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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 September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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 5,364,363 shares of common stock, par value $.01 per share, of
the Registrant outstanding as of October 21, 1996.
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IFR SYSTEMS, INC.
FORM 10 - Q
INDEX
PART I -- FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at September 30,
1996 and June 30, 1996 3
Condensed Consolidated Statements of Income for the three
months ended September 30, 1996 and 1995. 5
Condensed Consolidated Statements of Cash Flow for the
three months ended September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II -- OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 9
SIGNATURES 10
2
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PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
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(UNAUDITED) (NOTE)
ASSETS (000'S OMITTED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 649 $ 266
Accounts receivable, less $418 and $431
allowance for doubtful accounts, respectively 13,774 16,494
Inventories:
Finished products 9,658 9,146
Work in process 8,090 7,167
Materials 7,517 7,513
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25,265 23,826
Prepaid expenses and sundry 243 150
Deferred income taxes 1,032 1,032
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TOTAL CURRENT ASSETS 40,963 41,768
PROPERTY AND EQUIPMENT
Property and equipment 16,027 15,487
Allowances for depreciation (deduction) (8,609) (8,115)
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7,418 7,372
PROPERTY UNDER CAPITAL LEASE
Building and machinery 3,435 3,435
Amortization (deduction) (1,375) (1,328)
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2,060 2,107
OTHER ASSETS
Cost in excess of net assets acquired, less
amortization of $1,918 and $1,818, respectively 8,547 8,647
Patents, trademarks and other intangibles, less
amortization of $1,579 and $1,492, respectively 243 315
Loan proceeds appropriated for debt service
and other 496 504
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9,286 9,466
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$59,727 $60,713
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</TABLE>
Note: The balance sheet at June 30, 1996 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
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<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1996 1996
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(UNAUDITED) (NOTE)
ASSETS (000'S OMITTED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings (Note 2) $ 2,780 $ 3,065
Accounts payable 3,631 3,218
Accrued compensation and payroll taxes 3,103 4,207
Other liabilities and accrued expenses 1,818 1,566
Current maturity of capital lease obligations 224 249
Current maturity of long-term debt 1,649 1,649
Federal and state income taxes and local taxes 1,246 541
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TOTAL CURRENT LIABILITIES 14,451 14,495
CAPITAL LEASE OBLIGATIONS 2,051 2,110
LONG-TERM DEBT 640 645
DEFERRED INCOME TAXES 95 95
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 6,132 6,135
Cost of common stock in treasury---816,201
and 654,195 shares, respectively (deduction) (7,848) (5,708)
Cumulative translation adjustment (94) (149)
Retained earnings 44,238 43,028
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42,490 43,368
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$59,727 $60,713
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</TABLE>
See notes to condensed consolidated financial statements.
4
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C>
SALES $23,258 $19,857
COST OF PRODUCTS SOLD 14,394 12,783
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GROSS PROFIT 8,864 7,074
OPERATING EXPENSES
Selling 2,532 2,385
Administrative 1,954 1,494
Engineering 2,371 2,372
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6,857 6,251
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OPERATING INCOME 2,007 823
OTHER INCOME (EXPENSE) (5) (150)
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INCOME BEFORE INCOME TAXES 2,002 673
INCOME TAXES 792 265
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NET INCOME $ 1,210 $ 408
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Net Income Per Common Share $ 0.21 $ 0.07
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Average Common Shares Outstanding 5,633 5,643
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</TABLE>
See notes to condensed consolidated financial statements.
5
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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(000'S OMITTED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,210 $ 408
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of property
and equipment 541 508
Amortization of intangibles 187 193
Changes in operating assets and liabilities:
Accounts receivable 2,720 (2,457)
Inventories (1,439) 412
Other current assets (93) (109)
Accounts payable and accrued liabilities (439) (1,674)
Other current liabilities 705 263
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NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 3,392 (2,456)
INVESTING ACTIVITIES
Purchases of property and equipment (540) (412)
Sundry 8 (5)
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NET CASH USED IN INVESTING ACTIVITIES (532) (417)
FINANCING ACTIVITIES
Purchases of capital stock for treasury (2,157) --
Principal payment on capital lease obligations (84) (79)
Principal payment on long-term debt (5) (14)
Principal payments on short-term bank borrowings (7,930) (3,805)
Proceeds from short-term bank borrowings 7,645 6,230
Proceeds from exercise of common stock options 14 19
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NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (2,517) 2,351
Effect of exchange rate changes on cash 40 --
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INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 383 (522)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 266 662
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 649 $ 140
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</TABLE>
See notes to condensed consolidated financial statements.
6
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IFR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1996
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 month period ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending June 30,
1997. 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, 1996.
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 September 30, 1996 the Company had
unused lines of credit aggregating $12,220,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales increased 17 percent in the first quarter ended September 30, 1996
to $23,258,000, up $3,401,000 over the first quarter of the prior year. This
increase is primarily due to increased sales of commercial communications
test equipment, avionics test equipment and fiber optics test equipment.
Test and measurement sales remained flat compared to the prior year period
while sales of government communications test equipment were down $947,000
from a year ago.
7
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Gross margins increased to 38 percent for the current year quarter as
compared to 36 percent in the previous year quarter. This increase is
related to a higher mix of avionics test equipment and fiber optics test
equipment.
Operating expenses decreased as a percent of sales from 31 percent for the
prior year quarter to 29 percent for the current quarter. Selling expenses
decreased one percent as a percent of sales and engineering expenses
decreased two percent as a percent of sales from the prior year quarter.
Administrative expenses increased one percent as a percent of sales compared
to the prior year quarter.
Other expenses decreased $145,000, driven primarily by the decrease in
interest expense of $122,000 compared to the prior year quarter. This is due
to the lower average note payable balance due to the bank.
The estimated effective income tax rate was 39 percent for both the current
and previous year period.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations were $3,392,000 for the three month
period ended September 30, 1996, this compared to cash flows used in
operations of $2,456,000 in the prior year quarter. This increase was
primarily due to a decrease in accounts receivable of $2,720,000 for the
current quarter compared to an increase of $2,457,000 in the prior year
quarter. An increase in inventory in the current quarter of $1,439,000
partially offset this improvement. Working capital decreased from $27,273,000
at June 30, 1996 to $26,512,000 at September 30, 1996.
The Board of Directors of the Company had previously authorized the
repurchase of up to 1,000,000 shares of the Company's common stock. During
the quarter ended September 30, 1996 the remaining shares available under the
program were exhausted. On September 20, 1996 an additional 500,000 shares
were authorized for repurchase by the Board of Directors. No shares have been
purchased as of September 30, 1996 under this new authorization.
The Company has available unsecured lines of credit for $15,000,000 which
expire on June 30, 1997. At September 30, 1996, $12,220,000 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, 1997.
8
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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
(b) No Form 8-k was filed during the quarter ended September 30, 1996.
9
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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: October 25, 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)
10
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IFR SYSTEMS, INC.
EXHIBIT (11.0) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
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(000'S OMITTED, EXCEPT PER SHARE DATA)
PRIMARY:
Average shares outstanding 5,459 5,490
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price 174 153
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Totals 5,633 5,643
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Net Income $1,210 $ 408
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Per Share Amount $ 0.21 $ 0.07
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FULLY DILUTED:
Average shares outstanding 5,459 5,490
Net effect of dilutive stock
options-based on the treasury
stock method using the period-
end market price, if greater
than average market price 227 153
Assumed conversion of 10%
convertible notes 4 16
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Totals 5,690 5,659
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Net Income $1,210 $ 408
Add 10% convertible note interest,
net of federal income tax effect 1 2
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Totals $1,211 $ 410
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Per Share Amount $ 0.21 $ 0.07
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FROM FORM
10-Q FOR SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 649
<SECURITIES> 0
<RECEIVABLES> 14192
<ALLOWANCES> 418
<INVENTORY> 25265
<CURRENT-ASSETS> 40963
<PP&E> 19462
<DEPRECIATION> 9984
<TOTAL-ASSETS> 59727
<CURRENT-LIABILITIES> 14451
<BONDS> 2691
0
0
<COMMON> 62
<OTHER-SE> 42428
<TOTAL-LIABILITY-AND-EQUITY> 59727
<SALES> 23258
<TOTAL-REVENUES> 23258
<CGS> 14394
<TOTAL-COSTS> 21251
<OTHER-EXPENSES> 31
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> 2002
<INCOME-TAX> 792
<INCOME-CONTINUING> 1210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1210
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
