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, 1998
--------------------------------
Commission File Number 1-8037
---------------------
AEROFLEX INCORPORATED
(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 11, 1998 17,358,437 shares (excluding 1,092 shares held in treasury)
- --------------------------------------------------------------------------------
(Date) (Number of Shares)
NOTE: THIS IS PAGE 1 OF A DOCUMENT CONSISTING OF 16 PAGES.
AEROFLEX INCORPORATED
AND SUBSIDIARIES
INDEX
-----
PAGE
----
PART I: FINANCIAL INFORMATION
- ------ ---------------------
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and June 30, 1997 3-4
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended March 31, 1998 and 1997 5
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 1998 and 1997 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended March 31, 1998 and 1997 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, 1998 and 1997 11-14
PART II: OTHER INFORMATION
- ------- -----------------
ITEM 6 Exhibits and Reports on Form 8-K 15
SIGNATURES 16
-2-
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1998 1997
---------------------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 23,141 $ 600
Accounts receivable, less allowance for
doubtful accounts of $538,000 and $417,000 19,627 21,843
Inventories 29,909 20,319
Deferred income taxes 2,059 2,043
Prepaid expenses and other current assets 1,415 812
-------- -------
Total current assets 76,151 45,617
Property, plant and equipment, at cost, net 22,913 14,487
Intangible assets acquired in connection with
the purchase of businesses, net 7,770 8,046
Cost in excess of fair value of net assets
of businesses acquired, net 9,910 9,903
Other assets 2,214 2,994
-------- --------
Total assets $118,958 $ 81,047
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
-3-
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
March 31, June 30,
1998 1997
--------- --------
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 5,010 $ 4,247
Accounts payable 7,384 5,093
Accrued expenses and other current liabilities 12,072 8,564
Income taxes payable 2,126 1,841
-------- --------
Total current liabilities 26,592 19,745
Long-term debt 6,777 14,688
Deferred income taxes 43 334
Other long-term liabilities 2,540 1,259
Senior subordinated convertible debentures - 9,981
-------- --------
Total liabilities 35,952 46,007
-------- --------
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
17,340,000 and 12,658,000 shares 1,734 1,266
Additional paid-in capital 99,966 58,110
Accumulated deficit (18,689) (23,584)
-------- --------
83,011 35,792
Less: Treasury stock, at cost (1,000 and
169,000 shares) 5 752
-------- --------
Total stockholders' equity 83,006 35,040
-------- --------
Total liabilities and stockholders' equity $118,958 $ 81,047
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
-4-
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
March 31,
-----------------
1998 1997
-------- --------
(In thousands, except per share data)
Net sales $ 84,431 $ 64,912
Cost of sales 55,417 43,618
-------- --------
Gross profit 29,014 21,294
-------- --------
Selling, general and administrative costs 16,020 12,898
Research and development costs 3,510 2,293
-------- --------
19,530 15,191
-------- --------
Operating income 9,484 6,103
-------- --------
Other expense (income)
Interest expense 1,798 2,263
Other expense (income) 41 (71)
-------- --------
Total other expense (income) 1,839 2,192
-------- --------
Income before income taxes 7,645 3,911
Provision for income taxes 2,750 1,450
-------- --------
Net income $ 4,895 $ 2,461
======== ========
Net income per common share:
- Basic $ .35 $ .20
====== ======
- Diluted $ .32 $ .19
===== ======
Weighted average number of common
shares and common share equivalents
outstanding:
- Basic 13,948 12,431
======= =======
- Diluted 15,749 14,695
======= =======
<FN>
See notes to consolidated financial statements.
</FN>
-5-
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
------------------
1998 1997
-------- --------
(In thousands, except per share data)
Net sales $ 31,221 $ 22,937
Cost of sales 20,338 15,178
-------- --------
Gross profit 10,883 7,759
-------- --------
Selling, general and administrative costs 5,655 4,744
Research and development costs 1,481 871
-------- --------
7,136 5,615
-------- --------
Operating income 3,747 2,144
-------- --------
Other expense (income)
Interest expense 548 712
Other expense (income) (33) (10)
-------- --------
Total other expense (income) 515 702
-------- --------
Income before income taxes 3,232 1,442
Provision for income taxes 1,175 525
-------- --------
Net income $ 2,057 $ 917
======== ========
Net income per common share:
- Basic $ .14 $ .07
====== ======
- Diluted $ .13 $ .07
===== ======
Weighted average number of common
shares and common share equivalents
outstanding:
- Basic 14,749 12,523
======= =======
- Diluted 16,132 14,597
======= =======
<FN>
See notes to consolidated financial statements.
</FN>
-6-
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
March 31,
-------------------------
1998 1997
--------- --------
(In thousands)
Cash Flows From Operating Activities:
Net income $ 4,895 $ 2,461
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,791 3,292
Amortization of deferred gain (441) -
Other, net (123) (26)
Change in operating assets and liabilities,
net of effects from purchase of business:
Decrease (increase) in accounts receivable 2,027 5,238
Decrease (increase) in inventories (8,455) (5,197)
Decrease (increase) in prepaid expenses, income
tax refund receivable and other assets (522) 654
Increase (decrease) in accounts payable, accrued
expenses and other long-term liabilities 4,644 (1,095)
Increase (decrease) in income taxes payable 1,584 (208)
-------- --------
Net Cash Provided By (Used In)
Operating Activities 7,400 5,119
-------- --------
Cash Flows From Investing Activities:
Purchase of equipment, inventory and
technology rights from Lucent Technologies (4,435) -
Capital expenditures (5,710) (2,075)
Other, net 35 (106)
-------- --------
Net Cash Provided By (Used In)
Investing Activities (10,110) (2,181)
-------- --------
Cash Flows From Financing Activities:
Proceeds from issuance of common shares in
public offering 31,781 -
Costs in connection with public offering (488) -
Borrowings under debt agreements 6,232 -
Debt repayments (13,380) (3,228)
Proceeds from the exercise of stock options
and warrants 1,106 652
Purchase of treasury stock - (437)
-------- --------
Net Cash Provided By (Used In)
Financing Activities 25,251 (3,013)
-------- --------
Net Increase (Decrease) In Cash
And Cash Equivalents 22,541 (75)
Cash And Cash Equivalents At Beginning Of Period 600 661
-------- --------
Cash And Cash Equivalents At End Of Period $ 23,141 $ 586
======== ========
<FN>
See notes to consolidated financial statements.
</FN>
-7-
AEROFLEX INCORPORATED
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The consolidated balance sheet of Aeroflex Incorporated and Subsidiaries
("the Company") as of March 31, 1998 and the related consolidated
statements of operations for the nine and three months ended March 31, 1998
and 1997 and the statements of cash flows for the nine months ended March
31, 1998 and 1997 have been prepared by the Company and are unaudited. In
the opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at March 31, 1998 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,
1997 annual report to shareholders. There have been no changes of
significant accounting policies since June 30, 1997, except as described in
Note 3. 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. Common Stock Offering
---------------------
In March 1998, the Company sold 2,597,000 shares of its Common Stock in a
public offering for $31,293,000, net of an underwriting discount of
$1,973,000 and issuance costs of $488,000. Of these net proceeds,
$9,639,000 was used to repay bank indebtedness. The balance of the net
proceeds, which is included in cash and cash equivalents, will be used for
general corporate purposes, including working capital, capital
expenditures, facilities expansion and potential acquisitions.
3. Earnings Per Share
------------------
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 128 "Earnings Per Share" during the quarter ended December 31, 1998. In
accordance with SFAS No. 128, earnings per common share ("Basic EPS") is
computed by dividing net income by the weighted average common shares
outstanding. Earnings per common share, assuming dilution ("Diluted EPS")
is computed by dividing net income plus a pro forma addback of debenture
interest by the weighted average common shares outstanding plus potential
dilution from the conversion of debentures and the exercise of stock
options and warrants. Earnings per share amounts for prior periods have
been restated to conform to SFAS No. 128.
-8-
A reconciliation of the numerators and denominators of the Basic EPS and
Diluted EPS calculations is as follows:
Nine Months
Ended March 31,
-----------------------------------
1998 1997
---- ----
(In thousands, except per share data)
Computation of Adjusted Net Income:
Net income for basic earnings per common share $ 4,895 $ 2,461
Add: Debenture interest and amortization
expense, net of income taxes 103 369
Adjusted net income for diluted -------- --------
earnings per common share $ 4,998 $ 2,830
Computation of Adjusted Weighted Average ======== ========
Shares Outstanding:
Weighted average shares outstanding 13,948 12,431
Add: Effect of dilutive options and warrants
outstanding 1,279 490
Add: Shares assumed to be issued upon
conversion of debentures 522 1,774
Weighted average shares and common share -------- --------
equivalents used for computation of
diluted earnings per common share 15,749 14,695
Net Income Per Common Share: ======== ========
Basic $ .35 $ .20
====== ======
Diluted $ .32 $ .19
===== ======
Three Months
Ended March 31,
-----------------------------------
1998 1997
---- ----
(In thousands, except per share data)
Computation of Adjusted Net Income:
Net income for basic earnings per common share $ 2,057 $ 917
Add: Debenture interest and amortization
expense, net of income taxes - 123
Adjusted net income for diluted
earnings per common share $ 2,057 $ 1,040
Computation of Adjusted Weighted Average ======== ========
Shares Outstanding:
Weighted average shares outstanding 14,749 12,523
Add: Effect of dilutive options and warrants
outstanding 1,383 300
Add: Shares assumed to be issued upon
conversion of debentures - 1,774
Weighted average shares and common share -------- --------
equivalents used for computation of
diluted earnings per common share 16,132 14,597
Net Income Per Common Share: ======== ========
Basic $ .14 $ .07
====== ======
Diluted $ .13 $ .07
====== ======
4. Acquisition of Business
-----------------------
Effective July 1, 1997, the Company's subsidiary, MIC Technology
Corporation, acquired certain equipment, inventory, licenses for technology
and patents of two of Lucent Technologies' microelectronics component units
- multi-chip modules and film integrated circuits - for approximately
$4,400,000 in cash. These units manufacture microelectronic modules and
interconnect products. The Company has also signed a multi-year supply
agreement to provide Lucent with film integrated circuits for use in
telecommunications applications. The purchase price has been allocated to
the assets acquired, based on their fair values, and certain obligations
assumed relating to the agreements.
-9-
5. Bank Loan Agreements
--------------------
As of March 15, 1996 the Company replaced a previous agreement with a
revised revolving credit and term loan agreement with two banks which is
secured by substantially all of the Company's assets not otherwise
encumbered. The agreement provides for a revolving credit line of
$22,000,000 and a term loan of $16,000,000. The revolving credit line
expires in March 1999. There are no borrowings under this line as of March
31, 1998. The term loan is payable in quarterly installments of $900,000
with final payment on September 30, 2000. As of March 31, 1998, the
outstanding term loan was $4,720,000. The interest rate on borrowings under
this agreement is at various rates depending upon certain financial ratios,
with the current rate substantially equivalent to the prime rate (8-1/2% at
March 31, 1998) plus 1/4% on the revolving credit borrowings and prime plus
1/2% on the term loan borrowings. The terms of the agreement require
compliance with certain covenants including minimum consolidated tangible
net worth and pre-tax earnings, maintenance of certain financial ratios,
limitations on capital expenditures and indebtedness and prohibition of the
payment of cash dividends. Management is in the process of amending the
existing agreement to extend the term of the revolving credit line, among
other changes.
6. Inventories
-----------
Inventories consist of the following:
March 31, June 30,
1998 1997
-------- --------
(In thousands)
Raw Materials $ 13,836 $ 11,191
Work in Process 11,249 6,642
Finished Goods 4,824 2,486
-------- --------
$ 29,909 $ 20,319
======== ========
7. Income Taxes
------------
At June 30, 1997 the Company had net operating loss carryforwards of
approximately $4,000,000 for Federal income tax purposes which expire
through 2006.
The Company is undergoing routine audits by various taxing authorities of
several of its state and local income tax returns covering different
periods from 1994 to 1996. Management believes that the probable outcome of
these various audits should not materially affect the consolidated
financial statements of the Company.
8. 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 plaintiffs are seeking damages
which cumulatively exceed $500 million. 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. This
action is in the early stages of discovery. Based upon available
information and 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.
9. Conversion of 7-1/2% Debentures
-------------------------------
On September 8, 1997, the Company called for the redemption of all of its
outstanding 7-1/2% Senior Subordinated Convertible Debentures ($9,981,000)
at 104-1/2% of the principal amount. As of October 1997, all of the
principal amount outstanding was converted into Common Stock at $5-5/8 per
share. In connection with the conversions, $599,000 of deferred bond
issuance costs were charged to additional paid-in capital.
-10-
AEROFLEX INCORPORATED
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Aeroflex, founded in 1937, utilizes its advanced design, engineering and
manufacturing capabilities to provide state-of-the-art microelectronic module,
interconnect and testing solutions used in communication applications for
commercial and defense markets. Its products are used in satellite, personal
wireless, cable television ("CATV") and defense communications markets. It also
designs and manufactures motion control systems and shock and vibration
isolation systems used for commercial, industrial and defense applications. The
Company's operations are grouped into three segments: Microelectronics; Test,
Measurement and Other Electronics; and Isolator Products. The Company's
consolidated financial statements include the accounts of Aeroflex and its
subsidiaries, all of which are wholly-owned.
Effective July 1, 1997, the Company acquired certain equipment, inventory,
licenses for technology and patents of two of Lucent Technologies'
microelectronics component units, multi-chip modules and film integrated
circuits. These units manufacture microelectronic modules and interconnect
products. The Company has also signed a multi-year supply agreement to provide
Lucent with film integrated circuits for use in the telecommunications industry.
Approximately 50% and 65% of the Company's sales for fiscal years 1997 and
1996, respectively, were to agencies of the United States Government or to prime
defense contractors or subcontractors of the United States Government. The
Company's overall dependence on the defense market has been declining as a
result of the acquisition of MIC Technology Corporation, which is more
commercially oriented, and a focusing of resources towards developing standard
products for the commercial market.
Management believes that potential reductions in defense spending will not
materially affect its operations. In certain product areas, the Company has
suffered reductions in sales volume due to cutbacks in the military budget. In
other product areas, the Company has experienced increased sales volume due to a
realignment of government spending towards upgrading existing systems instead of
purchasing completely new systems. The overall effect of the cutbacks and
realignment has not been material to the Company.
In June 1997, the Financial Accounting Standards Board issued Statement of
Finanical Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. This statement establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. The Company has not
determined the impact that the adoption of this new accounting standard will
have on its consolidated financial statement disclosures. The Company will adopt
this standard effective July 1, 1998, as required.
-11-
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
Net Sales. Net sales increased 30.1% to $84.4 million for the nine months
ended March 31, 1998 from $64.9 million for the nine months ended March 31,
1997. Net sales in the Microelectronics segment increased 64.3% to $52.7 million
for the nine months ended March 31, 1998 from $32.1 million for the nine months
ended March 31, 1997 due to increased sales volume in both thin film
interconnects and microelectronic modules. Sales of thin film interconnects
increased primarily due to the commencement of a strategic supply contract with
Lucent Technologies effective July 1, 1997. Net sales in the Test, Measurement
and Other Electronics segment decreased 12.2% to $18.0 million for the nine
months ended March 31, 1998 from $20.5 million for the nine months ended March
31, 1997 primarily as a result of reduced sales volume of frequency synthesizers
which was partially offset by increased sales of high speed instrumentation test
systems. The decrease in frequency synthesizer sales was due to the early
completion of the current Consolidated Automated Support System ("CASS")
contract. Net sales in the Isolator Products segment increased 11.5% to $13.7
million for the nine months ended March 31, 1998 from $12.3 million for the nine
months ended March 31, 1997 due to increased sales volume in each of the
commercial, industrial and military isolator product lines.
Gross Profit. Cost of sales includes materials, direct labor and overhead
expenses such as engineering labor, fringe benefits, allocable occupancy costs,
depreciation and manufacturing supplies. Gross profit increased 36.3% to $29.0
million for the nine months ended March 31, 1998 from $21.3 million for the nine
months ended March 31, 1997. Gross margin increased to 34.4% for the nine months
ended March 31, 1998 from 32.8% for the nine months ended March 31, 1997. The
increase was primarily a result of increased margins in the Microelectronics
segment reflecting the greater efficiencies of higher volume.
Selling, General and Administrative Costs. Selling, general and
administrative costs include office and management salaries, fringe benefits,
commissions and advertising costs. Selling, general and administrative costs
increased 24.2% to $16.0 million (19.0% of net sales) for the nine months ended
March 31, 1998 from $12.9 million (19.9% of net sales) for the nine months ended
March 31, 1997. The increase was primarily due to labor related expenses
including salaries for additional hires, recruitment and relocation costs in
connection with the Company's growth.
Research and Development Costs. Research and development costs consist of
material, engineering labor and allocated overhead. Company sponsored research
and development costs increased 53.1% to $3.5 million (4.2% of net sales) for
the nine months ended March 31, 1998 from $2.3 million (3.5% of net sales) for
the nine months ended March 31, 1997. The increase was primarily attributable to
the costs for development of a new low-cost, high speed, high performance
frequency synthesizer intended for commercial communication test systems.
Other Expense (Income). Other expense decreased by 16.1% to $1.8 million for
the nine months ended March 31, 1998 from $2.2 million for the nine months ended
March 31, 1997. Interest expense decreased 20.5% to $1.8 million for the nine
months ended March 31, 1998 from $2.3 million for the nine months ended March
31, 1997. The decrease was primarily due to the conversion of $10.0 million of
debentures. Other expense included $102,000 of debenture redemption costs for
the nine months ended March 31, 1998.
Provision for Income Taxes. Income taxes recorded by the Company increased
89.7% to $2.8 million (an effective income tax rate of 36.0%) for the nine
months ended March 31, 1998 from $1.5 million (an effective income tax rate of
37.1%) for the nine months ended March 31, 1997. The income tax provisions for
the two periods differed from the amount computed by applying the U.S. Federal
income tax rate to income before income taxes primarily due to state and local
income taxes.
-12-
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Net Sales. Net sales increased 36.1% to $31.2 million for the three months
ended March 31, 1998 from $22.9 million for the three months ended March 31,
1997. Net sales in the Microelectronics segment increased 64.8% to $19.6 million
for the three months ended March 31, 1998 from $11.9 million for the three
months ended March 31, 1997 due to increased sales volume in both thin film
interconnects and microelectronic modules. Sales of thin film interconnects
increased primarily due to the commencement of a strategic supply contract with
Lucent Technologies effective July 1, 1997. Net sales in the Test, Measurement
and Other Electronics segment increased 1.0% to $6.7 million for the three
months ended March 31, 1998 from $6.6 million for the three months ended March
31, 1997. Net sales in the Isolator Products segment increased 11.5% to $4.9
million for the three months ended March 31, 1998 from $4.4 million for the
three months ended March 31, 1997 due to increased sales volume in the
commercial and industrial product lines.
Gross Profit. Gross profit increased 40.3% to $10.9 million for the three
months ended March 31, 1998 from $7.8 million for the three months ended March
31, 1997. Gross margin increased to 34.9% for the three months ended March 31,
1998 from 33.8% for the three months ended March 31, 1997. The increase was
primarily a result of increased margins in the Microelectronics segment
reflecting the greater efficiencies of higher volume.
Selling, General and Administrative Costs. Selling, general and
administrative costs increased 19.2% to $5.7 million (18.1% of net sales) for
the three months ended March 31, 1998 from $4.7 million (20.7% of net sales) for
the three months ended March 31, 1997. The increase was primarily due to labor
related expenses including salaries for additional hires, recruitment and
relocation costs in connection with the Company's growth.
Research and Development Costs. Company sponsored research and development
costs increased 70.0% to $1.5 million (4.7% of net sales) for the three months
ended March 31, 1998 from $871,000 (3.8% of net sales) for the three months
ended March 31, 1997. The increase was primarily attributable to the costs for
development of a new low-cost, high speed, high performance frequency
synthesizer intended for commercial communication test systems.
Other Expense (Income). Other expense decreased by 26.6% to $515,000 for the
three months ended March 31, 1998 from $702,000 for the three months ended March
31, 1997. Interest expense decreased 23.0% to $548,000 for the three months
ended March 31, 1998 from $712,000 for the three months ended March 31, 1997.
The decrease was primarily due to the conversion of $10.0 million of debentures.
Provision for Income Taxes. Income taxes recorded by the Company increased
123.8% to $1.2 million (an effective income tax rate of 36.4%) for the three
months ended March 31, 1998 from $525,000 (an effective income tax rate of
36.4%) for the three months ended March 31, 1997. The income tax provisions for
the two quarters differed from the amount computed by applying the U.S. Federal
income tax rate to income before income taxes primarily due to state and local
income taxes.
-13-
Liquidity and Capital Resources
In March 1998, the Company sold 2,597,000 shares of its Common Stock in a
public offering for $31,293,000, net of an underwriting discount of $1,973,000
and issuance costs of $488,000. Of these net proceeds, $9,639,000 was used to
repay bank indebtedness. The balance of the net proceeds, which is included in
cash and cash equivalents, will be used for general corporate purposes,
including working capital, capital expenditures, facilities expansion and
potential acquisitions.
As of March 31, 1998, the Company had $49.6 million in working capital. As
of March 15, 1996, the Company replaced a previous agreement with a revised
revolving credit and term loan agreement with two banks which is secured by
substantially all of the Company's assets not otherwise encumbered. The
agreement provides for a revolving credit line of $22.0 million and a term loan
of $16.0 million. The revolving credit line expires in March 1999. The term loan
is payable in quarterly installments of $900,000 with final payment on September
30, 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 the prime rate (8-1/2% at March 31, 1998) plus 1/4%
on the revolving credit borrowings and prime plus 1/2% on the term loan
borrowings. The terms of the agreement require compliance with certain covenants
including minimum consolidated tangible net worth and pre-tax earnings,
maintenance of certain financial ratios, limitations on capital expenditures and
indebtedness and prohibition of the payment of cash dividends. At March 31,
1998, the outstanding borrowings under the term loan were $4.7 million and there
were no outstandings under the revolving credit line. Management is in the
process of amending the existing agreement to extend the term of the revolving
credit line, among other changes.
During June 1994, the Company completed a sale of $10.0 million principal
amount of 7-1/2% Senior Subordinated Convertible Debentures ("Debentures"). On
September 8, 1997, the Company called for redemption all of its outstanding
Debentures at 104-1/2% of the principal amount. The Debentures were convertible
into the Company's Common Stock at a price of $5-5/8 per share through October
6, 1997. As of October 1997, all of the principal amount outstanding was
converted into Common Stock. In connection with the conversions, $599,000 of
deferred bond issuance costs were charged to additional paid-in capital.
The Company's order backlog at March 31, 1998 and 1997 was $69.4 million and
$49.1 million, respectively.
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $4.0 million for Federal income tax purposes.
The Company's net cash provided by operating activities was $7.4 million
for the nine months ended March 31, 1998. Net cash used in investing activities
was $10.1 million for the nine months ended March 31, 1998, consisting primarily
of $4.4 million of cash used to purchase equipment, inventory and technology
rights from Lucent Technologies and $5.7 million for capital expenditures. Net
cash provided by financing activities was $25.3 million for the nine months
ended March 31, 1998 including $31.8 million from the issuance of Common Stock
as discussed above.
Management has initiated a company-wide program to prepare it for the Year
2000 issue. The Company expects to incur internal staff costs as well as
consulting and other expenses related to Year 2000 compliance. The Company
believes the total costs to be incurred for all Year 2000 related projects will
not have a material impact on the Company's business, results of operations and
financial condition.
Management of the Company believes that internally generated funds and
available lines of credit will be sufficient for its working capital
requirements, capital expenditure needs and the servicing of its debt for at
least the next twelve months.
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AEROFLEX INCORPORATED
AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
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:
3 - Amended By-Laws
10 - 1998 Stock Option Plan
27.a - Financial Data Schedule
27.b - Restated Financial Data Schedules
27.c - Restated Financial Data Schedules
(b) Reports on Form 8-K
None
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AEROFLEX INCORPORATED
(REGISTRANT)
May 11, 1998 By: s/Michael Gorin
--------------------------------
Michael Gorin
President, Chief Financial Officer
and Principal Accounting Officer
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