<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 March 31, 1996
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 5,513,984 shares of common stock, par value $.01 per share, of
the Registrant outstanding as of April 18, 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 March 31, 1996
and June 30, 1995. 3
Condensed Consolidated Statements of Income for the three
and nine months ended March 31, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 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 8
PART II -- OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 10
SIGNATURES 11
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
----------- ------------
(UNAUDITED) (NOTE)
ASSETS (000'S OMITTED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 416 $ 662
Accounts receivable, less $421 and $472
allowance for doubtful accounts, respectively 15,243 11,819
Inventories:
Finished products 7,079 8,579
Work in process 8,664 8,692
Materials 8,197 6,790
---------- ----------
23,940 24,061
Prepaid expenses and sundry 298 296
Deferred income taxes 822 822
---------- ----------
TOTAL CURRENT ASSETS 40,719 37,660
PROPERTY AND EQUIPMENT
Property and equipment 15,232 13,680
Allowances for depreciation (deduction) (7,654) (6,204)
---------- ----------
7,578 7,476
PROPERTY UNDER CAPITAL LEASE
Building and machinery 3,436 3,436
Amortization (deduction) (1,283) (1,124)
---------- ----------
2,153 2,312
OTHER ASSETS
Cost in excess of net assets acquired, less
amortization of $1,676 and $1,271, respectively 9,438 9,843
Patents, trademarks and other intangibles, less
amortization of $1,420 and $1,202, respectively 387 605
Loan proceeds appropriated for debt service
and other 503 506
---------- ----------
10,328 10,954
---------- ----------
$ 60,778 $ 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
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<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
----------- -----------
(UNAUDITED) (NOTE)
(000'S OMITTED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings (Note 2) $ 4,890 $ 5,545
Accounts payable 2,937 3,500
Accrued compensation and payroll taxes 2,685 2,187
Other liabilities and accrued expenses 2,607 2,807
Current maturity of capital lease obligations 264 251
Current maturity of long-term debt 1,926 88
Federal and state income taxes and local taxes 881 334
---------- ----------
TOTAL CURRENT LIABILITIES 16,190 14,712
CAPITAL LEASE OBLIGATIONS 2,165 2,346
LONG-TERM DEBT 651 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 6,042 6,187
Cost of common stock in treasury---674,382
and 689,784 shares, respectively (deduction) (5,769) (5,880)
Cumulative translation adjustment (82) --
Retained earnings 41,446 38,267
---------- ----------
41,699 38,636
---------- ----------
$ 60,778 $ 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------------
1996 1995 1996 1995
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
SALES $ 22,802 $ 19,384 $ 66,166 $ 57,800
COST OF PRODUCTS SOLD 14,144 12,146 41,798 36,330
--------- --------- -------- --------
GROSS PROFIT 8,658 7,238 24,368 21,470
OPERATING EXPENSES
Selling 2,379 2,236 7,439 6,784
Administrative 1,795 1,343 4,917 3,851
Engineering 1,915 2,479 6,389 7,600
--------- --------- -------- --------
6,089 6,058 18,745 18,235
--------- --------- -------- --------
OPERATING INCOME 2,569 1,180 5,623 3,235
OTHER INCOME (EXPENSE) (106) (22) (340) (290)
--------- --------- -------- --------
INCOME BEFORE INCOME TAXES 2,463 1,158 5,283 2,945
INCOME TAXES 984 503 2,104 1,227
--------- --------- -------- --------
NET INCOME $ 1,479 $ 655 $ 3,179 $ 1,718
--------- --------- -------- --------
--------- --------- -------- --------
Net Income Per Common Share
Primary $ 0.26 $ 0.12 $ 0.56 $ 0.32
--------- --------- -------- --------
--------- --------- -------- --------
Fully Diluted $ 0.26 $ 0.12 $ 0.56 $ 0.31
--------- --------- -------- --------
--------- --------- -------- --------
Average Common Shares Outstanding:
Primary 5,642 5,479 5,628 5,391
--------- --------- -------- --------
--------- --------- -------- --------
Fully Diluted 5,716 5,693 5,728 5,682
--------- --------- -------- --------
--------- --------- -------- --------
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1996 1995
---------- ----------
(000'S OMITTED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,179 $ 1,718
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property
and equipment 1,609 1,609
Amortization of intangibles 623 594
Deferred compensation expense - 46
Changes in operating assets and liabilities:
Accounts receivable (3,424) 799
Inventories 121 (1,616)
Other current assets (2) (117)
Accounts payable and accrued liabilities (265) 1,041
Other current liabilities 547 (269)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,388 3,805
INVESTING ACTIVITIES
Purchases of property and equipment (1,552) (928)
Sundry 3 (15)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (1,549) (943)
FINANCING ACTIVITIES
Purchases of capital stock for treasury (235) -
Principal payment on capital lease obligations (202) (172)
Principal payment on long-term debt (112) (65)
Principal payments on short-term bank borrowings (17,525) (21,630)
Proceeds from short-term bank borrowings 16,870 18,835
Proceeds from exercise of common stock options 201 186
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (1,003) (2,846)
Effect of exchange rate changes on cash (82) -
---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (246) 16
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 662 64
---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 416 $ 80
---------- ----------
---------- ----------
</TABLE>
See notes to condensed consolidated financial statements.
6
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IFR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 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 and nine month periods ended
March 31, 1996 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 March 31, 1996 the Company had unused
lines of credit aggregating $10,110,000.
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 fully
diluted net income per share for the quarter ended March 31, 1995 were
$21,886,000, $855,000 and $.15, respectively, and for the nine months ended
March 31, 1995 were $63,513,000, $1,311,000 and $.23, 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 March 31, 1996 increased $3,418,000, or 18
percent compared to the same period in the prior year. This increase is
primarily due to increased sales of commercial communications test equipment and
fiber optics test equipment. Sales of government communications test equipment
were down $466,000 compared to the prior year period.
Gross margin for the current quarter was 38 percent compared to 37 percent
for the previous year quarter. This increase is related to the higher sales of
fiber optics test equipment and increased efficiencies.
Total operating expenses as a percent of sales decreased four percent from
the prior year quarter. Selling expenses decreased one percent as percent of
sales and engineering expenses decreased four percent as percent of sales from
the prior year quarter. The decrease in engineering is related to 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
$500,000. Administrative expenses increased one percent as percent of sales
compared to the previous year quarter.
The estimated effective income tax rate was 40 percent for the current year
quarter compared to 43 percent for the prior year quarter.
Sales for the nine months ended March 31, 1996 increased $8,366,000, or 14
percent compared to the same period of the prior year. This increase is
primarily a result of higher sales of fiber optics test equipment and commercial
communications test equipment. Sales to the U.S. Army were down $3,196,000
compared to the year earlier. Sales of avionics, test and measurement (spectrum
analyzers) are all up compared to the prior year.
Gross margins were unchanged at 37 percent for both periods. Operating
expenses decreased as a percent of sales three percent compared to the previous
year. Administrative expenses as a percent of sales remained unchanged.
Selling expense as a percent of sales decreased one percent compared to the
prior year period. Engineering expenses as a percent of sales decreased 3
percent. This decrease is related to the time and materials contract mentioned
earlier.
8
<PAGE>
For the nine month period of fiscal 1996 and fiscal 1995, the effective
income tax rate was 40 percent and 42 percent, respectively. The decrease in
the effective rate is due to an increase in the estimated annual pretax income
relative to the amount of nondeductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations were $2,388,000 for the nine month period
ended March 31, 1996, as compared to $3,805,000 in the prior year period. This
decrease was primarily due to an increase in accounts receivable of $3,424,000
for the nine months ended as compared to a decrease of $799,000 in the prior
year period. The increase in accounts receivable is due to the higher sales
during the year. 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 $24,529,000 at March 31, 1996.
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, 1996, 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 March 31, 1996, $10,110,000 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 March 31, 1996.
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: April 30, 1996 /s/ Alfred H. Hunt, III.
-------------- ------------------------
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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995 1996 1995
--------- -------- -------- ---------
(000'S OMITTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
PRIMARY:
Average shares outstanding 5,481 5,282 5,487 5,269
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price 161 191 142 94
--------- -------- -------- ---------
Totals 5,642 5,473 5,629 5,363
--------- -------- -------- ---------
--------- -------- -------- ---------
Net Income $ 1,479 $ 655 $ 3,179 $ 1,718
--------- -------- -------- ---------
--------- -------- -------- ---------
Per Share Amount $ 0.26 $ 0.12 $ 0.56 $ 0.32
--------- -------- -------- ---------
--------- -------- -------- ---------
FULLY DILUTED:
Average shares outstanding 5,481 5,282 5,487 5,269
Net effect of dilutive stock
options-based on the treasury
stock method using the period-
end market price, if greater
than average market price 219 258 225 260
Assumed conversion of 10%
convertible notes 16 153 16 153
--------- -------- -------- ---------
Totals 5,716 5,693 5,728 5,682
--------- -------- -------- ---------
--------- -------- -------- ---------
Net Income $ 1,479 $ 655 $ 3,179 $ 1,718
Add 10% convertible note interest,
net of federal income tax effect 2 18 6 55
--------- -------- -------- ---------
Totals $ 1,481 $ 673 $ 3,185 $ 1,773
--------- -------- -------- ---------
--------- -------- -------- ---------
Per Share Amount $ 0.26 $ 0.12 $ 0.56 $ 0.31
--------- -------- -------- ---------
--------- -------- -------- ---------
</TABLE>
<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 MARCH 31, 1996 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-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 416
<SECURITIES> 0
<RECEIVABLES> 15664
<ALLOWANCES> 421
<INVENTORY> 23940
<CURRENT-ASSETS> 40719
<PP&E> 18668
<DEPRECIATION> 8937
<TOTAL-ASSETS> 60778
<CURRENT-LIABILITIES> 16190
<BONDS> 2816
0
0
<COMMON> 62
<OTHER-SE> 41637
<TOTAL-LIABILITY-AND-EQUITY> 60778
<SALES> 66166
<TOTAL-REVENUES> 66166
<CGS> 41798
<TOTAL-COSTS> 60543
<OTHER-EXPENSES> 243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 620
<INCOME-PRETAX> 5283
<INCOME-TAX> 2104
<INCOME-CONTINUING> 3179
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3179
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
