<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended March 31, 1995
Commission file number 0-14224
IFR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 48-0777904
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10200 WEST YORK STREET
WICHITA, KANSAS 67215
(Address of principal executive offices) (Zip Code)
(316) 522-4981
Registrant's telephone number, including area code
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods 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 CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock - $.01 par value per share--5,429,831 as of April 28, 1995.
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IFR SYSTEMS, INC.
PART I. FINANCIAL INFORMATION
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1995 1994
----------- ----------
(UNAUDITED) (NOTE)
(000'S OMITTED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 80 $ 64
Accounts receivable, less $357 and $241
allowance for doubtful accounts, respectively 12,959 13,758
Inventories:
Finished products 6,984 6,308
Work in process 8,147 7,824
Materials 5,617 5,000
--------- ---------
20,748 19,132
Prepaid expenses and sundry 370 253
Deferred income taxes 851 851
--------- ---------
TOTAL CURRENT ASSETS 35,008 34,058
PROPERTY AND EQUIPMENT
Property and equipment 12,517 11,589
Allowance for depreciation (deduction) (6,357) (4,906)
--------- ---------
6,160 6,683
PROPERTY UNDER CAPITAL LEASE
Building and machinery 3,456 3,456
Amortization (deduction) (1,091) (933)
--------- ---------
2,365 2,523
OTHER ASSETS
Cost in excess of net assets acquired, less
amortization of $1,181 and $908, respectively 6,182 6,455
Patents, trademarks and other intangibles, less
amortization of $1,095 and $774, respectively 712 1,033
Loan proceeds appropriated for debt service
and other 495 480
--------- ---------
7,389 7,968
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$ 50,922 $ 51,232
--------- ---------
--------- ---------
</TABLE>
Note: The balance sheet at June 30, 1994 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
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<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1995 1994
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(UNAUDITED) (NOTE)
(000'S OMITTED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings (Note 2) $ 2,175 $ 4,970
Accounts payable 3,211 3,041
Accrued compensation and payroll taxes 2,137 1,703
Other liabilities and accrued expenses 1,985 1,548
Current maturity of capital lease obligations 230 230
Current maturity of long-term debt 65 408
Federal and state income taxes and local taxes 391 660
--------- ---------
TOTAL CURRENT LIABILITIES 10,194 12,560
CAPITAL LEASE OBLIGATIONS 2,430 2,602
LONG-TERM DEBT 65 817
DEFERRED INCOME TAXES 451 451
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value --- authorized
1,000,000 shares, none issued -- ---
Common Stock, $.01 par value---authorized
50,000,000 shares, issued 6,177,500 shares 62 62
Additional paid in capital 6,403 6,574
Cost of common stock in treasury---750,873
and 920,947 shares, respectively (deduction) (6,400) (7,849)
Unamortized deferred compensation (16) --
Retained earnings 37,733 36,015
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37,782 34,802
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$ 50,922 $ 51,232
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--------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------------------------------------
1995 1994 1995 1994
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SALES $ 19,384 $ 15,629 $ 57,800 $ 47,755
COST OF PRODUCTS SOLD 12,146 9,647 36,330 29,899
--------- --------- --------- ---------
GROSS PROFIT 7,238 5,982 21,470 17,856
OPERATING EXPENSES
Selling 2,236 2,008 6,784 6,049
Administrative 1,343 1,153 3,851 3,460
Engineering 2,479 2,203 7,600 6,647
--------- --------- --------- ---------
6,058 5,364 18,235 16,156
--------- --------- --------- ---------
OPERATING INCOME 1,180 618 3,235 1,700
OTHER INCOME (EXPENSE) (22) (91) (290) (216)
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES 1,158 527 2,945 1,484
INCOME TAXES 503 327 1,227 758
--------- --------- --------- ---------
NET INCOME $ 655 $ 200 $ 1,718 $ 726
--------- --------- --------- ---------
--------- --------- --------- ---------
Net Income Per Common Share:
Primary $ 0.12 $ 0.04 $ 0.32 $ 0.14
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted $ 0.12 $ 0.04 $ 0.31 $ 0.14
--------- --------- --------- ---------
--------- --------- --------- ---------
Average Common Shares Outstanding:
Primary 5,479 5,281 5,391 5,290
--------- --------- --------- ---------
--------- --------- --------- ---------
Fully diluted 5,693 5,434 5,682 5,443
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1995 1994
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(000'S OMITTED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,718 $ 726
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of property
and equipment 1,609 1,501
Amortization of intangibles 594 598
Deferred compensation expense 46 83
Changes in operating assets and liabilities:
Accounts receivable 799 1,213
Inventories (1,616) (3,310)
Other current assets (117) (87)
Accounts payable and accrued liabilities: 1,041 (315)
Other current liabilities (269) 194
-------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,805 603
INVESTING ACTIVITIES
Purchases of property and equipment (928) (1,938)
Sundry (15) 331
-------- ---------
NET CASH USED IN INVESTING ACTIVITIES (943) (1,607)
FINANCING ACTIVITIES
Principal payment on capital lease obligations (172) (160)
Principal payment on long-term debt (65) ---
Proceeds from issuance of common stock 186 57
Proceeds from short-term bank borrowings 18,835 17,880
Principal payments on short-term bank
borrowings (21,630) (16,615)
-------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (2,846) 1,162
-------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 16 158
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 64 65
-------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 80 $ 223
-------- ---------
-------- ---------
</TABLE>
<PAGE>
IFR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
March 31, 1995 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1995. For further information, refer to
the Consolidated Financial Statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1994.
NOTE 2--SHORT TERM BANK BORROWINGS
The Company has unsecured lines of credit with a bank, which expire June
30, 1995, whereby it could borrow in the aggregate up to $7,500,000 at interest
rates approximating the prime rate charged by major banks. At March 31, 1995
the Company had unused lines of credit aggregating $5,325,000.
NOTE 3--ACCOUNTING CHANGES
On March 31, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. This statement is effective for fiscal years beginning after
December 15, 1995, with earlier application encouraged. The Company has not yet
determined the timing of adoption; however, this standard is not expected to
have a material impact on the Company's consolidated results of operations and
consolidated financial position.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Sales for the three months ended March 31, 1995 increased 24 percent over
the same period in the prior year. This increase was primarily the result of
higher sales to the U.S. Army. The remaining increase was generated from sales
of commercial communication equipment and fiber optics test instruments. Sales
of avionics test instruments and test and measurement products (spectrum
analyzers) remained flat compared to the prior year quarter.
Gross margin for the current year quarter was 37 percent compared to 38
percent for the previous year quarter. This decrease was attributed to a lower
margin product mix.
Total operating expenses as a percent of sales decreased three percent from
the prior year quarter. Selling expenses decreased two percent as a percent of
sales and engineering expenses decreased one percent as a percent of sales from
the prior year quarter. Administrative expenses as a percent of sales were
unchanged compared to the prior year quarter.
The estimated effective income tax rate was 43 percent for the current year
quarter compared to 62 percent in the prior year period. The decrease in the
effective rate is due to an increase in the estimated annual pre-tax income
relative to the amount of non-deductible goodwill amortization.
Sales for the first nine months increased 21 percent compared to the same
period of the prior year. This increase was largely a result of higher sales to
the U.S. Army and higher sales of fiber optics test instruments. Sales of
avionics test equipment are down slightly compared to the previous year. Test
and measurement products (spectrum analyzers) remain flat compared to the prior
year. Gross margins remained unchanged at 37 percent for both periods.
Operating expenses decreased two percent as a percent of sales compared to
the previous year. Selling expenses and engineering expenses decreased one
percent as a percent of sales for the current year. Administrative expenses
remained unchanged as a percent of sales at seven percent for the current year.
For the nine months ended period of fiscal 1995 and fiscal 1994, the
effective income tax rate was 42 percent and 51 percent, respectively. The
decrease in the effective rate is due to an increase in the estimated annual
pre-tax income relative to the amount of nondeductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations were $3,805,000 for the nine month period
ended March 31, 1995 as compared to $601,000 in the prior year period. This
increase was primarily due to a reduction in accounts payable and
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inventory. Working capital increased from $21,498,000 at June 30, 1994 to
$24,814,000 at March 31, 1995.
The Board of Directors of the Company has authorized the repurchase of up
to 1,000,000 shares of the Company's common stock. As of March 31, 1995, the
Company has purchased an aggregate of 793,450 shares under the program.
The Company has available unsecured lines of credit for $5,000,000 and
$2,500,000 which expire on June 30, 1995. The Company plans to extend this line
of credit for an additional year. Negotiations have not commenced at March 31,
1995.
The Company anticipates that available lines of credit and funds generated
from operations will be adequate to meet capital asset expenditures and working
capital needs for the current fiscal year ending June 30, 1995.
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) The following exhibit is included herein:
EXHIBIT 11-STATEMENT REGARDING PER SHARE EARNINGS
b) No Form 8-K was filed during the quarter ended March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IFR SYSTEMS, INC.
DATE: May 8, 1995 /s/ Alfred H. Hunt, III
-------------------- ------------------------------
Alfred H. Hunt, III,
President and CEO
DATE: May 8, 1995 /s/ Bruce C. Bingham
-------------------- ------------------------------
Bruce C. Bingham,
Principal Financial Officer
<PAGE>
IFR SYSTEMS, INC.
EXHIBIT (11) - STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1994 1994 1995
-------- -------- -------- --------
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 5,282 5,238 5,269 5,232
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price 191 43 94 58
-------- -------- -------- --------
Totals 5,473 5,281 5,363 5,290
-------- -------- -------- --------
-------- -------- -------- --------
Net Income $ 655 $ 200 $ 1,718 $ 726
-------- -------- -------- --------
-------- -------- -------- --------
Per Share Amount $ 0.12 $ 0.04 $ 0.32 $ 0.14
-------- -------- -------- --------
-------- -------- -------- --------
FULLY DILUTED:
Average shares outstanding 5,282 5,238 5,269 5,232
Net effect of dilutive stock
options-based on the treasury
stock method using the period-
end market price, if greater
than average market price 258 43 260 58
Assumed conversion of 10%
convertible notes 153 153 153 153
-------- -------- -------- --------
Totals 5,693 5,434 5,682 5,443
-------- -------- -------- --------
-------- -------- -------- --------
Net Income $ 655 $ 200 $ 1,718 $ 726
Add 10% convertible note interest,
net of federal income tax effect 18 18 55 55
-------- -------- -------- --------
Totals $ 673 $ 218 $ 1,773 $ 781
-------- -------- -------- --------
-------- -------- -------- --------
Per Share Amount $ 0.12 $ 0.04 $ 0.31 $ 0.14
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q FOR
MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 80
<SECURITIES> 0
<RECEIVABLES> 13,316
<ALLOWANCES> 357
<INVENTORY> 20,748
<CURRENT-ASSETS> 35,008
<PP&E> 15,973
<DEPRECIATION> 7,448
<TOTAL-ASSETS> 50,922
<CURRENT-LIABILITIES> 10,194
<BONDS> 2,946
<COMMON> 62
0
0
<OTHER-SE> 37,720
<TOTAL-LIABILITY-AND-EQUITY> 50,922
<SALES> 57,800
<TOTAL-REVENUES> 57,800
<CGS> 36,330
<TOTAL-COSTS> 54,565
<OTHER-EXPENSES> 290
<LOSS-PROVISION> 164
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> 2,945
<INCOME-TAX> 1,227
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,718
<EPS-PRIMARY> .32
<EPS-DILUTED> .31
</TABLE>
