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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 March 31, 1997
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 5,414,710 shares of common stock, par value $.01 per share, of
the Registrant outstanding as of April 7, 1997.
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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 June 30, 1996
and March 31, 1997 3
Condensed Consolidated Statements of Income for the three
and nine months ended March 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 1997 and 1996 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
MARCH 31, JUNE 30,
1997 1996
---------- --------
(UNAUDITED) (NOTE)
ASSETS (000'S OMITTED)
CURRENT ASSETS
Cash and cash equivalents $ 3,753 $ 266
Accounts receivable, less $458 and $431
allowance for doubtful accounts, respectively 18,031 16,494
Inventories:
Finished products 10,678 9,146
Work in process 7,170 7,167
Materials 6,870 7,513
-------- --------
24,718 23,826
Prepaid expenses and sundry 294 150
Deferred income taxes 1,032 1,032
-------- --------
TOTAL CURRENT ASSETS 47,828 41,768
PROPERTY AND EQUIPMENT
Property and equipment 18,020 15,487
Allowances for depreciation (deduction) (9,928) (8,115)
-------- --------
8,092 7,372
PROPERTY UNDER CAPITAL LEASE
Building and machinery 3,220 3,435
Amortization (deduction) (1,237) (1,328)
-------- --------
1,983 2,107
OTHER ASSETS
Cost in excess of net assets acquired, less
amortization of $2,197 and $1,818, respectively 8,437 8,647
Patents, trademarks and other intangibles, less
amortization of $1,709 and $1,492, respectively 98 315
Loan proceeds appropriated for debt service
and other 187 504
-------- --------
8,722 9,466
-------- --------
$ 66,625 $60,713
-------- --------
-------- --------
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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MARCH 31, JUNE 30,
1997 1996
---------- --------
(UNAUDITED) (NOTE)
(000'S OMITTED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings (Note 2) $ 4,340 $ 3,065
Accounts payable 3,451 3,218
Accrued compensation and payroll taxes 4,907 4,207
Other liabilities and accrued expenses 2,319 1,566
Current maturity of capital lease obligations (Note 3) 175 249
Current maturity of long-term debt (Note 4) 32 1,649
Federal and state income taxes and local taxes 906 541
------- -------
TOTAL CURRENT LIABILITIES 16,130 14,495
CAPITAL LEASE OBLIGATIONS (NOTE 3) 3,765 2,110
LONG-TERM DEBT (NOTE 4) 653 645
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 6,233 6,135
Cost of common stock in treasury---759,390
and 654,195 shares, respectively (deduction) (8,011) (5,708)
Cumulative translation adjustment 118 (149)
Retained earnings 47,580 43,028
------- -------
45,982 43,368
------- -------
$66,625 $60,713
------- -------
------- -------
See notes to condensed consolidated financial statements.
4
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------------------------
1997 1996 1997 1996
(000'S OMITTED, EXCEPT PER SHARE DATA)
SALES $ 26,238 $ 22,802 $ 76,483 $ 66,166
COST OF PRODUCTS SOLD 15,305 14,144 45,984 41,798
-------- -------- -------- --------
GROSS PROFIT 10,933 8,658 30,499 24,368
OPERATING EXPENSES
Selling 2,817 2,379 8,624 7,439
Administrative 2,142 1,795 6,177 4,917
Engineering 2,938 1,915 8,082 6,389
-------- -------- -------- --------
7,897 6,089 22,883 18,745
-------- -------- -------- --------
OPERATING INCOME 3,036 2,569 7,616 5,623
OTHER INCOME (EXPENSE) (128) (106) (57) (340)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 2,908 2,463 7,559 5,283
INCOME TAXES 1,182 984 3,007 2,104
-------- -------- -------- --------
NET INCOME $ 1,726 $ 1,479 $ 4,552 $ 3,179
-------- -------- -------- --------
-------- -------- -------- --------
Net Income Per Common Share $ 0.30 $ 0.26 $ 0.81 $ 0.56
-------- -------- -------- --------
-------- -------- -------- --------
Average Common Shares
Outstanding 5,661 5,642 5,647 5,628
-------- -------- -------- --------
-------- -------- -------- --------
See notes to condensed consolidated financial statements.
5
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
------- -------
1997 1996
(000'S OMITTED)
OPERATING ACTIVITIES
Net income $ 4,552 $ 3,179
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization of property
and equipment 1,720 1,609
Amortization of intangibles 597 623
Changes in operating assets and liabilities:
Accounts receivable (1,824) (3,424)
Inventories (892) 121
Other current assets (144) (2)
Accounts payable and accrued liabilities 1,686 (265)
Other current liabilities 365 547
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 6,060 2,388
INVESTING ACTIVITIES
Purchases of property and equipment (2,240) (1,552)
Sundry 317 3
------- -------
NET CASH USED IN INVESTING ACTIVITIES (1,923) (1,549)
FINANCING ACTIVITIES
Purchases of capital stock for treasury (4,178) (235)
Principal payment on capital lease obligations (2,359) (202)
Principal payment on long-term debt (221) (112)
Principal payments on short-term bank borrowings (23,325) (17,525)
Proceeds from issuance of Industrial Revenue Bond 3,940 -
Proceeds from short-term bank borrowings 24,600 16,870
Proceeds from exercise of common stock options 799 201
------- -------
NET CASH USED BY FINANCING ACTIVITIES (744) (1,003)
Effect of exchange rate changes on cash 94 (82)
------- -------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,487 (246)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 266 662
------- -------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 3,753 $ 416
------- -------
------- -------
See notes to condensed consolidated financial statements.
6
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IFR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
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, 1997 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 March 31, 1997, the effective interest
rate charged by the bank was 8.00 percent and the Company had unused lines of
credit aggregating $10,660,000.
NOTE 3 - CAPITAL LEASE OBLIGATIONS
On March 26, 1997, the Company completed the transaction for an Industrial
Revenue Bond totaling $3,940,000. Proceeds from the Bond were used to pay off
the 1989 Bond in the amount of $1,960,000. The remaining funds are
contractually restricted and are to be used for the purchase of plant equipment
and building improvements.
NOTE 4 -- LONG-TERM DEBT
The Company had a note payable due to York 1995 Limited, related to the
acquisition made during June 1995. Final payment was made on December 31, 1996
via 80,000 shares of common stock and cash of $166,000. At March 31, 1997, no
balance due is remaining.
NOTE 5 -- NEW ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE. The Statement is
7
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effective for periods ending after December 15, 1997, including interim periods,
and earlier application is not permitted. Although the Company has not yet
completed its detailed analysis of the Statement, management does not believe
application of the Statement will have any significant adverse impact on its
current earnings per share amounts.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the quarter ended March 31, 1997 increased $3,436,000, or 15
percent compared to the same period in the prior year. This increase was
primarily due to increased sales of communication test equipment, which was
up 20 percent over the prior year quarter and fiber optics test equipment, up
25 percent over the previous year period. Included in the sales of
communications test equipment were sales to the U.S. Army of $3,017,000, an
increase of 26 percent as compared to the previous year quarter. Sales of
test and measurement equipment (spectrum analyzers) and sales of avionics
test equipment were both down as compared to the prior year quarter.
Gross margin for the current quarter was 42 percent compared to 38 percent
for the previous year quarter. The increased sales of fiber optics test
equipment and improved manufacturing efficiencies contributed to the
improvement.
Total operating expenses as a percent of sales increased three percent from
the prior year quarter. Selling and administrative expenses remained flat as a
percent of sales while engineering expenses increased three percent as a percent
of sales. The increase in engineering expenses is related to additional
employees to support the Company's expanded product development growth plans.
Net other expense was $128,000 for the quarter compared to $106,000 for the
prior year quarter. The Company incurred expenses of $42,000 during the quarter
for the early payoff of the 1989 Industrial Revenue Bond issue.
The estimated effective income tax rate was 41 percent compared to 40
percent in the previous year quarter. The increase in the rate is related to
additional state income tax payments made during the current quarter for prior
year periods.
Sales for the nine months ended March 31, 1997 increased $10,317,000, or 16
percent compared to a year ago. Sales of communications test equipment were up
22 percent as compared to the prior year. Sales of avionics test equipment were
up 16 percent as compared to the previous year period. Sales of fiber optics
test equipment was up 11 percent while sales of test and measurement equipment
(spectrum analyzers) were down 24 percent on a year to year comparison.
8
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Gross margins were 40 percent compared to 37 percent for the prior year.
The increased sales of higher margin products and improved manufacturing
efficiencies have contributed to this improvement.
Operating expenses increased as a percent of sales one percent compared to
the previous year. Selling and administrative expenses remained unchanged as a
percent of sales while engineering expenses as a percent of sales increased one
percent. This increase is related to additional employees to support the
Company's accelerated product development plan.
Net other expense was $57,000 for the nine months ended period compared to
$340,000 for the prior year period. This improvement is related to reduced
interest expense and a favorable foreign currency exchange rate for the year.
The estimated effective income tax rate was unchanged at 40 percent for
both periods.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations were $6,060,000 for the nine months ended
March 31, 1997. This compares to cash flows provided by operations of
$2,388,000 in the prior year period. This increase is related to an increase in
accounts payable and accured liabilities of $2,051,000 for the nine months ended
as compared to an increase of $282,000 in the prior year period. Working
capital increased from $27,273,000 at June 30, 1996 to $31,698,000 at March 31,
1997.
On September 20, 1996, the Board of Directors of the Company authorized the
repurchase of up to 500,000 shares of the Company's common stock. The main
purpose of the shares buyback program is to offset stock option exercises from
treasury stock and as a utilization of the anticipated excess cash flow during
the year. As of March 31, 1997, the Company had purchased an aggregate of
128,884 shares under the program.
The Company has available unsecured lines of credit for $15,000,000 which
expire on June 30, 1997. At March 31, 1997, $4,340,000 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.
9
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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
No form 8-K was filed during the quarter ended March 31, 1997.
10
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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: April 24, 1997 /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)
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IFR SYSTEMS, INC.
EXHIBIT (11.0) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
------ ------ ------ ------
(000'S OMITTED, EXCEPT PER SHARE DATA)
PRIMARY:
Average shares outstanding 5,443 5,481 5,446 5,487
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price 218 161 201 142
------- ------- ------- -------
Totals 5,661 5,642 5,647 5,629
------- ------- ------- -------
------- ------- ------- -------
Net Income $ 1,726 $ 1,479 $ 4,552 $ 3,179
------- ------- ------- -------
------- ------- ------- -------
Per Share Amount $ 0.30 $ 0.26 $ 0.81 $ 0.56
------- ------- ------- -------
------- ------- ------- -------
FULLY DILUTED:
Average shares outstanding 5,443 5,481 5,446 5,487
Net effect of dilutive stock
options-based on the treasury
stock method using the period-
end market price, if greater
than average market price 220 219 206 225
Assumed conversion of 10%
convertible notes 4 16 4 16
------- ------- ------- -------
Totals 5,667 5,716 5,656 5,728
------- ------- ------- -------
------- ------- ------- -------
Net Income $ 1,726 $ 1,479 $ 4,552 $ 3,179
Add 10% convertible note interest,
net of federal income tax effect 1 2 4 6
------- ------- ------- -------
Totals $ 1,727 $ 1,481 $ 4,556 $ 3,185
------- ------- ------- -------
------- ------- ------- -------
Per Share Amount $ 0.30 $ 0.26 $ 0.81 $ 0.56
------- ------- ------- -------
------- ------- ------- -------
<TABLE> <S> <C>
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<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 MARCH 31, 1997 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-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 3,753
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<RECEIVABLES> 18,489
<ALLOWANCES> 458
<INVENTORY> 24,718
<CURRENT-ASSETS> 47,828
<PP&E> 21,240
<DEPRECIATION> 11,165
<TOTAL-ASSETS> 66,625
<CURRENT-LIABILITIES> 16,130
<BONDS> 4,418
0
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<COMMON> 62
<OTHER-SE> 45,920
<TOTAL-LIABILITY-AND-EQUITY> 66,625
<SALES> 76,483
<TOTAL-REVENUES> 76,483
<CGS> 45,984
<TOTAL-COSTS> 68,867
<OTHER-EXPENSES> 42
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<NET-INCOME> 4,552
<EPS-PRIMARY> .81
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