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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, 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 5,474,034 shares of common stock, par value $.01 per share, of
the Registrant outstanding as of October 10, 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 September 30,
1997 and June 30, 1997 3
Condensed Consolidated Statements of Income for the three
months ended September 30, 1997 and 1996. 5
Condensed Consolidated Statements of Cash Flow for the
three months ended September 30, 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 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
SEPTEMBER 30, JUNE 30,
1997 1997
------------- --------
(UNAUDITED) (NOTE)
ASSETS (000'S OMITTED)
CURRENT ASSETS
Cash and cash equivalents $ 3,335 $ 2,379
Accounts receivable, less $484 and $500
allowance for doubtful accounts,
respectively 19,444 19,707
Inventories:
Finished products 8,803 8,744
Work in process 6,137 6,517
Materials 7,558 7,144
------------ --------
22,498 22,405
Prepaid expenses and sundry 337 99
Deferred income taxes 2,191 2,191
------------ --------
TOTAL CURRENT ASSETS 47,805 46,781
PROPERTY AND EQUIPMENT
Property and equipment 18,821 18,231
Allowances for depreciation (deduction) (10,628) (10,053)
------------ --------
8,193 8,178
PROPERTY UNDER CAPITAL LEASE
Building and machinery 4,102 3,761
Allowances for depreciation (deduction) (1,342) (1,278)
------------ --------
2,760 2,483
OTHER ASSETS
Cost in excess of net assets acquired, less
amortization of $2,456 and $2,329,
respectively 7,978 8,177
Patents, trademarks and other intangibles,
less amortization of $1,807 and $1,782,
respectively - 25
Other 142 186
------------ --------
8,120 8,388
------------ --------
$ 66,878 $ 65,830
============ ========
Note: The balance sheet at June 30, 1997 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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SEPTEMBER 30, JUNE 30,
1997 1997
------------ --------
(UNAUDITED) (NOTE)
(000'S OMITTED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings (Note 2) $ 45 $ 330
Accounts payable 3,451 3,649
Accrued compensation and payroll taxes 3,925 5,634
Other liabilities and accrued expenses 2,614 2,222
Current maturity of capital lease obligations 175 175
Federal and state income taxes and local taxes 2,257 1,256
------------ --------
TOTAL CURRENT LIABILITIES 12,467 13,266
CAPITAL LEASE OBLIGATIONS 3,765 3,765
DEFERRED INCOME TAXES 645 645
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 6,338 6,400
Cost of common stock in treasury---707,466
and 753,343 shares, respectively (deduction) (7,561) (8,040)
Cumulative translation adjustment (114) 58
Retained earnings 51,276 49,674
------------ --------
50,001 48,154
------------ --------
$ 66,878 $ 65,830
============ ==========
See notes to condensed consolidated financial statements.
4
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1997 1996
(000'S OMITTED, EXCEPT
PER SHARE DATA)
SALES $ 25,521 $ 23,258
COST OF SALES 14,584 14,394
-------- ---------
GROSS PROFIT 10,937 8,864
OPERATING EXPENSES
Selling 2,718 2,532
Administrative 1,899 1,954
Engineering 3,141 2,371
-------- ---------
7,758 6,857
-------- ---------
OPERATING INCOME 3,179 2,007
OTHER EXPENSE 47 5
-------- ---------
INCOME BEFORE INCOME TAXES 3,132 2,002
INCOME TAXES 1,257 792
-------- ---------
NET INCOME $ 1,875 $ 1,210
======== =========
NET INCOME PER COMMON SHARE $ 0.33 $ 0.21
======== =========
AVERAGE COMMON SHARES OUTSTANDING 5,708 5,633
======== =========
See notes to condensed consolidated financial statements.
5
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IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- ---------
(000'S OMITTED)
OPERATING ACTIVITIES
Net income $ 1,875 $ 1,210
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of property and equipment 657 541
Amortization of intangibles 152 187
Changes in operating assets and liabilities:
Accounts receivable 263 2,720
Inventories (93) (1,439)
Other current assets (238) (93)
Accounts payable and
accrued liabilities (1,515) (439)
Other current liabilities 1,001 705
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,102 3,392
INVESTING ACTIVITIES
Purchases of property and equipment (1,006) (540)
Sundry 44 8
------- -------
NET CASH USED IN INVESTING ACTIVITIES (962) (532)
FINANCING ACTIVITIES
Purchases of capital stock for treasury (24) (2,157)
Principal payment on capital lease obligations - (84)
Principal payment on long-term debt - (5)
Principal payments on short-term bank borrowings (1,435) (7,930)
Proceeds from short-term bank borrowings 1,150 7,645
Proceeds from exercise of common stock options 441 14
Payment of dividends (273) -
------- -------
NET CASH USED IN FINANCING ACTIVITIES (141) (2,517)
EFFECT OF EXCHANGE RATE CHANGES ON CASH (43) 40
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 956 383
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,379 266
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,335 $ 649
===== =======
See notes to condensed consolidated financial statements.
6
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IFR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 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 month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1998. 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, 1997.
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, 1997 the effective interest
rate charged by the bank was 7.75 percent and the Company had unused lines of
credit aggregating $14,955,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the first quarter ended September 30, 1997 were $25,521,000
compared to $23,258,000 in the first quarter of the prior year. This represents
an increase of 9.7% or $2,263,000 and was primarily due to higher sales of fiber
optics test equipment. Sales in test and measurement, avionics test equipment
and communication test equipment were essentially unchanged from the prior year
quarter.
7
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Gross margins increased to 42.9% for the current year quarter as
compared to 38.1% in the previous year quarter. This increase is due to a
higher mix of fiber optics test equipment, completion of the U.S. Army
SINCGARS contract in March 1997 and introduction of higher margin commercial
communications test equipment.
Operating expenses increased one percent to 30.4% of sales for the
current quarter. Engineering expenses increased two percent in support of
the development of new test instruments for the fiber optics and emerging
wireless digital telecommunications markets. Administrative expenses decreased
one percent as the high recruiting costs incurred in the previous year quarter
returned to normal levels. Selling expenses remained unchanged as a percent of
sales.
Other expenses increased $42,000 compared to the prior year quarter as
the result of translation losses which were partially offset by higher
interest income and lower interest expense.
The estimated effective income tax rate was approximately 40% for both
the current and previous year period.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operations were $2,102,000 and $3,392,000 for the
three months period ended September 30, 1997 and 1996, respectively. The
decrease in funds provided was due to a decrease in accounts receivable of
$263,000 for the current quarter compared to a decrease of $2,720,000 in the
prior year quarter. Also contributing to the decrease in funds provided was
a decrease in accounts payable and accrued liabilities of $1,515,000 compared
to a decrease of $439,000 in the prior year quarter. Partially offsetting
these items was an increase in inventory of $93,000 compared to an increase
of $1,439,000 in the prior year quarter and higher net income of $1,875,000
compared to $1,210,000 in the prior year quarter.
Cash flows used in financing activities were $141,000 and $2,517,000 for
the three months period ended September 30, 1997 and 1996, respectively. The
decrease in funds used is due primarily to lower discretionary purchases of
treasury stock. On August 14, 1997, the Board of Directors authorized a $.05
per share dividend which was paid on September 12, 1997. The Board of
Directors will review quarterly the appropriateness of future dividend
payments taking into consideration numerous factors including the Company's
cash requirements and performance.
Working capital increased from $33,515,000 at June 30, 1997 to
$35,338,000 at September 30, 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
8
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September 30, 1997, the Company had purchased an aggregate of 149,000 shares
under the program.
The Company has available unsecured lines of credit for $15,000,000
which expire on June 30, 1998. At September 30, 1997, $45,000 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, 1998.
SAFE HARBOR STATEMENTS
The statements which are not actual reported financial results or
historical facts contained in this Management's Discussions and Analysis of
Financial Condition and Results of Operations are forward-looking statements
that involve certain risks and uncertainties. These risks and uncertainties
include, but are not limited to, product demand and market acceptance,
competition and pricing, product development, product mix, capacity and
supply constraints, timing of orders and shipments, availability of capital
resources, general business and economic conditions, regulatory changes and
other risks described in the Company's most recent Form 10-K and Annual
Report as of June 30, 1997.
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, 1997.
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 20, 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)
10
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IFR SYSTEMS, INC.
EXHIBIT (11.0) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---- -----
(000'S OMITTED,
EXCEPT PER SHARE DATA)
PRIMARY:
Average shares outstanding 5,445 5,459
Net effect of dilutive stock
options-based on the treasury
stock method using average
market price 263 174
-------- --------
Totals 5,708 5,633
======== ========
Net Income $ 1,875 $ 1,210
======== ========
Per Share Amount $ 0.33 $ 0.21
======== ========
FULLY DILUTED:
Average shares outstanding 5,445 5,459
Net effect of dilutive stock
options-based on the treasury
stock method using the period-
end market price, if greater
than average market price 348 227
Assumed conversion of 10%
convertible notes - 4
----- -----
Totals 5,793 5,690
===== =====
Net Income $ 1,875 $ 1,210
Add 10% convertible note interest,
net of federal income tax effect - 1
----- -----
Totals $ 1,875 $ 1,211
===== ======
Per Share Amount $ 0.32 $ 0.21
===== ======
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS
OF INCOME IN THE COMPANY'S FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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