from 30.5% due principally to lower selling, general
and administrative costs incurred by both the Orbit Instrument division
and Behlman subsidiary.
Interest expense for the three months ended September 30, 1997
increased to $74,000 from $49,000 in the three months ended September
30, 1996 due to an increase in outstanding borrowings during the
current period.
Investment and other income for the three months ended September
30, 1997 decreased to $71,000 from $102,000 in the three months ended
September 30, 1996 due to interest earned on higher cash and marketable
securities balances in the prior period.
The Company did not record any tax benefit on the current pre-tax
loss because of the uncertainty of future realization.
Liquidity, Capital Resources and Inflation:
Working capital increased by $1,261,000 to $7,458,000 for the nine
month period ended September 30, 1997 principally due to $1,566,000 of
income recorded during the period. The Company's working capital ratio
at September 30, 1997 was 2.2 to 1 compared to 1.7 to 1 at December 31,
1996.
All losses and obligations of the discontinued apparel operations
have been provided for in the September 30, 1997 financial statements
and, accordingly, the Company does not anticipate using any significant
portion of its resources towards these discontinued apparel operations.
During the fourth quarter of 1996, the Company commenced
discussions with its factor to convert the amounts due to the factor
from the Company's discontinued U.S. apparel operations to a term loan.
This new term loan was finalized in September, 1997. Under the terms of
the new lending arrangement, the loan amortization is based on a 60
month period with payments commencing in October, 1997 with a final
balloon payment due September, 2000. The loan has an interest rate of
prime rate plus 1%.
Under the Company's factoring arrangement for its discontinued
Canadian apparel operations, the Company has provided a standby letter
of credit as security for its guaranty under this lending facility,
collaterallized by marketable securities. As of September 30, 1997,
the Company had provided C$850,000 in a standby letter of credit which
was reduced to C$800,000 in November, 1997 due to the paydown of
amounts owed to the factor.
The Company's existing capital resources, including its bank
credit facilities, and its cash flow from operations are expected to be
adequate to cover the Company's cash requirements for the foreseeable
future.
Inflation has not materially impacted the operations of the
Company.
Certain Material Trends
Despite continued profitability from continuing operations
through the first three quarters of 1997, the Company continues to face
a difficult business environment with continuing pressure on the
Company's prices for its sole source sales and a general reduction in
the level of funding for the defense sector. Based on current delivery
schedules and as a result of the acquisition of Behlman, however,
revenues for the Company should be sustained at the levels recorded in
1996, although there can be no assurance that such increased revenues
will actually be achieved.
The Company continues to seek new contracts which require
incurring up-front design, engineering, prototype and preproduction
costs. While the Company attempts to negotiate contract awards for
reimbursement of product development, there is no assurance that
sufficient monies will be set aside by the government for such effort.
In addition, even if the government agrees to reimburse development
costs, there is still a significant risk of cost overrun which may not
be reimbursable. Furthermore, once the Company has completed the
design and preproduction stage, there is no assurance that funding will
be provided for future production.
The Company is heavily dependent upon military spending as a
source of revenues and income. World events have led the government of
the United States to reevaluate the level of military spending
necessary for national security. Any significant reductions in the
level of military spending by the Federal government could have a
negative impact on the Company's future revenues and earnings. In
addition, due to major consolidations in the defense industry, it has
become more difficult to avoid dependence on certain customers for
revenue and income. Behlman's line of commercial products gives the
Company some diversity.
Forward Looking Statements
Statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this
document as well as statements made in press releases and oral
statements that may be made by the Company or by officers, directors or
employees of the Company acting on the Company's behalf that are not
statements of historical or current fact constitute "forward-looking
statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that could cause the
actual results of the Company to be materially different from the
historical results or from any future results expressed or implied by
such forward-looking statements. In addition to statements which
explicitly describe such risks and uncertainties, readers are urged to
consider statements labeled with the terms "believes", "belief",
"expects", "intends", "anticipates" or "plans" to be uncertain and
forward-looking. The forward-looking statements contained herein are
also subject generally to other risks and uncertainties that are
described from time to time in the Company's reports and registration
statements filed with the Securities and Exchange Commission.
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.
ORBIT INTERNATIONAL CORP.
Registrant
Dated: November 6, 1997 /s/ Dennis Sunshine
Dennis Sunshine, President, Chief
Executive officer and Director
Dated: November 6, 1997 /s/ Mitchell Binder
Mitchell Binder, Vice President-
Finance, Chief Financial Officer
and Director
PART II
OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits. None
15
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 582,000
<SECURITIES> 1,948,000
<RECEIVABLES> 3,338,000
<ALLOWANCES> 153,000
<INVENTORY> 6,626,000
<CURRENT-ASSETS> 13,679,000
<PP&E> 4,483,000
<DEPRECIATION> 2,190,000
<TOTAL-ASSETS> 17,959,000
<CURRENT-LIABILITIES> 6,221,000
<BONDS> 3,618,000
0
0
<COMMON> 908,000
<OTHER-SE> 5,871,000
<TOTAL-LIABILITY-AND-EQUITY> 17,959,000
<SALES> 13,047,000
<TOTAL-REVENUES> 13,047,000
<CGS> 7,626,000
<TOTAL-COSTS> 7,626,000
<OTHER-EXPENSES> 3,915,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151,000
<INCOME-PRETAX> 1,566,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,566,000
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<EPS-PRIMARY> .23
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