-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KAgA9D67B/qmEF5g7RoWVG6e7QcNZhSgdvsIiF9byIXIsNB0DKszQTEDnIbxgWqV NFuYexWvpoLwmDPQzt0JLg== 0000932214-03-000100.txt : 20030721 0000932214-03-000100.hdr.sgml : 20030721 20030721170751 ACCESSION NUMBER: 0000932214-03-000100 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030627 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030721 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEROFLEX INC CENTRAL INDEX KEY: 0000002601 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 111974412 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08037 FILM NUMBER: 03794994 BUSINESS ADDRESS: STREET 1: 35 S SERVICE RD CITY: PLAINVIEW STATE: NY ZIP: 11803 BUSINESS PHONE: 5166946700 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 8-K 1 fin8k.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------- Date of report (Date of earliest event reported): June 27, 2003 AEROFLEX INCORPORATED (Exact Name of Registrant as Specified in Charter) Delaware 000-02324 11-1974412 (State of Other Jurisdiction (Commission (IRS Employer of Incorporation) File Number) Identification No.) 35 South Service Road, Plainview, New York 11803 (Address of Principal Executive Offices) (Zip Code) (516) 694-6700 (Registrant's telephone number, including area code) N/A (Former name or former address, if changed since last report) Item 5. Other Events. As previously reported, in December 2002, the Registrant approved a formal plan to discontinue the Registrant's fiber optic lithium niobate modulator operation. The plan called for an immediate cessation of operations and disposal of existing assets. As was also previously reported, on June 27, 2003, the Registrant, MCE Acquisition Corporation, a Michigan corporation and a wholly owned subsidiary of Aeroflex ("Acquisition"), MCE Technologies, Inc., a Michigan corporation (MCE"), and Michael J. Endres, on behalf of the shareholders and warrantholders of MCE, entered into an Agreement and Plan of Merger (the "Agreement") pursuant to which MCE will be merged with and into Acquisition and MCE will become a wholly-owned subsidiary of the Registrant. In connection with the merger, the Registrant will be filing with the Commission a registration statement which will incorporate by reference the Registrant's financial results for its fiscal years ended June 30, 2002, 2001 and 2000. As a result, the Registrant is filing this report to restate its financial results for such fiscal years to give effect to the discontinued operations. In accordance with SFAS No. 144, the abandonment of the Registrant's fiber optic lithium niobate modulator operation has been reported as a discontinued operation and, accordingly, losses from operations and the loss on abandonment have been reported separately from continuing operations. To conform with this presentation, all periods have been restated. As a result, the assets and liabilities of the discontinued operation have been reclassified on the balance sheet from the historical classifications and presented under the captions "assets of discontinued operations" and "liabilities of discontinued operations," respectively. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (c) Exhibits. 99.1 Financial Statements and Schedules Comprising Item 8 of Annual Report on Form 10-K as of and for the years ended June 30, 2002, 2001 and 2000 99.2 Consent of KPMG LLP 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 hereunto duly authorized. AEROFLEX INCORPORATED By: /s/Michael Gorin ------------------------------------------ Name: Michael Gorin Title: President, Chief Financial Officer and Principal Accounting Officer Dated: July 21, 2003 EXHIBIT INDEX Exhibit No. Description - ----------- ----------- 99.1 Financial Statements and Schedules Comprising Item 8 of Annual Report on Form 10-K as of and for the years ended June 30, 2002, 2001 and 2000 99.2 Consent of KMPG LLP EX-99.1 3 exhfin8-k.txt FINANCIAL STATEMENTS AND SCHEDULES AEROFLEX INCORPORATED AND SUBSIDIARIES FINANCIAL STATEMENTS AND SCHEDULES COMPRISING ITEM 8 OF ANNUAL REPORT ON FORM 10-K TO SECURITIES AND EXCHANGE COMMISSION AS OF JUNE 30, 2002 AND 2001 AND FOR THE YEARS ENDED JUNE 30, 2002, 2001 AND 2000 FINANCIAL STATEMENTS AND SCHEDULES ---------------------------------- I N D E X PAGE ------------- ---- ITEM FIFTEEN(a) --------------- 1. FINANCIAL STATEMENTS: Independent auditors' report S-1 Consolidated financial statements: Balance sheets - June 30, 2002 and 2001 S-2-3 Statements of operations - each of the three years in the period ended June 30, 2002 S-4 Statements of stockholders' equity and comprehensive income (loss) - each of the three years in the period ended June 30, 2002 S-5 Statements of cash flows - each of the three years in the period ended June 30, 2002 S-6 Notes (1-16) S-7-29 Quarterly financial data (unaudited) S-30 2. FINANCIAL STATEMENT SCHEDULE: II - Valuation and qualifying accounts S-31 All other schedules have been omitted because they are inapplicable, not required, or the information is included elsewhere in the financial statements or notes thereto. Independent Auditors' Report The Board of Directors and Stockholders of Aeroflex Incorporated We have audited the accompanying consolidated balance sheets of Aeroflex Incorporated and subsidiaries as of June 30, 2002 and 2001, and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended June 30, 2002. Our audits also included the financial statement schedule listed in the Index at item 15(a)2. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Aeroflex Incorporated and subsidiaries as of June 30, 2002 and 2001, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP Melville, New York August 12, 2002, except for Note 16 which is as of February 14, 2003 S-1 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) (Note 16) June 30, ASSETS 2002 2001 ---------- ---------- Current assets: Cash and cash equivalents................... $ 38,559 $ 69,896 Marketable securities....................... - 12,012 Accounts receivable, less allowance for doubtful accounts of $636 and $459 at June 30, 2002 and 2001, respectively... 63,384 49,289 Income taxes receivable..................... 4,432 - Inventories................................. 72,040 48,390 Deferred income taxes....................... 12,259 7,148 Assets of discontinued operations........... 167 153 Prepaid expenses and other current assets... 3,360 2,583 --------- --------- Total current assets................... 194,201 189,471 Property, plant and equipment, net............ 73,473 61,437 Intangible assets with definite lives, net of accumulated amortization of $6,674 and $6,649 at June 30, 2002 and 2001, respectively..... 17,815 14,124 Goodwill...................................... 20,179 15,562 Deferred income taxes......................... 2,477 11,032 Assets of discontinued operations............. 1,200 12,785 Other assets.................................. 9,120 8,335 --------- --------- Total assets........................... $318,465 $312,746 ========= ========= See notes to consolidated financial statements. S-2 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (In thousands, except per share amounts) (Note 16) June 30, LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001 --------- --------- Current liabilities: Current portion of long-term debt.............. $ 2,171 $ 1,905 Accounts payable............................... 18,356 16,726 Advance payments by customers.................. 1,775 425 Liabilities of discontinued operations......... 366 141 Accrued expenses and other current liabilities.................................. 26,637 17,900 --------- --------- Total current liabilities................. 49,305 37,097 Long-term debt................................... 12,638 11,428 Liabilities of discontinued operations........... - 2,494 Other long-term liabilities...................... 7,040 6,606 --------- --------- Total liabilities......................... 68,983 57,625 --------- --------- Commitments and contingencies Stockholders' equity: Preferred Stock, par value $.10 per share; authorized 1,000 shares: Series A Junior Participating Preferred Stock, par value $.10 per share; authorized 110 shares; none issued...................... - - Common Stock, par value $.10 per share; authorized 110,000 shares; issued 60,006 and 59,674 at June 30, 2002 and 2001, respectively................................. 6,001 5,967 Additional paid-in capital..................... 222,351 219,278 Accumulated other comprehensive income (loss).. 1,881 (154) Retained earnings.............................. 19,263 30,044 --------- --------- 249,496 255,135 Less: Treasury stock, at cost (4 and 4 shares at June 30, 2002 and 2001, respectively)................................. 14 14 --------- --------- Total stockholders' equity................ 249,482 255,121 --------- --------- Total liabilities and stockholders' equity.................................. $318,465 $312,746 ========= ========= See notes to consolidated financial statements. S-3 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Note 16) Years Ended June 30, 2002 2001 2000 ---- ---- ---- (Restated, note 2) Net sales............................. $202,129 $232,553 $188,750 Cost of sales (including restructuring charges of $900 in 2002, note 3).... 128,352 136,435 120,200 --------- --------- --------- Gross profit........................ 73,777 96,118 68,550 --------- --------- --------- Operating costs: Selling, general and administrative costs (including restructuring charges of $8,229 in 2002,note 3). 49,375 43,383 34,491 Research and development costs............................. 23,140 18,795 11,592 Acquired in-process research and development costs (note 2).... 1,100 1,500 - --------- --------- --------- Total operating costs........... 73,615 63,678 46,083 --------- --------- --------- Operating income...................... 162 32,440 22,467 --------- --------- --------- Other expense (income): Interest expense.................... 1,263 1,397 2,442 Other income, net (including interest income and dividends of $1,898, $3,853 and $650).......... (1,475) (3,602) (554) --------- --------- --------- Total other expense (income).... (212) (2,205) 1,888 Income from continuing operations before income taxes................. 374 34,645 20,579 Provision for income taxes............ 50 11,781 6,200 --------- --------- --------- Income from continuing operations 324 22,864 14,379 Discontinued operations, net of tax benefit of $3,000 and $331......... (11,105) (1,642) - Cumulative effect of a change in accounting, net of tax (note 1)...... - 132 - --------- --------- --------- Net income (loss)..................... $(10,781) $ 21,354 $ 14,379 ========= ========= ========= Net income (loss) per common share: Basic Income from continuing operations..................... $ 0.01 $ 0.39 $ 0.30 Discontinued operations.......... (0.19) (0.02) - Cumulative effect of a change in accounting.................. - - - ------- ------- ------- Net income (loss)................ $(0.18) $ 0.37 $ 0.30 ======= ======= ======= Diluted Income from continuing operations..................... $ .01 $ 0.37 $ 0.28 Discontinued operations.......... (0.18) (0.02) - Cumulative effect of a change in accounting.................. - - - ------- ------- ------- Net income (loss)................ $(0.17) $ 0.35 $ 0.28 ======= ======= ======= Weighted average number of common shares outstanding: Basic.............................. 59,973 58,124 48,189 Diluted(1)......................... 62,012 61,041 51,474 See notes to consolidated financial statements. S-4
AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) Years Ended June 30, 2002, 2001 and 2000 (In thousands) (Restated, note 2) Accumulated Other Comp- Retained Compre- Additional rehensive Earnings hensive Common Stock Paid-in Income (Accumulated Treasury Stock Income Total Shares Par Value Capital (Loss) Deficit) Shares Cost (Loss) ---------- --------- ------------ ----------- ----------- ----------- -------- -------- -------- Balance, July 1, 1999....... $ 101,826 18,649 $ 1,865 $105,699 $ - $ (5,689) 6 $ (49) Stock issued in public offering............ 68,500 2,500 250 68,250 - - - - Stock issued upon exercise of stock options and warrants....... 18,457 1,339 133 16,365 - - (296) 1,959 Purchase of treasury stock...................... (1,990) - - - - - 300 (1,990) Deferred compensation....... 401 - - 401 - - - - Five-for-four stock split................ (11) 5,622 563 (574) - - 3 - Other comprehensive income..................... 82 - - - 82 - - - $ 82 Net income.................. 14,379 - - - - 14,379 - - 14,379 ---------- --------- --------- ---------- ---------- ----------- ------- --------- ---------- Balance, June 30, 2000...... 201,644 28,110 2,811 190,141 82 8,690 13 (80) $ 14,461 ========= Stock and options issued for acquisition of businesses.. 11,766 1,153 115 11,651 - - - - Stock issued upon exercise of stock options and warrants....... 20,390 1,450 145 20,179 - - (11) 66 Deferred compensation....... 203 - - 203 - - - - Two-for-one stock split..... - 28,961 2,896 (2,896) - - 2 - Other comprehensive loss.... (236) - - - (236) - - - $ (236) Net income.................. 21,354 - - - - 21,354 - - 21,354 ---------- --------- --------- ---------- --------- ---------- ------ --------- --------- Balance, June 30, 2001...... 255,121 59,674 5,967 219,278 (154) 30,044 4 (14) $ 21,118 ========= Stock issued upon exercise of stock options.................... 3,055 332 34 3,021 - - - - Deferred compensation....... 52 - - 52 - - - - Other comprehensive income.. 2,035 - - - 2,035 - - - $ 2,035 Net loss.................... (10,781) - - - - (10,781) - - (10,781) ---------- --------- --------- ---------- --------- ---------- ------ ---------- ---------- Balance, June 30, 2002...... $ 249,482 60,006 $ 6,001 $ 222,351 $ 1,881 $ 19,263 4 $ (14) $ (8,746) ========== ========= ========= ========== ========= ========== ====== ========== ==========
See notes to consolidated financial statements. S-5
AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Note 16) Years Ended June 30, 2002 2001 2000 ---- ---- ---- (Restated, note 2) Cash flows from operating activities: Net income (loss)..................................... $(10,781) $ 21,354 $ 14,379 Loss from discontinued operations..................... 11,105 1,642 - --------- --------- --------- Income from continuing operations..................... 324 22,996 14,379 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Acquired in-process research and development...... 1,100 1,500 - Depreciation and amortization..................... 11,340 11,084 9,004 Amortization of deferred gain..................... (457) (823) (596) Tax benefit from stock option exercises (note 11). - 8,962 5,114 Deferred income taxes............................. 4,750 2,566 1,086 Non-cash restructuring charges.................... 5,016 - - Other............................................. 758 296 390 Change in operating assets and liabilities, net of effects from purchase of businesses: Decrease (increase) in accounts receivable........ 999 4,352 (11,481) Decrease (increase) in inventories................ 3,463 (6,251) (4,232) Decrease (increase) in prepaid expenses and other assets.................................... (4,439) (2,701) (1,069) Increase (decrease) in accounts payable, accrued expenses and other long-term liabilities........ (5,311) 5,803 2,462 Increase (decrease) in income taxes payable....... - - (698) --------- --------- --------- Net cash provided by continuing operations.............. 17,543 47,784 14,359 Net cash provided by (used in) discontinued operations.. (1,428) (576) - --------- --------- --------- Net cash provided by operating activities............... 16,115 47,208 14,359 --------- --------- --------- Cash flows from investing activities: Payment for purchase of businesses, net of cash acquired....................................... (53,828) (14,786) (566) Capital expenditures.................................. (5,758) (13,112) (7,226) Proceeds from sale of property, plant and equipment... - 168 1,686 Purchase of marketable securities..................... (5,938) (30,767) (11,430) Proceeds from sale of marketable securities........... 18,013 30,121 193 --------- --------- --------- Net cash used in continuing operations.................. (47,511) (28,376) (17,343) Net cash provided by (used in) discontinued operations.. (375) 26 - --------- --------- --------- Net cash used in investing activities................... (47,886) (28,350) (17,343) --------- --------- --------- Cash flows from financing activities: Proceeds from issuance of common shares in public offering..................................... - - 69,000 Costs in connection with public offering.............. - - (500) Borrowings under debt agreements...................... 89 635 6,474 Debt repayments....................................... (1,801) (3,919) (23,182) Purchase of treasury stock............................ - - (1,990) Proceeds from the exercise of stock options and warrants........................................ 1,737 3,800 5,170 Amounts paid for withholding taxes on stock option exercises.................................... (1,542) (22,193) (11,169) Withholding taxes collected for stock option exercises........................................... 1,542 17,983 11,166 --------- --------- -------- Net cash provided by (used in) financing activities..... 25 (3,694) 54,969 --------- --------- -------- Effect of exchange rate changes on cash and cash equivalents...................................... 409 - - --------- --------- -------- Net increase (decrease) in cash and cash equivalents........................................... (31,337) 15,164 51,985 Cash and cash equivalents at beginning of year.......... 69,896 54,732 2,747 --------- --------- -------- Cash and cash equivalents at end of year................ $ 38,559 $ 69,896 $ 54,732 ========= ========= =========
See notes to consolidated financial statements. S-6 AEROFLEX INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Note 16) 1. Summary of Significant Accounting Principles and Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of Aeroflex Incorporated and its subsidiaries (the "Company"), all of which are wholly-owned as of June 30, 2002. All intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires that management of the Company make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities. Among the more significant estimates included in the consolidated financial statements are the estimated costs to complete contracts in process and the recoverability of long-lived and intangible assets. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments having maturities of three months or less at the date of acquisition to be cash equivalents. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories related to long-term contracts are recorded at cost less amounts expensed under percentage-of-completion accounting. Financial Instruments The fair values of all on-balance sheet financial instruments, other than long-term debt (see Note 8), approximate book values because of the short maturity of these instruments. Amounts received or paid under interest rate swap agreements are accounted for as adjustments to interest expense. Revenue Recognition The Company's revenue is generally recognized based upon shipments. Revenues associated with certain long-term contracts are recognized under the units-of- delivery method which includes shipments and progress billings, in accordance with Statement of Position No. 81-1 "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." The Company records costs on its long-term contracts using percentage-of-completion accounting. Under percentage-of- completion accounting, costs are recognized on revenues in the same relation that total estimated manufacturing costs bear to total contract value. Estimated costs at completion are based upon engineering and production estimates. Provisions for estimated losses or revisions in estimated profits on contracts-in-process are recorded in the period in which such losses or revisions are first determined. Effective July 1, 2000, the Company adopted the SEC's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101") and the Emerging Issues Task Force Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs" ("EITF 00-10"). SAB 101 provides guidance related to revenue recognition. EITF 00-10 requires companies to recognize revenue for amounts billed to customers for shipping and handling charges. The adoption of these two pronouncements did not have a material impact on the Company's consolidated financial statements. S-7 Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation computed on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the life of the lease or the estimated life of the asset, whichever is shorter. Research and Development Costs All research and development costs are charged to expense as incurred. See Note 2 for a discussion of acquired in-process research and development. Intangible Assets Intangible assets are recorded at cost less accumulated amortization and are being amortized on a straight-line basis over periods ranging from 6 to 16 years. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company periodically, and whenever events or changes in circumstances indicate that the carrying value of its intangible assets may be impaired, evaluates the recoverability of such assets by estimating the future cash flows. If the sum of the undiscounted cash flows expected to result from the use of the asset, and its eventual disposition, is less than the carrying amount of the asset, the Company will recognize an impairment loss to the extent of the excess of the carrying amount of the asset over the discounted cash flow. In July 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS No. 121. The Company has adopted the provisions of SFAS No. 141 and SFAS No. 142 as of July 1, 2001. The Company has evaluated its intangible assets and goodwill that were acquired in prior purchase business combinations and has reclassified $2.6 million net carrying value of intangible assets to goodwill in order to conform with the new criteria in SFAS No. 141 for recognition apart from goodwill. In connection with this reclassification, the Company has reduced goodwill for the amount of deferred taxes previously recorded on the reclassified intangible assets that are no longer required. The Company also reassessed the useful lives and residual values of all intangible assets acquired, and determined that no adjustment to these estimates was necessary. The Company has tested goodwill for impairment in accordance with the provisions of SFAS No. 142 as of July 1, 2001. Based on its evaluation, the Company was not required to recognize any impairment losses as of July 1, 2001. Earnings Per Share In accordance with SFAS No. 128 "Earnings Per Share," net income per common share ("Basic EPS") is computed by dividing net income by the weighted average common shares outstanding. Net income per common share assuming dilution ("Diluted EPS") is computed by dividing net income by the weighted average common shares outstanding plus potential dilution from the exercise of stock options and warrants. The effect of options in a loss period would be anti-dilutive, therefore Basic EPS and Diluted EPS are the same in a loss period. S-8 Accounting for Stock-Based Compensation The Company records compensation expense for employee and director stock options only if the current market price of the underlying stock exceeds the exercise price on the date of the grant. Effective July 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has elected not to implement the fair value based accounting method for employee and director stock options, but instead has elected to disclose the pro forma net income and pro forma net income per share for employee and director stock option grants made beginning in fiscal 1996 as if such method had been used to account for stock-based compensation cost as described in SFAS No. 123. Income Taxes In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company measures deferred tax assets and liabilities based upon the differences between the financial accounting and tax bases of assets and liabilities. Foreign Currency Translations The financial statements of the Company's foreign subsidiaries are measured in the local currency and then translated into U.S. dollars using the current rate method. Under the current rate method, assets and liabilities are translated using the exchange rate at the balance sheet date. Revenues and expenses are translated at average rates prevailing throughout the year. Gains and losses resulting from the translation of financial statements of the foreign susidiaries are accumulated in other comprehensive income (loss) and presented as part of stockholders' equity. Exchange gains or losses from the settlement of foreign currency transactions are reflected in the consolidated statement of operations. Comprehensive Income Comprehensive income consists of net income and equity adjustments relating to foreign currency translation, fair value of derivatives, minimum pension liability and available-for-sale securities and is presented in the Consolidated Statements of Stockholders' Equity and Comprehensive Income. Accounting for Derivative Instruments and Hedging Activities Effective July 1, 2000, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. This statement requires companies to record derivatives on the balance sheet as assets or liabilities at their fair value. For derivatives that are deemed effective under SFAS No. 133, changes in the value of such derivatives are recorded as components of other comprehensive income. For derivatives that are deemed ineffective, the changes are recorded as gains or losses in other income or expense. The impact of this statement did not have a material effect on the Company's consolidated financial statements. The cumulative effect of the adoption of this accounting policy was a $132,000, net of tax, credit in the quarter ended September 30, 2000 which represented the net of tax fair value of certain interest rate swap agreements at July 1, 2000. Reclassifications Reclassifications have been made to the 2000 and 2001 consolidated financial statements to conform to the 2002 presentation. Recent Accounting Pronouncements In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of Long-Lived Assets," which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company adopted SFAS No. 144 effective July 1, 2002. The adoption did not have a material impact on the consolidated financial statements. S-9 In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which is effective January 1, 2003. SFAS No. 146 provides that an exit cost liability should not always be recorded at the date of an entity's commitment to an exit plan, but instead should be recorded when the obligation is incurred. An entity's commitment to a plan, by itself, does not create an obligation that meets the definition of a liability. Management does not expect such adoption to have a material impact on its consolidated financial statements. 2. Acquisition of Businesses and Intangible Assets IFR Systems On May 20, 2002, the Company acquired 75.1% of the outstanding stock of IFR Systems, Inc. ("IFR"). Effective June 19, 2002, IFR was merged into a wholly-owned subsidiary of the Company, with IFR as the surviving wholly-owned subsidiary. The Company paid $61.7 million from its available cash and marketable securities, including $48.8 million which was advanced to IFR to satisfy IFR's bank indebtedness. IFR designs and manufactures advanced test solutions for communications, avionics and general test and measurement applications. As a result of the acquisition, the Company has broadened its Test Solutions Segment product portfolio and its international sales network. The Company evaluated the acquired tangible and identifiable intangible assets to serve as a basis for allocation of the purchase price. The Company allocated the purchase price, including acquisition costs of approximately $1.8 million, based on the estimated fair value of the assets acquired and liabilities assumed, as follows: (In thousands) -------------- Current assets (excluding cash of $8.0 million).... $ 44,046 Property, plant and equipment...................... 20,242 Developed technology............................... 8,230 Goodwill........................................... 2,881 In-process research and development................ 1,100 Other.............................................. 62 --------- Total assets acquired............................ 76,561 --------- Current liabilities................................ (20,037) Long-term debt..................................... (2,814) --------- Total liabilities assumed........................ (22,851) --------- Net assets acquired.............................. $ 53,710 ========= The developed technology is being amortized on a straight-line basis over 6 years. The goodwill is not deductible for tax purposes. At the acquisition date, the acquired in-process research and development was not considered to have reached technological feasibility and had no alternative future uses. Therefore, in accordance with accounting principles generally accepted in the United States of America, the value of such has been expensed in the quarter ended June 30, 2002 in operating costs. At the acquisition date, IFR was conducting design, development, engineering and testing activities associated with the completion of new technologies for its radio test set product line. Summarized below are the unaudited pro forma results of operations of the Company as if IFR had been acquired at the beginning of the fiscal periods presented. The $1.1 million write-off has been included in the June 30, 2002 pro forma loss but not the June 30, 2001 pro forma income in order to provide comparability to the respective historical periods. S-10 Pro Forma Years Ended June 30, ---------------------------- 2002 2001 ---------------------------- (In thousands, except per share data) Net sales......................... $297,002 $371,388 Income (loss) from continuing operations....................... (11,006) 26,497 Income (loss) from continuing operations...................... Basic......................... $(.18) $.46 Diluted....................... $(.18) $.43 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. TriLink ------- Effective March 23, 2001, the Company acquired all of the outstanding stock of TriLink Communications Corp. ("TriLink") for 1.1 million shares of Aeroflex common stock. TriLink designed, developed, manufactured and marketed fiber optic components for the communications industry, including Lithium Niobate modulators and optical switches. (See Note 16 - Subsequent Event). RDL --- On October 23, 2000, the Company acquired all of the outstanding stock of RDL, Inc. ("RDL") for $14.0 million of available cash. RDL designs, develops and manufactures advanced commercial communications test and measurement products and defense subsystems. The Company evaluated the acquired tangible and identifiable intangible assets to serve as a basis for allocation of the purchase price. The Company allocated the purchase price, including acquisition costs of approximately $100,000, as follows: (In thousands) Net tangible assets..................... $ 6,990 Existing technology..................... 2,970 Goodwill................................ 2,640 In-process research and development..... 1,500 ------- $14,100 The existing technology is being amortized on a straight-line basis over 7 years. At the acquisition date, the acquired in-process research and development was not considered to have reached technological feasibility and, in accordance with accounting principles generally accepted in the United States of America, the value of such was expensed in the quarter ended December 31, 2000. At the acquisition date, RDL was conducting design, development, engineering and testing activities associated with the completion of its defense and commercial product lines representing next-generation technologies. Summarized below are the unaudited pro forma results of operations of the Company as if RDL had been acquired at the beginning of the fiscal periods presented. The $1.5 million write-off has been included in the June 30, 2001 pro forma income but not the June 30, 2000 pro forma income in order to provide comparability to the respective historical periods. S-11 Pro Forma Years Ended June 30, 2001 2000 ---- ---- (In thousands, except per share amounts) Net sales.................... $ 237,435 $ 204,586 Income from continuing operations................. 22,441 13,163 Income from continuing operations per share: Basic.................... $ .39 $ .27 Diluted.................. .37 .26 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. Altair ------ On October 16, 2000, the Company issued 550,000 shares(after adjustment for the 2- for-1 stock split effective in November 2000) of its common stock for all the outstanding common stock of Altair Aerospace Corporation ("Altair"). Altair designs and develops advanced object-oriented control systems software based upon a proprietary software engine. This business combination has been accounted for as a pooling-of-interests and, accordingly, for all periods prior to the business combination, the Company's historical consolidated financial statements have been restated to include the accounts and results of operations of Altair. Altair's net sales were approximately $2.8 million and its net loss was $21,000 for the year ended June 30, 2000. For periods preceding the combination, there were no intercompany transactions which required elimination from the combined consolidated results of operations and there were no adjustments necessary to conform the accounting practices of the two companies. Amplicomm --------- Effective September 7, 2000, Aeroflex Amplicomm, Inc. ("Amplicomm") was formed as a wholly-owned subsidiary of the Company. On September 20, 2000, Amplicomm acquired certain equipment and intellectual property from a third party for approximately $300,000, entered into employment agreements with this third party's former owners and issued 25% of the stock of Amplicomm to them. Effective June 21, 2002, the Company re-acquired the 25% interest for an aggregate $50,000. Amplicomm designs and develops fiber optic amplifiers and modulator drivers used by manufacturers of advanced fiber optic systems. On a pro forma basis, had the Amplicomm acquisition taken place as of the beginning of the periods presented, results of operations for those periods would not have been materially affected. The acquisitions (except for Altair, as discussed above)have been accounted for as purchases and, accordingly, the acquired assets and liabilities assumed have been recorded at their estimated fair values at the respective dates of acquisition. The operating results of each acquired company are included in the consolidated statements of operations from the respective acquisition dates. Further, with respect to Altair, the Company's historical consolidated financial statements have been restated for all periods prior to the business combination. S-12 Intangibles with Definite Lives The components of amortizable intangible assets are as follows: As of June 30, 2002 ------------------------------ Gross Carrying Accumulated Amount Amortization -------------- ------------ (In thousands) Existing technology...... $ 23,489 $ 6,341 Tradenames............... 1,000 333 --------- --------- Total................ $ 24,489 $ 6,674 ========= ========= The aggregate amortization expense for the amortized intangible assets was $1.8 million for the year ended June 30, 2002. As a result of the continued slowdown in the fiber optics market, the Company has evaluated, as of June 30, 2002, the recoverability of certain of its intangibles for existing technology. Based on an evaluation of the future cash flows anticipated to be generated by these assets, the Company has recorded a $218,000 charge to selling, general and administrative costs for the impairment of intangibles in its microelectronic solutions segment. The estimated aggregate amortization expense for each fiscal year is as follows: (In thousands) 2003.................... $ 3,006 2004.................... 3,006 2005.................... 2,996 2006.................... 2,953 2007.................... 2,953 Goodwill The carrying amount of goodwill is as follows: Balance SFAS 141 Balance as of SFAS 141 Adjust- as of July 1, Adjustment ment Acquired June 30, 2001 (Note a) (Note b) (Note c) 2002 ---------- ---------- --------- ---------- ---------- (In thousands) Microelectronic Solutions Segment...... $ 3,824 $ 2,501 $ (958) $ - $ 5,367 Test Solutions Segment...... 10,949 126 - 2,948 14,023 Isolator Products Segment...... 789 - - - 789 --------- --------- --------- --------- -------- Total...... $ 15,562 $ 2,627 $ (958) $ 2,948 20,179 ========= ======== ========= ========= ======== Note a - Reclassification from intangible assets in accordance with SFAS No. 141. Note b - Reversal of deferred taxes payable, previously recorded, for reclassified intangible assets. S-13 Note c - Goodwill recorded during the period as a result of the acquisition of IFR and contingent payments pursuant to purchase agreements. Goodwill (including intangible assets reclassified to goodwill in accordance with SFAS No. 141) amortization for the years ended June 30, 2001 and 2000 was $1.3 million and $1.0 million, respectively, and generated a tax benefit of $241,000 and $142,000, respectively. The following table shows the results of operations as if SFAS No. 141 was applied to prior periods: For the years ended June 30, ------------------- 2001 2000 ------- ------- (In thousands, except per share amounts) Net income, as reported............... $21,354 $14,379 Add Back: Goodwill amortization, net of tax............ 1,085 886 ------- ------- Adjusted net income................... $22,439 $15,265 ======= ======= Income per share - Basic Net income, as reported............. $ .37 $ .30 Goodwill amortization, net of tax... .02 .02 ------- ------- Adjusted net income................. $ .39 $ .32 ======= ======= Income per share - Diluted Net income, as reported............. $ .35 $ .28 Goodwill amortization, net of tax... .02 .02 ------- ------- Adjusted net income................. $ .37 $ .30 ======= ======= 3. Restructuring Charges In February and June 2002, the Company initiated strategic plans to consolidate three of its manufacturing operations to take advantage of excess manufacturing capacity in certain of its facilities and reduce operating costs. The Company recorded charges to eliminate excess equipment and facility capacity, primarily in its microelectronics segment, for workforce reductions in both the microelectronics and test solutions segments, and for the impairment of intangibles related to its microelectronic fiber optic acquisition. The last of these consolidations is expected to be completed by March 2003. In connection with this restructuring, the Company has recorded a charge of $9.1 million in the fiscal year ended June 30, 2002 or $5.8 million, net of tax ($.09 per diluted share). The restructuring charge is allocated $900,000 to cost of sales and $8.2 million to selling, general and administrative expenses. In addition, there are anticipated charges of approximately $165,000 directly related to the restructuring plan which could not be accrued in fiscal 2002, but will be expensed as incurred in accordance with EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). S-14 Inventory --------- The $900,000 charge to write off inventory consists of two components - $750,000 of inventory at the Company's Texas thin-film manufacturing facility that is not compatible with the manufacturing platform at the New York facility and $150,000 of fiber optic inventory that is not viable for the current plans of the microelectronics business. These charges were classified as components of cost of sales in accordance with EITF No. 96-9, "Classification of Inventory Markdowns and Other Costs Associated with a Restructuring." Impairment of Intangibles ------------------------- Due to the slowdown in the fiber optics market, the Company recorded a charge totaling $218,000 for the impairment of an acquisition related intangible. This non-cash charge was recognized in accordance with SFAS No. 121. Workforce Reduction ------------------- During fiscal 2002, workforce reductions of approximately 120 employees resulted in a charge of $2.4 million. This charge includes severance pay, retention bonuses and fringe benefits for the remaining workforces at the facilities being consolidated under the restructuring plans. Approximately $70,000 of post- production payroll costs, related solely to closing the facilities, has not been accrued, but will be expensed as incurred, as such costs did not meet the criteria for accrual of EITF No. 94-3. Plant Shutdown -------------- During fiscal 2002, the Company recognized a charge of $5.6 million for plant shutdown charges. This charge includes $3.9 million for the write-off of excess equipment and leasehold improvements, $1.1 million for buyouts of certain equipment and facility leases and $602,000 relating to facility closing and clean-up. Approximately $95,000 of additional costs are expected to be incurred and expensed in fiscal 2003 related to post-production operating costs. The $3.9 million of asset impairment charges were recognized for property, plant and equipment associated with the consolidation of manufacturing facilities. This non-cash charge was recognized in accordance with SFAS No. 121. The following table sets forth the charges and payments related to the restructuring reserve for the year ended June 30, 2002: Balance Year Ended June 30, June 30, 2002 2002 ----------------------------------------- ---------- Restructuring Non-Cash Cash Restructuring Charge Items Payments Reserve (In thousands) Inventory write-off......... $ 900 $ (900) $ - $ - --------- --------- --------- --------- Cost of sales............. 900 (900) - - --------- --------- --------- --------- Impairment of intangibles .............. 218 (218) - - Workforce reduction......... 2,411 - (1,005) 1,406 Fixed asset write-off....... 3,898 (3,898) - - Lease payments.............. 1,100 - (241) 859 Plant Shutdown.............. 602 - (491) 111 --------- --------- --------- --------- Operating costs........... 8,229 (4,116) (1,737) 2,376 --------- --------- --------- --------- Total................... $ 9,129 $ (5,016) $ (1,737) $ 2,376 ========= ========= ========= ========= S-15 This restructuring charge, along with the additional post-production operating costs of approximately $165,000 that will be expensed subsequent to June 30, 2002, is estimated to be $9.3 million in total. 4. Marketable Securities All of the Company's marketable securities are deemed by management to be available-for-sale and are reported at fair value with net unrealized gains or losses reported within stockholders' equity. Realized gains and losses are recorded based on the specific identification method. For fiscal years 2002, 2001 and 2000, gross realized gains (losses) were ($69,000), $0 and $193,000, respectively. The carrying amount of the Company's investments is shown in the table below: June 30, -------------------- 2002 2001 -------- -------- (In thousands) Amortized cost.................. $ - $12,075 Gross unrealized gains.......... - 6 Gross unrealized losses......... - (69) ------- ------- Estimated fair value............ $ - $12,012 ======= ======= The marketable securities at June 30, 2001 were virtually all U.S. government agency debt securities with scheduled maturities within one year. 5. Inventories Inventories consist of the following: June 30, --------------------------- 2002 2001 --------- --------- (In thousands) Raw materials......... $ 34,701 $ 28,966 Work-in-process....... 21,939 13,071 Finished goods........ 15,400 6,353 --------- --------- $ 72,040 $ 48,390 ========= ========= Inventories include contracts-in-process of $15.0 million and $15.3 million at June 30, 2002 and 2001, respectively, which consist substantially of unbilled material, labor and overhead costs that are or were expected to be billed during the succeeding fiscal year. 6. Property, Plant and Equipment Property, plant and equipment consists of the following: June 30, ----------------------------- 2002 2001 Estimated ------------- ------------- Useful Life (In thousands) In Years ----------- Land......................... $ 9,724 $ 5,024 Building and leasehold improvements................ 39,831 37,194 2 to 40 Machinery, equipment, tools and dies.................... 56,476 47,490 3 to 10 Furniture and fixtures....... 10,255 9,481 5 to 10 Assets recorded under capital leases.............. 6,551 6,711 5 to 10 ------------ ------------ 122,837 105,900 Less accumulated depreciation and amortization............ 49,364 44,463 ------------ ------------ $ 73,473 $ 61,437 ============ ============ S-16 Repairs and maintenance expense on property, plant and equipment was $1.6 million, $2.6 million and $2.5 million for the years ended June 30, 2002, 2001 and 2000, respectively. 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities include accrued salaries, wages and other compensation of $7.2 million and $7.3 million at June 30, 2002 and 2001, respectively. 8. Long-Term Debt and Credit Arrangements Long-term debt consists of the following: June 30, -------------------------- 2002 2001 ------ ------ (In thousands) Revolving credit, term loan and mortgage agreement (a)... $ 3,409 $ 3,724 Building mortgage (b)......... 3,565 3,765 Capitalized equipment lease obligations (c).............. 4,210 5,152 Capitalized building lease obligations (d).............. 2,975 - Other......................... 650 692 --------- --------- 14,809 13,333 Less current maturities....... 2,171 1,905 --------- --------- $ 12,638 $ 11,428 ========= ========= Aggregate long-term debt as of June 30, 2002 matures in each fiscal year as follows: (In thousands) 2003............... $ 2,171 2004............... 2,079 2005............... 2,144 2006............... 1,453 2007............... 815 Thereafter......... 6,147 ---------- $ 14,809 ========== Interest paid was $1.1 million, $1.4 million and $2.5 million during the years ended June 30, 2002, 2001 and 2000, respectively. (a) As of February 25, 1999, the Company replaced a previous agreement with a revised revolving credit, term loan and mortgage agreement with two banks which is secured by substantially all of the Company's assets not otherwise encumbered. The agreement provided for a revolving credit line of $23.0 million, a term loan of $20.0 million and a mortgage on the Company's Plainview property for $4.5 million. The revolving credit loan facility expires in December 2002. The term loan was fully paid with the proceeds from the Company's sale of its Common Stock in May 2000. The interest rate on borrowings under this agreement is at various rates depending upon certain financial ratios, with the current rate substantially equivalent to prime (approximately 4.75% at June 30, 2002) on the revolving credit borrowings. The Company paid a facility fee of $100,000 and is required to pay a commitment fee of .25% per annum of the average unused portion of the credit line. The mortgage is payable in monthly installments of approximately $26,000 through March 2008 and a balloon payment of $1.6 million in April 2008. The Company has entered into an interest rate swap agreement for the outstanding amount under the mortgage agreement at approximately 7.6% in order to reduce the interest rate risk associated with these borrowings. The fair market value of the interest rate swap agreement was $229,000 as of June 30, 2002 in favor of the banks. S-17 The terms of the agreement require compliance with certain covenants including minimum consolidated tangible net worth and pretax earnings, maintenance of certain financial ratios, limitations on capital expenditures and indebtedness and prohibition of the payment of cash dividends. As of June 30, 2002, the Company was not in compliance with certain of the financial covenants. The banks have waived such non-compliance as of June 30, 2002. In connection with the purchase of certain materials for use in manufacturing, the Company has a letter of credit of $2.0 million. At June 30, 2002, the Company's available unused line of credit was $20.6 million after consideration of this and other letters of credit. (b) In December 1998, the Company financed the acquisition and renovation of the land and building of its Pearl River, NY facility and received proceeds amounting to $4.2 million. This debt requires a balloon payment of $3.6 million in 2019. (c) During the year ended June 30, 1998, the Company entered into equipment loans with two banks totaling $6.2 million. In June 2000, the remaining balance of these loans of $4.1 million was refinanced under two sale and capital leaseback agreements for approximately $6.0 million. For purposes of the Consolidated Statements of Cash Flows, the $4.1 million refinancing was considered a non-cash transaction. These agreements expire through June 2006 and bear interest at approximately 7.9%. (d) In connection with the acquisition of IFR, the Company assumed a capital lease obligation for $3.0 million on IFR's Wichita, KS facility and certain equipment. The obligation requires quarterly payments through 2012 and bears interest at approximately 6.3%. 9. Stockholders' Equity Common Stock Offering In May 2000, the Company sold 6.3 million shares (adjusted for the stock splits) of its Common Stock in a public offering for $68.5 million, net of an underwriting discount of $3.5 million and issuance costs of $500,000. Of these net proceeds, $13.0 million was used to repay the term loan. Common Stock Splits On June 12, 2000, the Company's Board of Directors authorized a five-for-four stock split on its Common Stock, effective June 26, 2000. On November 2, 2000, the Company's Board of Directors authorized a two-for-one stock split of its Common Stock, effective November 16, 2000. The share and per share amounts in the consolidated financial statements give effect to the stock splits. Stock Options and Warrants Under the Company's stock option plans, options may be granted to purchase shares of the Company's Common Stock exercisable at prices generally equal to the fair market value on the date of grant. During 1990, the Company's shareholders approved the Non-Qualified Stock Option Plan (the "NQSOP"). In December 1993, the Board of Directors adopted the Outside Director Stock Option Plan (the "Directors' Plan") which provides for options to non-employee directors, which become exercisable in three installments and expire ten years from the date of grant. The Directors' Plan, as amended, covers 1.3 million shares of the Company's Common Stock. In November 1994, the shareholders approved the Directors' Plan and the 1994 Non-Qualified Stock Option Plan (the "1994 Plan"). In November 1996, the shareholders approved the 1996 Stock Option Plan (the "1996 Plan"). In April 1998, the Board of Directors adopted the 1998 Stock Option Plan (the "1998 Plan"). In January 2000, the shareholders approved the 1999 Stock Option Plan (the "1999 Plan"). In March 2000, the Board of Directors adopted the 2000 Stock Option Plan (the "2000 Plan"). In November 2000, the shareholders approved the Key Employee Stock Option Plan (the "Key Employee Plan"). In June 2002, the Board of Directors adopted the 2002 Stock Option Plan (the "2002 Plan"). The NQSOP, the 1994 Plan, the S-18 1996 Plan, the 1998 Plan, the 1999 Plan, the 2000 Plan, the Key Employee Plan and the 2002 Plan provide for options which become exercisable in one or more installments and each covers 3.8 million shares of the Company's Common Stock except for the 1999 Plan which covers 2.3 million shares, the 2000 Plan which covers 6.2 million shares, the Key Employee Plan which covers 4.0 million shares and the 2002 Plan which covers 1.5 million shares. Options under the NQSOP and the 1994 Plan expire five years from the date of grant. Options under the 1996 Plan, the 1998 Plan, the 1999 Plan, the 2000 Plan, the Key Employee Plan and the 2002 Plan shall expire not later than ten years from the date of grant. The Company has also issued to employees, who are not executive officers, options to purchase 1.4 million shares of Common Stock which were not covered by one of the above plans. Additional information with respect to the Company's stock options is as follows: Weighted Shares Average Under Exercise Outstanding Prices Options -------- ----------- (In thousands) Balance, July 1, 1999 $ 3.32 8,960 Granted........ 14.01 4,395 Forfeited...... 4.82 (56) Exercised...... 2.23 (3,733) --------- Balance, June 30, 2000 8.65 9,566 Granted........ 21.22 7,128 Forfeited...... 9.22 (148) Exercised...... 4.02 (2,702) --------- Balance, June 30, 2001 16.02 13,844 Granted........ 9.44 2,896 Forfeited...... 14.83 (28) Exercised...... 5.39 (337) --------- Balance, June 30, 2002 15.08 16,375 ========= The Company's stock option plans allow employees to use shares received from the exercise of the option to satisfy the tax withholding requirements. During fiscal years 2002, 2001 and 2000, payroll tax on stock option exercises were withheld from employees in shares of the Company's Common Stock amounting to $0, $4.2 million and $0, respectively. Options to purchase 8.5 million, 4.4 million and 3.3 million shares were exercisable at weighted average exercise prices of $14.26, $10.21 and $6.80 per share as of June 30, 2002, 2001 and 2000, respectively. S-19 The options outstanding as of June 30, 2002 are summarized in ranges as follows: Options Outstanding ------------------- Weighted Weighted Range of Average Average Exercise Exercise Options Remaining Prices Price Outstanding Life ----------- -------- ----------- --------- (In thousands) $ 1.67-$ 2.50 $ 1.88 277 4.6 years $ 3.28-$ 4.65 4.13 1,639 5.9 $ 5.38-$ 8.10 6.86 3,379 7.7 $ 9.05-$13.56 12.10 3,285 8.9 $15.34-$22.53 17.88 4,667 8.2 $26.00-$34.41 29.82 3,128 6.4 ------- 16,375 Options Exercisable ------------------- Weighted Range of Average Exercise Exercise Options Prices Price Exercisable (In thousands) $ 1.67-$ 2.50 $ 1.88 277 $ 3.28-$ 4.65 4.14 1,483 $ 5.38-$ 8.10 6.35 1,478 $ 9.05-$13.56 13.14 1,266 $15.34-$22.53 18.11 2,620 $26.00-$34.41 29.87 1,376 ------- 8,500 ======= As of June 30, 2000, the Company had outstanding warrants to purchase 132,000 shares of its Common Stock exercisable between $2.70 and $3.00 per share. All of these warrants were exercised or expired during fiscal year 2001. Accounting for Stock-Based Compensation In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has chosen not to implement the fair value based accounting method for employee and director stock options, but has elected to disclose the pro forma net income and net income per share as if such method had been used to account for stock-based compensation cost as described in SFAS No. 123. The per share weighted average fair value of stock options granted during fiscal 2002, 2001 and 2000 was $7.64, $18.68 and $10.60, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions: 2002 - expected dividend yield of 0%, risk free interest rate of 4.9%, expected stock volatility of 122%, and an expected option life of 4.8 years; 2001 - expected dividend yield of 0%, risk free interest rate of 5.6%, expected stock volatility of 137%, and an expected option life of 5.1 years; 2000 - expected dividend yield of 0%, risk free interest rate of 6.0%, expected stock volatility of 94%, and an expected option life of 5.3 years. The pro forma compensation cost before income taxes was $66.0 million, $66.3 million and $14.0 million for the years ended June 30, 2002, 2001 and 2000, respectively, based on the aforementioned fair value at the grant date only for options granted after fiscal year 1995. The Company's net income (loss) and net income (loss) per share using this pro forma compensation cost would have been: S-20 Years Ended June 30, --------------------------- (In thousands, except per share amounts) 2002 ------------------------------- As Reported Pro Forma ----------- --------- Net income (loss) from continuing operations.. $ 324 $(43,253) Net income (loss)from continuing operations per share Basic............. $ 0.01 $ (0.72) Diluted........... 0.01 * 2001 -------------------------------- As Reported Pro Forma ----------- --------- Net income (loss) from continuing operations.. $ 22,864 $(20,871) Net income (loss) from continuing operations per share Basic............ $ 0.39 $ (0.36) Diluted.......... 0.37 * 2000 --------------------------------- As Reported Pro Forma ----------- --------- Net income............... $ 14,379 $ 5,284 Net income per share Basic............ $ 0.30 $ 0.11 Diluted.......... 0.28 0.11 * As a result of the loss, all options are anti-dilutive. S-21 Shareholders' Rights Plan On August 13, 1998, the Company's Board of Directors approved a Shareholders' Rights Plan which provides for a dividend distribution of one right for each share to holders of record of the Company's Common Stock on August 31, 1998 and the issuance of one right for each share of Common Stock that shall be subsequently issued. The rights become exercisable only in the event a person or group ("Acquiring Person") accumulates 15% or more of the Company's Common Stock, or if an Acquiring Person announces an offer which would result in it owning 15% or more of the Common Stock. The rights expire on August 31, 2008. Each right will entitle the holder to buy 1/2500 of a share of Series A Junior Participating Preferred Stock, as amended, of the Company at a price of $65. In addition, upon the occurrence of a merger or other business combination, or the acquisition by an Acquiring Person of 50% or more of the Common Stock, holders of the rights, other than the Acquiring Person, will be entitled to purchase either Common Stock of the Company or common stock of the Acquiring Person at half their respective market values. The Company will be entitled to redeem the rights for $.01 per right at any time prior to a person becoming an Acquiring Person. S-22 Net Income (Loss) Per Share A reconciliation of the numerators and denominators of the Basic EPS and Diluted EPS calculations is as follows: Years Ended June 30, ------------------------------------ 2002 2001 2000 ------ ------ ------ (In thousands, except per share amounts) Computation of Adjusted Net Income (Loss): Income from continuing operations..................... $ 324 $ 22,864 $ 14,379 Discontinued operations, net of tax......................... (11,105) (1,642) - Cumulative effect of a change in accounting, net of tax......................... - 132 - -------- -------- -------- Net income (loss)................ $(10,781) $ 21,354 $ 14,379 ======== ======== ======== Computation of Adjusted Weighted Average Shares Outstanding: Weighted average shares outstanding.................... 59,973 58,124 48,189 Add: Effect of dilutive options and warrants outstanding.................... 2,039 2,917 3,285 -------- -------- -------- Weighted average shares and common share equivalents used for computation of diluted earnings per common share...... 62,012 61,041 51,474 ======== ======== ======== Income (Loss) Per Share - Basic: Income from continuing operations................... $ 0.01 $0.39 $0.30 Discontinued operations........ (0.19) (0.02) - Cumulative effect of a change in accounting................ - - - ------ ----- ----- Net income (loss).............. $(0.18) $0.37 $0.30 ====== ===== ===== Income (Loss) Per Share - Diluted Income from continuing operations................... $ 0.01 $0.37 $0.28 Discontinued operations........ (0.18) (0.02) - Cumulative effect of a change in accounting................ - - - ------ ----- ----- Net income (loss).............. $(0.17) $0.35 $0.28 ====== ===== ===== Options to purchase 9.3 million shares at exercise prices ranging between $13.48 and $34.41 per share were outstanding as of June 30, 2002 but were not included in the computation of Diluted EPS because the exercise prices of these options were greater than the average market price of the common shares. S-23 10. Comprehensive Income The components of comprehensive income (loss) are as follows: Years Ended June 30, -------------------------------- 2002 2001 2000 ------ ------ ------ (In thousands) Net income (loss).................. $(10,781) $ 21,354 $ 14,379 Unrealized gain (loss) on interest rate swap agreement, net of tax............ (108) (43) - Unrealized investment gain (loss), net of tax.......... 42 (124) 82 Minimum pension liability adjustment, net of tax........... (330) - - Foreign currency translation adjustment........... 2,431 (69) - --------- --------- --------- Total comprehensive income (loss).. $ (8,746) $ 21,118 $ 14,461 ========= ========= ========= Accumulated other comprehensive income (loss) is as follows:
Unrealized Gain (Loss) Minimum on Interest Unrealized Pension Foreign Rate Swap Investment Liability Currency Agreements Gain (Loss) Adjustment Translation Total (net of tax) (net of tax) (net of tax) Adjustment (net of tax) (In thousands) Balance, July 1, 1999 $ - $ - $ - $ - $ - Annual change....... - 82 - - 82 --------- --------- --------- --------- --------- Balance, June 30, 2000 - 82 - - 82 Annual change....... (43) (124) - (69) (236) --------- --------- --------- --------- --------- Balance, June 30, 2001 (43) (42) - (69) (154) Annual change....... (108) 42 (330) 2,431 2,035 --------- --------- --------- --------- --------- Balance, June 30, 2002 $ (151) $ - $ (330) $ 2,362 $ 1,881 ========= ========= ========= ========= =========
11. Income Taxes The provision (benefit) for income taxes from continuing operations consists of the following: Years Ended June 30, ---------------------------------------- 2002 2001 2000 ------------ ------------ ------------ (In thousands) Current: Federal............... $ (5,080) $ 8,665 $ 4,656 State and local....... 380 550 458 ------------ ------------ ------------ (4,700) 9,215 5,114 ------------ ------------ ------------ Deferred: Federal............... 4,708 2,309 990 State and local....... 42 257 96 ------------ ------------ ------------ 4,750 2,566 1,086 ------------ ------------ ------------ $ 50 $ 11,781 $ 6,200 ============ ============ ============ S-24 The provision for income taxes varies from the amount computed by applying the U.S. Federal income tax rate to income from continuing operations before income taxes as a result of the following: Years Ended June 30, ------------------------------------ 2002 2001 2000 ------------------------------------ (In thousands) Tax at statutory rate.... $ 127 $ 12,126 $ 7,203 Utilization of capital loss carryforward....... - - (1,017) Non-deductible acquired in-process research and development charge.. 374 - - Impairment and amortization of goodwill............. - 210 204 State and local income tax.............. 11 352 360 Research and development credit.................. (375) (650) (300) Other, net............... (87) (257) (250) ------------ ------------ ------------ $ 50 $ 11,781 $ 6,200 ============ ============ ============ Deferred tax assets and liabilities consist of: June 30, ----------------------------- 2002 2001 ------------ ------------ (In thousands) Accounts receivable....................... $ 463 $ 206 Inventories............................... 9,093 6,376 Accrued expenses and other current liabilities............................. 2,703 566 ------------- ----------- Current assets.......................... 12,259 7,148 ------------- ----------- Capital lease obligation.................. 1,160 1,574 Other long-term liabilities............... 1,492 1,811 Capital loss carryforwards................ 673 684 Tax loss carryforwards.................... 10,220 13,133 Tax credit carryforwards.................. 3,402 5,016 Less: valuation allowance................. (4,319) (2,953) ------------- ----------- Non-current assets...................... 12,628 19,265 ------------- ----------- Property, plant and equipment............. (4,830) (4,688) Intangibles............................... (5,321) (3,545) ------------- ----------- Long-term liabilities................... (10,151) (8,233) ------------- ----------- Net non-current assets (liabilities).... 2,477 11,032 ------------- ----------- Total................................. $ 14,736 $ 18,180 ============= =========== The Company recorded credits of $1.3 million, $20.8 million and $13.3 million to additional paid-in capital during the years ended June 30, 2002, 2001 and 2000, respectively, in connection with the tax benefit related to compensation deductions on the exercise of stock options and warrants. The deductions in fiscal 2002, 2001 and 2000, have created a net operating loss carryforward for tax purposes which has resulted in an increase in the Company's deferred tax assets. The tax loss carryforwards and tax credit carryforwards expire through 2022. In accordance with SFAS No. 109, the Company records a valuation allowance against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has recorded a valuation allowance primarily against state net operating loss carryforwards, capital loss carryforwards and certain other tax credit carryforwards which may expire before they can be utilized. The increase in the valuation allowance in fiscal 2002, was primarily for state net operating loss carryforwards. S-25 Deferred taxes have not been provided on undistributed earnings of foreign subsidiaries since substantially all of these earnings are expected to be permanently reinvested in foreign operations. Determination of the amount of unrecognized deferred U.S. income tax liabilities and potential foreign tax credits is not practical to calculate because of the complexity of this hypothetical calculation. The Company is undergoing routine audits by various taxing authorities of its Federal and state income tax returns covering periods from 1997 to 2001. Management believes that the probable outcome of these various audits should not materially affect the consolidated financial statements of the Company. The Company made income tax payments of $1.1 million, $227,000 and $2.0 million and received refunds of $609,000, $2.3 million and $940,000 during the years ended June 30, 2002, 2001 and 2000, respectively. 12. Employment Contracts As of June 30, 2002, the Company has employment agreements with certain of its officers for periods through June 30, 2007 with annual remuneration ranging from $228,000 to $381,000, plus cost of living adjustments and, in some cases, additional compensation based upon earnings of the Company. Future aggregate minimum payments under these contracts are $1.3 million per year. Certain of the contracts provide for a three-year consulting period at the expiration of the employment term at two-thirds of salary. In addition, these officers have the option to terminate their employment agreements upon a change in control of the Company, as defined, and receive lump sum payments equal to the salary and bonus, if any, for the remainder of the term. 13. Employee Benefit Plans All employees of the Company and certain subsidiaries who are not members of a collective bargaining agreement are eligible to participate in one of three company sponsored 401(k) plans. Each participant has the option to contribute a portion of his or her compensation and receive a discretionary employer matching contribution. Furthermore, employees of certain subsidiaries are eligible to participate in qualified profit sharing plans and receive an allocation of a discretionary share of their respective subsidiary's profits. For fiscal years ended June 30, 2002, 2001 and 2000, these 401(k) and profit sharing plans had an aggregate expense of $2.2 million, $2.3 million and $1.7 million, respectively. Effective January 1, 1994, the Company established a Supplemental Executive Retirement Plan (the "SERP") which provides retirement, death and disability benefits to certain of its officers. The SERP expense for the fiscal years ended June 30, 2002, 2001 and 2000 was $885,000, $625,000 and $454,000, respectively. The assets of the SERP are held in a Rabbi Trust and amounted to $3.3 million and $2.4 million at June 30, 2002 and 2001, respectively. The accumulated benefit obligation was $4.6 million and $3.0 million at June 30, 2002 and 2001, respectively. The projected benefit obligation was $6.5 million and $4.8 million at June 30, 2002 and 2001, respectively. The intangible asset related to the SERP was $537,000 and $366,000 at June 30, 2002 and 2001, respectively. A discount rate of 7.0% was assumed in the above calculations and a rate of compensation increase of 3.0% was assumed for both of the years ended June 30, 2002 and 2001. No participants are currently receiving benefits. S-26 14. Commitments and Contingencies Operating Leases Several of the Company's operating facilities and certain machinery and equipment are leased under agreements expiring through 2020. The leases for machinery and equipment generally contain options to purchase at the then fair market value of the related leased assets. Future minimum payments under operating leases as of June 30, 2002 are as follows for the fiscal years: (In thousands) 2003............... $ 6,605 2004............... 5,089 2005............... 3,897 2006............... 3,062 2007............... 2,352 Thereafter......... 13,485 -------- Future minimum lease payments......... 34,490 Sub-lease income... (15,541) -------- Net minimum lease payments......... $18,949 ======== Rental expense was $4.8 million, $3.7 million and $3.0 million during the fiscal years 2002, 2001 and 2000, respectively. Legal Matters A subsidiary of the Company whose operations were discontinued in 1991, was one of several defendants named in a personal injury action initiated in August 1994 by a group of plaintiffs. The plaintiffs were seeking damages which cumulatively exceeded $500 million. The complaint alleged, among other things, that the plaintiffs suffered injuries from exposure to substances contained in products sold by the subsidiary to one of its customers. In July 2002, the claims were resolved in mediation within the Company's product liability insurance limits. The Company is involved in various other routine legal matters. Management believes the outcome of these matters will not have a materially adverse effect on the Company's consolidated financial statements. 15. Business Segments The Company's business segments, and major products included in each segment, are as follows: Microelectronic Solutions: a)Microelectronic Modules b)Thin Film Interconnects c)Integrated Circuits Test Solutions: a)Instrument Products b)Motion Control Systems Isolator Products: a)Commercial Spring and Rubber Isolators b)Industrial Spring and Rubber Isolators c)Military Wire-rope Isolators S-27 The Company is a manufacturer of advanced technology systems and components for commercial industry, government and defense contractors. Approximately 43%, 29% and 33% of the Company's sales for the fiscal years 2002, 2001 and 2000, respectively, were to agencies of the United States government or to prime defense contractors or subcontractors of the United States government. The only customers which constituted more than 10% of the Company's sales during any year in the period presented were Lockheed Martin which comprised 10.8% of sales in fiscal year 2002, Agere which comprised 10.8% of sales in fiscal year 2001 and Teradyne and Lockheed Martin which comprised 10.9% and 10.3% of sales in fiscal year 2000, respectively. The Company's customers are located primarily in the United States, but export sales accounted for 15.7%, 14.8% and 11.6% of sales in fiscal years 2002, 2001 and 2000, respectively. Years Ended June 30, --------------------------- 2002 2001 2000 ------ ------ ------ Business Segment Data: (In thousands) Net sales: Microelectronic Solutions.... $103,791 $144,646 $110,253 Test Solutions............... 82,738 68,394 58,744 Isolator Products............ 15,600 19,513 19,753 --------- --------- --------- Net sales.................. $202,129 $232,553 $188,750 ========= ========= ========= Operating income (loss): Microelectronic Solutions.... $ 12,977 $ 36,936 $ 22,734 Test Solutions............... 975 1,971 2,438 Isolator Products............ 994 2,326 2,692 General corporate expenses... (4,556) (7,293) (5,397) --------- --------- --------- 10,390 33,940 22,467 Restructuring charges(1)..... (9,128) - - Acquired in-process research and development(2)(3)...... (1,100) (1,500) - Interest expense............. (1,263) (1,397) (2,442) Other income (expense), net.. 1,475 3,602 554 --------- --------- --------- Income before income taxes... $ 374 $ 34,645 $ 20,579 ========= ========= ========= Total assets: Microelectronic Solutions.... $105,263 $117,303 $112,183 Test Solutions............... 154,565 74,308 53,189 Isolator Products............ 7,538 9,445 9,567 Corporate.................... 49,732 98,752 74,556 Assets of discontinued operations................. 1,367 12,938 - --------- --------- --------- Total assets............... $318,465 $312,746 $249,495 ========= ========= ========= Capital expenditures: Microelectronic Solutions.... $ 3,098 $ 7,877 $ 4,777 Test Solutions............... 2,339 4,878 2,297 Isolator Products............ 164 341 152 Corporate.................... 157 16 - --------- --------- --------- Total capital expenditures............... $ 5,758 $ 13,112 $ 7,226 ======== ========= ========= Depreciation and amortization expense: Microelectronic Solutions.... $ 7,346 $ 7,494 $ 6,657 Test Solutions............... 3,491 3,042 1,765 Isolator Products............ 484 522 554 Corporate.................... 19 26 28 --------- --------- --------- Total depreciation and amortization expense...... $ 11,340 $ 11,084 $ 9,004 ========= ========= ========= S-28 (1) The operating income of the Microelectronic Solutions and Test Solutions segments has been adjusted to exclude the restructuring charges of $7.0 million and $2.1 million, respectively, for the consolidation of a total of three manufacturing operations. (2) The fiscal year 2002 special charge for the write-off of in-process research and development acquired in the purchase of IFR ($1.1 million) is allocable fully to the Test Solutions segment. (3) The fiscal year 2001 special charge for the write-off of in-process research and development acquired in the purchase of RDL ($1.5 million)is allocable to the Test Solutions segment. 16. Subsequent Event Discontinued Operation ---------------------- In December 2002, the Board of Directors of the Company approved a formal plan to discontinue the Company's fiber optic lithium niobate modulator operation due to the continued weakness in the fiber optic end-user market and reductions in pricing. This operation had previously been included in the Microelectronic Solutions segment. The plan called for an immediate cessation of operations and disposal of existing assets. The abandonment of the operation resulted in a charge of $2.6 million ($1.7 million, net of tax) in the quarter ended December 31, 2002. The charge included a cash requirement of $1.4 million, primarily for existing equipment leases and payroll costs, and a non-cash charge of $1.2 million primarily for the write-off of owned equipment. In accordance with SFAS No. 144, the abandonment has been reported as a discontinued operation and, accordingly, losses from operations and the loss on abandonment have been reported separately from continuing operations. Net sales from discontinued operations for the years ended June 30, 2002 and 2001 were $505,000 and $255,000, respectively. To conform with this presentation, all periods have been restated. As a result, the assets and liabilities of the discontinued operation have been reclassified on the balance sheet from the historical classifications and presented under the captions "assets of discontinued operations" and "liabilities of discontinued operations," respectively. As of June 30, 2002, the net assets of discontinued operations consisted primarily of $779,000 of property, plant and equipment. As of June 30, 2001, the net assets of discontinued operations consisted primarily of $11.6 million of intangibles and goodwill, $700,000 of property, plant and equipment and $2.5 million of long-term deferred tax liabilities. S-29 Quarterly Financial Data (Unaudited): (In thousands, except per share amounts and footnotes) Quarter ----------------------------------------- Year Ended 2002 First Second Third Fourth June 30, - -------------------------------------------------------------------------------- Net sales................ $ 39,307 $ 45,996 $ 50,571 $ 66,255 $202,129 Gross profit............. 13,146 17,020 18,257 25,354 73,777 Income (loss)from (1)(2) continuing operations . $ (282) $ 1,769 $ (1,013) $ (150) $ 324 ========= ========= ========= ========= ========= Income(loss)from continuing operations per share: Basic(1)............... $ - $ 0.03 $(0.02) $ - $ 0.01 ========= ========= ========= ========= ========= Diluted(1)............. $ * $ 0.03 $ * $ * $ 0.01 ========= ========= ========= ========= ========= Quarter --------------------------------------- Year Ended 2001 First Second Third Fourth June 30, - -------------------------------------------------------------------------------- Net sales................ $ 51,127 $ 58,448 $ 64,026 $ 58,952 $232,553 Gross profit............. 19,465 24,827 28,129 23,697 96,118 Income from continuing operations (3)........ $ 5,089 $ 5,625 $ 7,334 $ 4,816 $ 22,864 ======== ======== ======== ======== ======== Income from continuing operations per share: Basic (3).............. $ 0.09 $ 0.10 $ 0.12 $ 0.08 $ 0.39 ======= ======= ======= ======= ======= Diluted (3)............ $ 0.09 $ 0.09 $ 0.11 $ 0.08 $ 0.37 ======= ======= ======= ======= ======= (1) Includes $1.1 million($1.1 million, net of tax), or $.02 per share, for the year and quarter ended June 30, 2002, for the write-off of in-process research and development acquired in connection with the purchase of IFR Systems, Inc. (2) Includes $5.0 million ($3.4 million, net of tax, or $.06 per share) for the quarter ended March 31, 2002, $4.1 million ($2.4 million, net of tax, or $.04 per share) for the quarter ended June 30, 2002 and $9.1 million ($5.8 million, net of tax, or $.09 per diluted share) for the year ended June 30, 2002 for the consolidation of three manufacturing operations in order to take advantage of excess manufacturing capacity and reduce operating costs, including charges related to excess equipment capacity primarily in the microelectronic segment and impairments to intangibles related to microelectronics fiber optic acquisition. (3) Includes $1.5 million ($990,000, net of tax) for the year ended June 30, 2001 and quarter ended December 31, 2000, for the write-off of the in-process research and development acquired in connection with the purchase of RDL, Inc. Since per share information is computed independently for each quarter and the full year, based on the respective average number of common and common equivalent shares outstanding, the sum of the quarterly per share amounts does not necessarily equal the per share amounts for each year. All per share amounts have been restated to reflect a five-for-four stock split that was paid on July 7, 2000 and a two-for-one stock split that was paid on November 22, 2000. S-30
AEROFLEX INCORPORATED AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (In thousands) Column A Column B Column C Column D Column E - -------- -------- -------- -------- -------- Additions --------- Charged Balance at Charged to to other Balance at beginning costs and accounts Deductions end of Description of period expenses - describe - describe period - ----------- ---------- ---------- ---------- ---------- ---------- YEAR ENDED JUNE 30, 2002: - ------------------------ Allowance for doubtful accounts $ 459 $ 648 $ - $ 471 (A) $ 636 ======= ======= ======== ======= ======= Reserve for inventory obsolescence $4,066 $2,444 $ - $1,947 (B) $4,563 ======= ======= ======== ======= ======= YEAR ENDED JUNE 30, 2001: - ------------------------ Allowance for doubtful accounts $ 509 $ 58 $ - $ 108 (A) $ 459 ======= ======= ======== ======= ======= Reserve for inventory obsolescence $2,830 $2,032 $ - $ 796 (B) $4,066 ======= ======= ======== ======= ======= YEAR ENDED JUNE 30, 2000: - ------------------------ Allowance for doubtful accounts $ 381 $ 183 $ - $ 55 (A) $ 509 ======= ======= ======== ======= ======= Reserve for inventory obsolescence $2,764 $ 640 $ - $ 574 (B) $2,830 ======= ======= ======== ======= =======
Note: (A) - Net write-offs of uncollectible amounts. (B) - Write-off of inventory. S-31 EX-99.2 4 exhfin8-k2.txt CONSENT OF INDEPENDENT AUDITORS Consent of Independent Auditors The Board of Directors Aeroflex Incorporated: We consent to the incorporation by reference in the registration statements on Form S-8 (No. 33-75496, No. 33-88868, No. 33-88878, No. 333-42399, No. 333-42405, No. 333-64611, No. 333-90173, No. 333-31654, No. 333-53626, No. 333-53622, No. 333-61094, No. 333-73646, No. 333-103322, No. 333-97027 and No. 333-97029) and on Form S-3 (No. 333-53618) of Aeroflex Incorporated of our report dated August 12, 2002, except for Note 16, which is as of February 14, 2003, relating to the consolidated balance sheets of Aeroflex Incorporated and subsidiaries as of June 30, 2002 and 2001 and the related consolidated statements of operations, stockholders' equity and comprehensive income (loss) and cash flows, for each of the years in the three-year period ended June 30, 2002, and related consolidated financial statement schedule, which report appears in Aeroflex Incorporated's filing on Form 8-K, dated June 27, 2003. Melville, New York July 18, 2003 -----END PRIVACY-ENHANCED MESSAGE-----