-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ntzSBPmhRQ05s5mwc0QwUXv9uSvGgAt+VfFJY6jOIDVQT7Nqiqb2AScv4J7Kt1+a rJG8VWy6mxhBpjdPzF11bg== 0000002601-95-000014.txt : 19950517 0000002601-95-000014.hdr.sgml : 19950516 ACCESSION NUMBER: 0000002601-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEROFLEX INC CENTRAL INDEX KEY: 0000002601 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 111974412 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08037 FILM NUMBER: 95537153 BUSINESS ADDRESS: STREET 1: 35 S SERVICE RD CITY: PLAINVIEW STATE: NY ZIP: 11803 BUSINESS PHONE: 516-752-23 MAIL ADDRESS: STREET 1: 35 S SERVICE ROAD CITY: PLAINVIEW STATE: NY ZIP: 11803 FORMER COMPANY: FORMER CONFORMED NAME: ARX INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AEROFLEX LABORATORIES INC DATE OF NAME CHANGE: 19851119 10-Q 1 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended March 31, 1995 Commission File Number 1-8037 AEROFLEX INCORPORATED (Formerly ARX, Inc.) (Exact name of Registrant as specified in its Charter) DELAWARE 11-1974412 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 35 South Service Road Plainview, N.Y. 11803 (Address of principal executive offices) (Zip Code) (516) 694-6700 (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, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. May 1, 1995 11,744,119 - --------------------------------------------------------------------------- (Date) (Number of Shares) 2 AEROFLEX INCORPORATED AND SUBSIDIARIES INDEX ----- PAGE ---- PART I: FINANCIAL INFORMATION --------------------- CONSOLIDATED BALANCE SHEETS March 31, 1995 and June 30, 1994 3-4 CONSOLIDATED STATEMENTS OF EARNINGS Nine Months Ended March 31, 1995 and 1994 5 CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended March 31, 1995 and 1994 CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended March 31, 1995 and 1994 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8-10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nine and Three Months Ended March 31, 1995 and 1994 11-13 PART II: OTHER INFORMATION ----------------- ITEM 1 Legal Proceedings 14 ITEM 6 Exhibits and Reports on Form 8-K 14 SIGNATURES 15
3 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, June 30, 1995 1994 ---------- -------- ASSETS Current assets: Cash and cash equivalents $ 8,093,000 $ 8,238,000 Current portion of invested cash 635,000 150,000 Accounts receivable less allowance for doubtful accounts of $578,000 and $434,000 15,014,000 16,804,000 Inventories (Note 7) 15,412,000 14,087,000 Deferred income taxes 640,000 640,000 Prepaid expenses and other current assets 825,000 937,000 ----------- ----------- TOTAL CURRENT ASSETS 40,619,000 40,856,000 Invested cash 692,000 1,356,000 Property, plant and equipment, at cost, net 13,435,000 13,180,000 Costs in excess of fair value of net assets of businesses acquired, net 10,373,000 10,602,000 Net assets of discontinued operations (Note 4) 2,125,000 2,403,000 Deferred income taxes 430,000 403,000 Other assets 2,394,000 2,216,000 ------------ ------------ $ 70,068,000 $ 71,016,000 ============ ============
[FN] See notes to consolidated financial statements 4 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued)
March 31, June 30, 1995 1994 ---------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Current portion of long-term debt $ 1,324,000 $ 820,000 Accounts payable 3,310,000 222,000 Accrued expenses and other current liabilities 6,880,000 7,580,000 Income taxes payable 173,000 662,000 ------------ ----------- Total Current Liabilities 11,687,000 12,284,000 ------------ ----------- Long-term debt (Note 5) 2,639,000 7,588,000 ------------ ----------- Other long-term liabilities 1,680,000 1,573,000 ------------ ----------- 7-1/2% Senior Subordinated Convertible Debentures (Note 6) 10,000,000 10,000,000 ------------ ----------- Stockholders' equity Preferred stock, par value $.10 per share; authorized 1,000,000 shares: Series A Junior Participating Preferred Stock, par value $.10 per share, authorized 150,000 shares - - Common stock, par value $.10 per share; authorized 25,000,000 shares; issued 11,744,000 and 11,799,000 shares 1,174,000 1,180,000 Additional paid-in capital 56,039,000 56,116,000 Accumulated deficit (13,151,000) (17,633,000) ------------- ------------ 44,062,000 39,663,000 Less: Treasury stock, at cost (58,000 shares) - 92,000 ------------ ------------ 44,062,000 39,571,000 ------------ ------------ $ 70,068,000 $ 71,016,000 ============ ============
[FN] See notes to consolidated financial statements 5 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
Nine Months Ended March 31, ------------------------------ 1995 1994 ---- ---- Net Sales $ 49,597,000 $ 44,259,000 Cost of Sales 33,398,000 30,891,000 ------------ ------------ Gross Profit 16,199,000 13,368,000 Selling, General and Administrative Costs 11,521,000 9,568,000 Restructuring Charge (Note 2) 1,150,000 - ------------ ------------ Operating Income 3,528,000 3,800,000 ------------ ------------ Other Income (Expense) Life insurance proceeds (Note 10) 2,000,000 - Interest expense (1,156,000) (1,176,000) Interest and other income 611,000 143,000 ------------- ------------ Total Other Income (Expense) 1,455,000 (1,033,000) ------------- ------------ Income From Continuing Operations Before Income Taxes 4,983,000 2,767,000 Provision for Income Taxes (Note 8) 501,000 495,000 ------------- ------------- Income From Continuing Operations 4,482,000 2,272,000 Income From Discontinued Operations (Note 4) - 187,000 ------------ ------------ Net Income $ 4,482,000 $ 2,459,000 ============ ============ come per Common Share Primary Continuing Operations $ .36 $ .23 Discontinued Operations - .02 ----- ----- Net Income $ .36 $ .25 ===== ===== Fully Diluted Continuing Operations $ .36 $ .21 Discontinued Operations - .01 ----- ----- Net Income $ .36 $ .22 ===== ===== Weighted Average Number of Common Shares Outstanding Primary 12,354,000 9,904,000 ========== ========== Fully Diluted 14,164,000 12,437,000 ========== ==========
[FN] See notes to consolidated financial statements 6 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 31, --------------------- 1995 1994 ---- ---- Net Sales $ 19,750,000 $ 19,187,000 Cost of Sales 12,988,000 13,653,000 ------------ ------------ Gross Profit 6,762,000 5,534,000 Selling, General and Administrative Costs 4,664,000 3,787,000 Restructuring Charge (Note 2) 1,150,000 - ------------ ------------ Operating Income 948,000 1,747,000 ------------ ------------ Other Income (Expense) Interest expense (372,000) (387,000) Interest and other income 287,000 34,000 ------------ ------------ Total Other Income (Expense) (85,000) (353,000) ------------ ------------ Income Before Income Taxes 863,000 1,394,000 Provision for Income Taxes (Note 8) 180,000 223,000 ------------ ------------ Net Income $ 683,000 $ 1,171,000 ============ ============ Net Income per Common Share: Primary $ .06 $ .11 ===== ===== Fully Diluted $ .06 $ .10 ===== ===== Weighted Average Number of Common Shares Outstanding Primary 12,384,000 10,917,000 =========== =========== Fully Diluted 14,166,000 12,514,000 =========== ===========
[FN] See notes to consolidated financial statements 7 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, ------------------------- 1995 1994 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,482,000 $ 2,459,000 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Income from discontinued operations - (187,000) Non-cash portion of restructuring charge (Note 2) 539,000 - Depreciation and amortization 2,321,000 2,169,000 Other 126,000 720,000 Increase (decrease) in deferred income taxes (27,000) 102,000 ----------- ----------- Change in operating assets and liabilities: Decrease (increase) in accounts receivable 1,773,000 (1,754,000) Decrease (increase) in inventories (818,000) (1,514,000) Decrease (increase) in prepaid expenses and other assets (327,000) (466,000) Increase (decrease) in accounts payable, accrued expenses and other long-term liabilities (630,000) 1,113,000 Increase (decrease) in income taxes payable (489,000) (1,048,000) ---------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 6,950,000 1,594,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Payments for purchases of businesses, net of cash acquired (537,000) (5,650,000) Net cash provided by (used in) discontinued operations 278,000 5,841,000 Decrease (increase) in invested cash 179,000 1,895,000 Capital expenditures (2,448,000) (1,119,000) Other 159,000 14,000 ----------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,369,000) 981,000 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under debt agreements 292,000 528,000 Net debt repayments (5,055,000) (3,415,000) Proceeds from exercise of stock options 37,000 64,000 ----------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,726,000) (2,823,000) ----------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (145,000) (248,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 8,238,000 360,000 ----------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,093,000 $ 112,000 =========== ============
[FN] See notes to consolidated financial statements 8 AEROFLEX INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation --------------------- The consolidated balance sheet of Aeroflex Incorporated and Subsidiaries ("the Company") as of March 31, 1995 and the related consolidated statements of earnings for the nine and three months ended March 31, 1995 and 1994 and the statements of cash flows for the nine months ended March 31, 1995 and 1994 have been prepared by the Company and are unaudited. In the opinion of management, all adjustments (which include only normal recurring adjustments and the adjustment referred to in Note 2) necessary to present fairly the financial position, results of operations and cash flows at March 31, 1995 and for all periods presented have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 1994 annual report to shareholders. There have been no changes of significant accounting policies since June 30, 1994. Certain reclassifications have been made to previously reported financial statements to conform to current classifications. Results of operations for the nine and three month periods are not necessarily indicative of results of operations for the corresponding years. 2. Restructuring Charge -------------------- In March 1995, the Company, pursuant to a Board of Directors resolution, decided to consolidate its Puerto Rican manufacturing operations into its existing facilities in New York and New Jersey. The Company intends to cease manufacturing operations in Puerto Rico as of July 1995 and expects the consolidation to be complete by October 1995. In connection with this restructuring, the Company has reported a special charge to earnings of $1,150,000 in the third quarter of fiscal 1995, representing costs for abandonment of leasehold improvements, lease termination costs, write- down of excess equipment and other related costs. This amount includes non-cash costs of approximately $539,000. Costs for employee severance of approximately $525,000 will be recorded in the fourth quarter of fiscal 1995. 3. Acquisitions of Businesses -------------------------- In January 1995, the Company acquired substantially all of the net operating assets of Lintek, Inc. ("Lintek") for $537,000 plus contingent consideration based on the next five years' earnings to a maximum of an additional $675,000. Lintek designs, develops and manufactures radar cross section and antenna pattern measurement systems for commercial and military applications, as well as surface penetrating radars. The acquired Company's net sales were approximately $2,600,000 for the year ended December 31, 1994. On a pro forma basis, had the Lintek acquisition taken place as of the beginning of the periods presented, results of operations for those periods would not have been materially affected. Effective January 1, 1994, the Company acquired substantially all of the net operating assets of the microelectronics division of Marconi Circuit Technology Corporation ("Circuit Tech") for $5,650,000 and assumed liabilities of $3,115,000. The purchase price was allocated to the assets acquired based upon the respective fair values as of the acquisition date. The purchase was financed through borrowings under the Company's revolving line of credit agreement. The acquired division's net sales of microelectronic products were approximately $17,500,000 for the twelve months ended December 31, 1993. Summarized below are the unaudited pro forma results of operations of the Company as if Circuit Tech had been acquired at the beginning of the fiscal periods presented: 9
Pro Forma Nine Months Pro Forma Ended Year Ended March 31, 1994 June 30, 1994 -------------- ------------- (in thousands, except per share data) Net Sales $ 52,414 $ 73,757 Income From Continuing Operations 2,131 5,703 Net Income 2,318 5,890 Earnings Per Share Primary Income From Continuing Operations $ .21 $ .54 Net Income .23 .56 Fully Diluted Income From Continuing Operations .20 .48 Net Income .21 .50
The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisition taken place at the beginning of the periods presented or of future operating results of the combined companies. The acquisitions have been accounted for as purchases and, accordingly, the acquired assets and liabilities assumed have been recorded at their estimated fair values at the dates of acquisition. The operating results of the acquired companies are included in the consolidated statements of earnings from their respective acquisition dates. 4. Discontinued Operations ----------------------- In September 1993, the Company entered into an agreement with the U.S. Air Force in full settlement of claims against the U.S. Air Force on two telecom- munication contracts which were completed in 1992. The settlement represents a final mutual release of all claims between the parties relative to these two contracts. The settlement, together with other unrelated settlements of claims and adjustments of previously recorded loss reserves, resulted in an after tax gain of $2,295,000, which was included in discontinued operations in the first quarter of fiscal 1994. In November 1993, the Company sold substantially all of the net operating assets of its Huxley subsidiary for $5,550,000. Huxley is a manufacturer of specialized envelopes for high-volume direct-mail users. The disposal is being accounted for as a discontinued operation, and, accordingly, Huxley's operations and the loss on disposal have been reported separately from continuing operations. The total loss of $2,108,000 represents a loss from Huxley's operations of $187,000 and a loss on the disposal of $1,921,000. Huxley's assets and liabilities have been reclassified on the balance sheet from the historic classifications and combined under the caption "net assets of discontinued operations". 5. Revolving Credit Agreements --------------------------- As of April 11, 1994 the Company entered into a revised revolving credit and term loan agreement with two banks which is secured by accounts receivable, inventory and the Company's stockholdings in certain of its subsidiaries. The agreement provides for a revolving credit line of $16,000,000 and a term loan of $4,000,000, both of which expire on March 31, 1997. The term loan was repaid during the third quarter of 1995. The interest rate on borrowings under this agreement is at various rates depending upon certain financial ratios, with the present rate substantially equivalent to the prime rate (9% at March 31, 1995). The terms of the agreement require compliance with certain covenants including minimum consolidated working capital and tangible net worth, maintenance of certain financial ratios, limitations on capital expenditures and lease commitments, and prohibition of the payment of cash dividends. Management believes that this revolving credit and term loan facility, coupled with cash to be provided by future operations, will be sufficient for its working capital requirements, capital expenditure needs, wind-down of discontinued operations and the servicing of its debt. 10 6. Senior Subordinated Convertible Debentures ------------------------------------------ In December 1992, the Company completed a sale of $6,870,000 of principal amount of 7% Convertible Senior Subordinated Debentures to non-U.S. persons. The debentures were convertible into the Company's common stock at a price of $2.25 per share. All of the net proceeds from the debenture offering were used to repay indebtedness under the revolving credit and term loan agreement. In February 1994, the Company called for redemption all outstanding debentures. Substantially all of the debentures were converted and the balance, $8,000, was redeemed as of March 31, 1994. During June 1994, the Company completed a sale of $10,000,000 of principal amount of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S. persons. The debentures are due June 15, 2004 and are convertible into the Company's common stock at a price of $5-5/8 per share. The net proceeds from the offering were used initially to retire certain bank indebtedness and for general working capital with excess proceeds placed in temporary short term bank related investments. 7. Inventories ----------- Inventories consist of the following:
March 31, June 30, 1995 1994 --------- --------- Raw Materials $ 6,118,000 $ 5,706,000 Work in Process 6,591,000 5,800,000 Finished Goods 2,703,000 2,581,000 ----------- ---------- $15,412,000 $14,087,000 =========== ==========
8. Income Taxes ------------ At June 30, 1994 the Company had net operating loss carryforwards of approximately $19,000,000 for Federal income tax purposes which expire through 2006. The income tax provisions for the nine and three months ended March 31, 1995 and 1994 include benefits relating to the recognition of unrealized and realized net operating loss carryforwards. The Company is undergoing routine audits by various taxing authorities of several of its U.S. Federal, state and local income tax returns covering different periods from 1988 to 1993. In view of the Company's Puerto Rico operations and the increased focus by the Internal Revenue Service on profit allocations between U.S. and foreign related entities, deficiencies could be proposed. Management believes that the probable outcome of these various audits should not materially affect the consolidated financial statements of the Company. 9. Contingencies ------------- A subsidiary of the Company whose operations were discontinued in 1991, is one of several defendants named in a personal injury action initiated in August, 1994, by a group of plaintiffs. The complaint alleges, among other things, that the plaintiffs suffered injuries from exposure to substances contained in products sold by the subsidiary to one of its customers. Considering its various defenses, together with its product liability insurance, in the opinion of management of the Company, the outcome of the action against its subsidiary will not have a materially adverse effect on the Company's consolidated financial statements. 10. Life Insurance Proceeds ----------------------- During the quarter ended December 31, 1994, the Company received $2,000,000 of insurance proceeds on the death of the former chairman. 11 AEROFLEX INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- Nine Months Ended March 31, 1995 Compared to Nine Months Ended March 31, 1994 - ----------------------------------------------------------------------------- Net sales increased to $49,597,000 for the nine months ended March 31, 1995 from $44,259,000 for the nine months ended March 31, 1994. Net income was $4,482,000 for the nine months ended March 31, 1995 including $2,000,000 of life insurance proceeds on the death of the former chairman and a restructuring charge of $1,150,000 representing the non-severance costs of consolidating the Company's Puerto Rican operations into its existing domestic facilities. The employee severance costs associated with the restructuring of approximately $525,000 will be recorded in the fourth quarter. Net income for the nine months ended March 31, 1994 was $2,459,000 including a $187,000 gain from discontinued operations. Net sales in the electronics segment increased to $38,818,000 for the nine months ended March 31, 1995 from $34,351,000 for the nine months ended March 31, 1994 primarily as a result of the acquisition of the microelectronics division of Marconi Circuit Technology Corporation in January 1994. Operating profits, exclusive of the restructuring charge, increased by $1,149,000 as a result of the higher sales and improved margins, partially offset by increased research and development costs, primarily in the microelectronics division. Net sales in the shock and vibration segment increased to $10,779,000 for the nine months ended March 31, 1995 from $9,908,000 for the nine months ended March 31, 1994. The increase is primarily attributable to higher sales volume of commercial and industrial isolators. Operating profits, exclusive of the restructuring charge, increased by $141,000. The increase in volume was partially offset by an unfavorable change in the product mix and lower margins in the military isolator division. Cost of sales as a percentage of sales decreased to 67.3% from 69.8% between the two periods as a result of improved profit margins primarily in the instrument products and microelectronics divisions. Selling general and administrative costs, exclusive of the restructuring charge, as a percentage of sales increased to 23.2% from 21.6% primarily due to increased research and development costs in the microelectronics division. Interest expense decreased to $1,156,000 from $1,176,000. Decreased levels of borrowings were offset by increased interest rates. Interest and other income were greater by $468,000 as a result of the short term investments made with the proceeds from the 7-1/2% debentures. The income tax provisions for the nine month periods ended March 31, 1995 and 1994 were less than the amounts computed by applying the U.S. Federal income tax rate to income from continuing operations before income taxes primarily as a result of the tax benefits of loss carryforwards (both unrealized and realized) and the exemption of the earnings of the Company's Puerto Rican subsidiary from U.S. Federal income taxes, and, for the period ended March 31, 1995, because of the non-taxable life insurance proceeds of $2,000,000. In September 1993, the Company entered into an agreement with the U.S. Air Force in full settlement of claims against the U.S. Air Force for extra work, delays and other out-of-scope costs on two telecommunication contracts which were the primary reasons for T-CAS's loss in 1991. The settlement represents a final mutual release of all claims between the parties relative to these two contracts. The settlement, together with other unrelated settlements of claims and adjustments of previously recorded loss reserves, resulted in an after tax gain of $2,295,000, which was included in discontinued operations in the first quarter of fiscal 1994. In November 1993, the Company sold substantially all of the net operating assets of its Huxley subsidiary. The disposal is being accounted for as a discontinued operation, and, accordingly, Huxley's operations and the loss on disposals, have been reported separately from continuing operations. This loss of $2,108,000 represents a loss from Huxley's operations of $187,000 and a loss on the disposal of $1,921,000. 12 Three Months Ended March 31,1995 Compared to Three Months Ended March 31, 1994 - ------------------------------------------------------------------------------ Net sales increased to $19,750,000 for the three months ended March 31, 1995 from $19,187,000 for the three months ended March 31, 1994. Net income was $683,000 for the three months ended March 31, 1995 including a restructuring charge of $1,150,000 representing non-severance costs of consolidating the Company's Puerto Rican operations into its existing domestic facilities. The employee severance costs associated with the restructuring of approximately $525,000 will be recorded in the fourth quarter. Net income was $1,171,000 in the prior year. Net sales in the electronics segment increased to $15,833,000 for the three months ended March 31, 1995 from $15,673,000 for the three months ended March 31, 1994. Operating profits, exclusive of the restructuring charge, increased by $501,000 as a result of improved profit margins, partially offset by increased research and development costs, primarily in the microelectronics division. Net sales in the shock and vibration segment increased to $3,917,000 for the three months ended March 31, 1995 from $3,514,000 for the three months ended March 31, 1994. The increase is primarily attributable to higher sales volume of commercial and industrial isolators. Operating profits, exclusive of the restructuring charge, increased by $137,000 due to the increased sales. Cost of sales as a percentage of sales decreased to 65.8% from 71.2% between the two periods primarily as a result of improved margins in the instrument products and microelectronics divisions. Selling, general and administrative costs, exclusive of the restructuring charge, as a percentage of sales increased to 23.6% from 19.7% primarily due to increased research and development costs in the microelectronics division. Interest expense decreased to $372,000 from $387,000. Decreased levels of borrowings were offset by increased interest rates. Interest and other income were greater by $253,000 as a result of the short term investments made with the proceeds from the 7-1/2% debentures. The income tax provisions for the three month periods ended March 31, 1995 and 1994 were less than the amounts computed by applying the U.S. Federal income tax rate to income before income taxes primarily as a result of the tax benefits of loss carryforwards (both unrealized and realized) and the exemption of the earnings of the Company's Puerto Rican subsidiary from U.S. Federal income taxes. Financial Condition - ------------------- The Company's working capital at March 31, 1995 was $28,932,000 as compared to $28,572,000 at June 30, 1994. The current ratio increased to 3.5 to 1 from 3.3 to 1 at June 30, 1994. Cash provided by operating activities was $6,950,000 for the nine months ended March 31, 1995 as compared to $1,594,000 for the nine months ended March 31, 1994. The improvement was primarily due to improved earnings (including $2,000,000 of life insurance proceeds) and the collections of receivables offset, in part, by reductions in accrued expenses. Cash used by investing activities of $2,369,000 was comprised primarily of capital expenditures. The net cash provided by operating and investing activities for the nine month period was used to reduce debt by $4,763,000. Management believes that the revolving credit and term loan facility, coupled with cash to be provided by future operations, will be sufficient for its presently anticipated working capital requirements, capital expenditure needs, wind-down of discontinued operations and the servicing of its debt. As of April 11, 1994, the Company entered into a revised revolving credit and term loan agreement with two banks which is secured by accounts receivable, inventory and the Company's stockholdings in certain of its subsidiaries. The agreement provides for a revolving credit line of $16,000,000 and a term loan of $4,000,000 both of which expire on March 31, 1997. The term loan was repaid during the third quarter of 1995. See Note 5 to the Consolidated Financial Statements. 13 During June 1994, the Company completed a sale of $10,000,000 of principal amount of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S. persons. The debentures are due June 15, 2004 subject to prior sinking fund payments of 10%, 10%, 15% and 15% of the principal amount on September 15, 2000, 2001, 2002 and 2003, respectively. The debentures are convertible into the Company's common stock at a price of $5-5/8 per share. In November 1993, the Company sold its Huxley subsidiary for $5,550,000, including a $700,000 five year subordinated secured note. The net cash proceeds from the sale were used to repay indebtedness under the revolving credit and term loan agreement. In July, 1994, the $700,000 note was satisfied. In January 1994, the Company acquired substantially all of the net operating assets of the microelectronics division of Marconi Circuit Technology Corporation for $5,650,000. The operations acquired have been consolidated with the Company's wholly-owned subsidiary, Aeroflex Laboratories, Incorporated. The acquired division's net sales of microelectronic products were approximately $17,500,000 for the twelve months ended December 31, 1993. In January 1995, the Company acquired substantially all of the net operating assets of Lintek, Inc. for $537,000 plus contingent consideration based on the next five years' earnings to a maximum of an additional $675,000. Lintek, Inc. designs, develops and manufactures radar cross section and antenna pattern measurement systems for commercial and military applications, as well as surface penetrating radars. The acquired Company's net sales were approximately $2,600,000 for the year ended December 31, 1994. In March 1995, the Company decided to consolidate its Puerto Rican manufacturing operations into its existing facilities in New York and New Jersey. The Company intends to cease manufacturing operations in Puerto Rico as of July 1995 and expects the consolidation to be complete by October 1995. In connection with this restructuring, the Company has reported a special charge to earnings of $1,150,000 in the third quarter of fiscal 1995 representing costs for abandonment of leasehold improvements, lease termination costs, write-down of excess equipment and other related costs. This amount includes non-cash costs of approximately $539,000. Costs for employee severance of approximately $525,000 will be recorded in the fourth quarter of fiscal 1995. The Puerto Rican facility presently employs approximately 100 persons of which only a few may be relocated to New York or New Jersey. A subsidiary of the Company whose operations were discontinued in 1991, is one of several defendants named in a personal injury action initiated in August, 1994, by a group of plaintiffs. The complaint alleges, among other things, that the plaintiffs suffered injuries from exposure to substances contained in products sold by the subsidiary to one of its customers. Considering its various defenses, together with its product liability insurance, in the opinion of management of the Company, the outcome of the action against its subsidiary will not have a materially adverse effect on the Company's consolidated financial statements. Since many of the programs in which the Company is involved are not currently expected to be curtailed, management presently believes that potential reductions in military spending will not materially adversely affect its operations. At June 30, 1994, the Company had net operating loss carryforwards of approximately $19,000,000 for Federal income tax purposes. The Company is undergoing routine audits by various taxing authorities of several of its U.S. Federal, state, and local income tax returns covering different periods from 1988 to 1993. In view of the Company's Puerto Rico operations and the increased focus by the Internal Revenue Service on profit allocations between U.S. and foreign related entities, deficiencies could be proposed. Management believes that the probable outcome of these various audits should not materially affect the consolidated financial statements of the Company. 14 AEROFLEX INCORPORATED AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Old Corp. (formerly Filtron Co., Inc.) a subsidiary of the Company whose operations were discontinued in October 1991, was one of several defendants named in a personal injury action instituted recently by several plaintiffs in the Supreme Court of the State of New York, County of Kings. According to the allegations of the Amended Verified Complaint, the plaintiffs, who are current or former employees of a company to whom Old Corp. sold RFI filters/capacitors, and their wives, are seeking to recover, respectively, directly and derivatively, on diverse theories of negligence, strict liability and breach of warranty, for injuries allegedly suffered from exposure to a liquid substance or material which Old Corp. incorporated for a period of time in the RFI filters/ capacitors which it manufactured. Without considering the merits of the action, in view of the nature of the referenced transactions and based upon the existence of product liability insurance covering Old Corp.'s operations during the relevant period of time, the management of the Company does not believe that the outcome of the action against its subsidiary would have a material adverse effect on the Company's consolidated financial statements. Item 2. Changes in Securities --------------------- None Item 3. Defaults upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: Exhibit 11 Exhibit 27 (b) Reports on Form 8-K (1) Report on Form 8-K dated March 29, 1995 covering Item 4 - Changes in Registrant's Certifying Accountant. 15 AEROFLEX INCORPORATED AND SUBSIDIARIES 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. AEROFLEX INCORPORATED (REGISTRANT) May 1, 1995 By: /s/ Michael Gorin --------------------------------- Michael Gorin President and Chief Financial Officer EX-11 2 AEROFLEX INCORPORATED AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE
Nine Months Three Months Ended March 31, Ended March 31, 1995 1994 1995 1994 ---- ---- ---- ---- COMPUTATION OF ADJUSTED NET INCOME: Income from continuing operations $ 4,482,000 $ 2,272,000 $ 683,000 $ 1,171,000 Discontinued operations - 187,000 - - ------------ ------------ ------------ ------------ Net income for primary earnings per common share 4,482,000 2,459,000 683,000 1,171,000 Add: Debenture interest and amortization expense, net of income taxes 573,000 291,000 191,000 73,000 ------------- ------------ ------------ ------------ Adjusted net income for fully diluted earnings per common share $ 5,055,000 $ 2,750,000 $ 874,000 $ 1,244,000 ============= ============ ============ ============ COMPUTATION OF ADJUSTED WEIGHTED AVERAGE SHARES OUTSTANDING: Weighted average shares outstanding 11,739,000 9,371,000 11,741,000 10,138,000 Add: Effect of options and warrants outstanding 615,000 533,000 643,000 779,000 ------------- ------------ ------------- ------------ Weighted average shares and common share equivalents used for computation of primary earnings per common share 12,354,000 9,904,000 12,384,000 10,917,000 Add: Effect of additional options and warrants outstanding for fully diluted computation 32,000 179,000 4,000 - Add: Shares assumed to be issued upon conversion of debentures 1,778,000 2,354,000 1,778,000 1,597,000 Weighted average shares and common share ------------ ----------- ---------- ---------- equivalents used for computation of fully diluted earnings per common share 14,164,000 12,437,000 14,166,000 12,514,000 ============ =========== ========== =========== EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENT: Primary: Income from continuing operations $ .36 $ .23 $ .06 $ .11 Discontinued operations - .02 - - ----- ----- ----- ----- Net income $ .36 $ .25 $ .06 $ .11 ===== ===== ===== ===== Fully diluted: Income from continuing operations $ .36 $ .21 $ .06 $ .10 Discontinued operations - .01 - - - ----- ----- ----- ----- Net income $ .36 $ .22 $ .06 $ .10 ===== ===== ===== =====
EX-27 3
5 1,000,000 9-MOS JUN-30-1995 MAR-31-1995 8,093,000 0 15,592,000 578,000 15,412,000 40,619,000 36,808,000 23,373,000 70,068,000 11,687,000 10,000,000 1,174,000 0 0 42,888,000 70,068,000 49,597,000 49,597,000 33,398,000 46,069,000 0 0 1,156,000 4,983,000 501,000 4,482,000 0 0 0 4,482,000 .36 .36
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