<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- -----------------
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 and zip code of principal executive offices)
(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 .
------ ------
There were 5,477,093 shares of common stock, par value $.01 per share, of
the Registrant outstanding as of January 31, 1996.
<PAGE>
IFR SYSTEMS, INC.
FORM 10 - Q
INDEX
PART I -- FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1995
and December 31, 1995 3
Condensed Consolidated Statements of Income for the three
and six months ended December 31, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows for the
six months ended December 31, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II -- OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 10
SIGNATURES 11
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1995
----------- -----------
(UNAUDITED) (NOTE)
ASSETS (000'S OMITTED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 943 $ 662
Accounts receivable, less $451 and $472
allowance for doubtful accounts, respectively 16,527 11,819
Inventories:
Finished products 6,791 8,579
Work in process 7,697 8,692
Materials 8,787 6,790
----------- -----------
23,275 24,061
Prepaid expenses and sundry 363 296
Deferred income taxes 822 822
----------- -----------
TOTAL CURRENT ASSETS 41,930 37,660
PROPERTY AND EQUIPMENT
Property and equipment 14,481 13,680
Allowances for depreciation (deduction) (7,157) (6,204)
----------- -----------
7,324 7,476
PROPERTY UNDER CAPITAL LEASE
Building and machinery 3,436 3,436
Amortization (deduction) (1,228) (1,124)
----------- -----------
2,208 2,312
OTHER ASSETS
Cost in excess of net assets acquired, less
amortization of $1,542 and $1,271, respectively 9,572 9,843
Patents, trademarks and other intangibles, less
amortization of $1,347 and $1,202, respectively 460 605
Loan proceeds appropriated for debt service
and other 530 506
----------- -----------
10,562 10,954
----------- -----------
$ 62,024 $ 58,402
----------- -----------
----------- -----------
</TABLE>
Note: The balance sheet at June 30, 1995 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.
3
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1995
----------- -----------
(UNAUDITED) (NOTE)
(000'S OMITTED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Short-term bank borrowings (Note 2) $ 7,630 $ 5,545
Accounts payable 3,262 3,500
Accrued compensation and payroll taxes 2,086 2,187
Other liabilities and accrued expenses 2,575 2,807
Current maturity of capital lease obligations 282 251
Current maturity of long-term debt 88 88
Federal and state income taxes and local taxes 1,131 334
----------- -----------
TOTAL CURRENT LIABILITIES 17,054 14,712
CAPITAL LEASE OBLIGATIONS 2,220 2,346
LONG-TERM DEBT 2,602 2,635
DEFERRED INCOME TAXES 73 73
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 6,128 6,187
Cost of common stock in treasury---705,523
and 689,784 shares, respectively (deduction) (6,036) (5,880)
Cumulative translation adjustment (47) -
Retained earnings 39,968 38,267
----------- -----------
40,075 38,636
----------- -----------
$ 62,024 $ 58,402
----------- -----------
----------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ -------------------------
1995 1994 1995 1994
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SALES $ 23,507 $ 21,220 $ 43,364 $ 38,416
COST OF PRODUCTS SOLD 14,872 12,957 27,655 24,184
--------- ---------- ---------- ----------
GROSS PROFIT 8,635 8,263 15,709 14,232
OPERATING EXPENSES
Selling 2,675 2,567 5,060 4,579
Administrative 1,628 1,476 3,122 2,639
Engineering 2,101 2,693 4,473 5,121
--------- ---------- ---------- ----------
6,404 6,736 12,655 12,339
--------- ---------- ---------- ----------
OPERATING INCOME 2,231 1,527 3,054 1,893
OTHER INCOME (EXPENSE) (83) (55) (233) (106)
--------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 2,148 1,472 2,821 1,787
INCOME TAXES 855 594 1,120 724
--------- ---------- ---------- ----------
NET INCOME $ 1,293 $ 878 $ 1,701 $ 1,063
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Net Income Per Common Share $ 0.24 $ 0.17 $ 0.31 $ 0.20
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Average Common Shares
Outstanding 5,489 5,268 5,489 5,262
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
1995 1994
---------- -----------
(000'S OMITTED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,701 $ 1,063
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of property
and equipment 1,057 1,079
Amortization of intangibles 416 396
Deferred compensation expense - 31
Changes in operating assets and liabilities:
Accounts receivable (4,708) 2,626
Inventories 786 (89)
Other current assets (67) (54)
Accounts payable and accrued liabilities (571) 142
Other current liabilities 797 (365)
---------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (589) 4,829
INVESTING ACTIVITIES
Purchases of property and equipment (801) (701)
Sundry (24) (13)
---------- -----------
NET CASH USED IN INVESTING ACTIVITIES (825) (714)
FINANCING ACTIVITIES
Purchases of capital stock for treasury (235) -
Principal payment on capital lease obligations (95) (113)
Principal payment on long-term debt (33) -
Principal payments on short-term bank
borrowings (9,145) (11,855)
Proceeds from issuance of common stock 20 22
Proceeds from short-term bank borrowings 11,230 7,850
---------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 1,742 (4,096)
Effect of exchange rate changes on cash (47) -
---------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 281 19
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 662 64
---------- -----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 943 $ 83
---------- -----------
---------- -----------
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
IFR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1995
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 six month periods ended
December 31, 1995 are not necessarily indicative of the results that may be
expected for the year ending June 30, 1996. 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, 1995.
NOTE 2 -- SHORT TERM BANK BORROWINGS
The Company has unsecured lines of credit with a bank whereby it could
borrow in the aggregate up to $15,000,000 at interest rates approximating the
prime rate charged by major banks. At December 31, 1995 the Company had unused
lines of credit aggregating $7,370,000.
NOTE 3 -- ACQUISITION
On June 21, 1995, the Company acquired substantially all of the assets of
York Technology, Ltd., a company incorporated in England, and York Technology,
Inc., a New Jersey Corporation, as well as the real estate and building
previously leased by York Technology, Ltd. The acquisition has been accounted
for as a purchase. On an unaudited pro forma basis, sales, net income and net
income per share for the quarter ended December 31,1994 were $22,163,000,
$165,000 and $.03 respectively, and for the six months ended December 31,1994
were $41,627,000, $456,000 and $.09 respectively. This pro forma data presents
the consolidated results of operations as if the acquisition had occurred on
July 1, 1994, after giving effect to certain adjustments, including amortization
of intangibles, increased interest expense and related income tax expense. The
pro forma results have been provided for comparative purposes only and do not
purport to indicate the results of operations which would have actually occurred
had the acquisition been in effect on the date indicated, or which may occur in
the future.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the quarter ended December 31, 1995 increased $2,287,000 or 11
percent compared to the same period in the prior year. This increase was
primarily a result of increased sales of commercial communications test
equipment and fiber optics test instruments. Sales of government communications
test equipment was down $2,326,000 compared to the prior year period. Sales of
avionics and test and measurement (spectrum analyzers) equipment remained strong
compared to the previous year quarter.
Gross margin for the current quarter was 37 percent compared to 39 percent
for the previous year quarter. This decrease is related to the large order of
fiber optics test equipment at much higher margins in the previous year quarter.
Total operating expenses as a percent of sales decreased five percent from
the prior year quarter. Selling expenses as percent of sales decreased one
percent from the prior year quarter. Administrative expenses as a percent of
sales remained flat compared to prior year quarter. Engineering expenses as a
percent of sales decreased four percent compared to the same period of a year
ago. This decrease is related to a reduction in development costs at the Fiber
Optics Division and the funding of a large research and development contract in
the RF Division. This contract is a time and materials contract with sales
during the quarter in excess of $400,000.
The estimated effective income tax rate was unchanged at 40 percent
compared to the prior year period.
Sales for the six months ended December 31, 1995 increased $4,948,000 or 13
percent compared to the same period of the prior year. This increase is
primarily a result of higher sales of fiber optics test equipment. Sales to the
U.S. Army were down $3,067,000 compared to the year earlier. Sales of avionics,
test and measurement (spectrum analyzers) and commercial communications test
equipment are all up compared to the prior year.
Gross margins were 36 percent for the current year compared to 37 percent
for the prior year. Operating expenses decreased as a percent of sales three
percent compared to the previous year. Selling and administration expenses as a
percent of sales remained unchanged while engineering expenses as a percent of
sales decreased three percent. This decrease is related to the time and
materials contract mentioned earlier.
8
<PAGE>
For the six month ended period of fiscal 1996 and fiscal 1995, the
effective income tax rate was 40 percent and 41 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 used in operations were $589,000 for the six month period ended
December 31, 1995. This compares to cash flows provided by operations of
$4,829,000 in the prior year period. This decrease was primarily due to an
increase in accounts receivable of $4,708,000 for the six months ended as
compared to a decrease of $2,626,000 in the prior year period. The increase in
accounts receivable is due to the higher sales during the end of the quarter.
Funding for the company pension plan of $1,035,000 also contributed to the
decrease. Working capital increased from $22,948,000 at June 30, 1995 to
$24,876,000 at December 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 December 31, 1995, the
company had purchased an aggregate of 815,950 shares under the program.
The Company has available unsecured lines of credit for $15,000,000 which
expire on June 30, 1996. At December 31, 1995, $7,630,000 was outstanding under
the lines of credit.
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, 1996.
9
<PAGE>
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.0 Statement Re: Computation of Per Share Earnings
27.0 Financial Data Schedule
No form 8-K was filed during the quarter ended December 31, 1995.
10
<PAGE>
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.
IFR SYSTEMS, INC.
Date: January 31, 1996 /s/ Alfred H. Hunt
------------------------------
Alfred H. Hunt, III,
President and CEO
(Duly authorized officer)
/s/ Jeffrey A. Bloomer
------------------------------
Jeffrey A. Bloomer
Chief Financial Officer
and Treasurer
(Principal financial and chief
accounting officer)
11
<PAGE>
IFR SYSTEMS, INC.
EXHIBIT (11.0) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
---------- ---------- ---------- ----------
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 5,489 5,268 5,489 5,262
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price 111 88 133 28
---------- ---------- ---------- ----------
Totals 5,600 5,356 5,622 5,290
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Income $ 1,293 $ 878 $ 1,701 $ 1,063
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per Share Amount $ 0.23 $ 0.16 $ 0.30 $ 0.20
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
FULLY DILUTED:
Average shares outstanding 5,490 5,268 5,490 5,262
Net effect of dilutive stock
options-based on the treasury
stock method using the period-
end market price, if greater
than average market price 111 122 133 122
Assumed conversion of 10%
convertible notes 16 153 16 153
---------- ---------- ---------- ----------
Totals 5,617 5,543 5,639 5,537
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Income $ 1,293 $ 878 $ 1,701 $ 1,063
Add 10% convertible note interest,
net of federal income tax effect 2 18 2 37
---------- ---------- ---------- ----------
Totals $ 1,295 $ 896 $ 1,703 $ 1,100
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Per Share Amount $ 0.23 $ 0.16 $ 0.30 $ 0.20
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Note: Average shares outstanding used for Net Income Per Share included in the
Company's financial statements do not reflect the effect of the stock
options granted or convertible notes since their aggregate effect is less
than 3%.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and consolidated statements of income from Form 10-Q
for December 31, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 943
<SECURITIES> 0
<RECEIVABLES> 16,978
<ALLOWANCES> 451
<INVENTORY> 23,275
<CURRENT-ASSETS> 41,930
<PP&E> 17,917
<DEPRECIATION> 8,385
<TOTAL-ASSETS> 62,024
<CURRENT-LIABILITIES> 17,054
<BONDS> 4,822
0
0
<COMMON> 62
<OTHER-SE> 40,013
<TOTAL-LIABILITY-AND-EQUITY> 62,024
<SALES> 43,364
<TOTAL-REVENUES> 43,364
<CGS> 27,655
<TOTAL-COSTS> 40,310
<OTHER-EXPENSES> 184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437
<INCOME-PRETAX> 2,821
<INCOME-TAX> 1,120
<INCOME-CONTINUING> 1,701
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,701
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
