REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Halifax Corporation
We have audited the accompanying consolidated balance sheets of Halifax
Corporation and its subsidiaries as of March 31, 1996 and 1995, and the
related consolidated statements of earnings, changes in stockholders'
equity and cash flows for each of the two years in the period ended
March 31, 1996. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Halifax
Corporation and its subsidiaries at March 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for
each of the two years in the period ended March 31, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
June 5, 1996
Report of Independent Certified Public Accounts
Stockholders
Halifax Corporation
We have audited the accompanying consolidated statements of earning,
stockholders' equity and cash flows for the year ended March 31, 1994, of
Halifax Corporations (a Virginia corporation). These financial statements
are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides
a reasonable basis for our opinion.
In our opinion, the consolidated financial statement referred to above,
present fairly, in all material respects, the results of operations of
Halifax Corporation and its cash flows for the year ended March 31, 1994, in
conformity with generally accepted accounting principles.
We have also audited Schedules V, VI, and VIII as of March 31, 1994. In our
opinion, the schedules present fairly the information required to be set
forth therein.
/s/ Grant Thornton LLP
Vienna, Virginia
June 3, 1994
HALIFAX CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
1996 1995 1994
Revenues (Note 1) $ 47,159,000 $ 45,603,000 $ 72,501,000
Operating costs and expenses:
Cost of services 41,675,000 40,708,000 67,207,000
Litigation expense 320,000 - -
Selling, general and administrative 3,692,000 3,210,000 3,511,000
Total operating costs and expenses 45,687,000 43,918,000 70,718,000
Operating income 1,472,000 1,685,000 1,783,000
Interest expense 573,000 627,000 661,000
Other (income) expense-net (362,000) (375,000) (268,000)
Income before income taxes 1,261,000 1,433,000 1,390,000
Income taxes (Note 8) 498,000 575,000 537,000
Net income $ 763,000 $ 858,000 $ 853,000
Net income per common share $ 0.65 $ 0.72 $ 0.71
Weighted average number of common shares
outstanding 1,171,254 1,189,671 1,196,400
<FN>
See notes to financial statements.
HALIFAX CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1995
March 31
1996 1995
ASSETS
CURRENT ASSETS
Cash $ 2,743,000 $ 18,000
Trade accounts receivable (Note 3) 11,639,000 11,077,000
Other receivables 95,000 96,000
Inventory 2,792,000 3,480,000
Prepaid expenses and other current assets 207,000 284,000
Income taxes receivable - 40,000
Deferred income taxes (Notes 1 and 8) 512,000 361,000
TOTAL CURRENT ASSETS 17,988,000 15,356,000
PROPERTY AND EQUIPMENT, at cost less accumulated
depreciation and amortization (Notes 1 and 4) 4,527,000 4,717,000
INTANGIBLES AND OTHER ASSETS, net of accumulated
amortization (Notes 1 and 2) 2,313,000 2,034,000
TOTAL ASSETS $ 24,828,000 $ 22,107,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued
expenses (Note 6) $ 11,418,000 $ 5,916,000
Income taxes payable 90,000 -
Current portion of long-term debt & mortgage
note payable (Note 5) 556,000 595,000
TOTAL CURRENT LIABILITIES 12,064,000 6,511,000
LONG-TERM DEBT (Note 5) 739,000 3,995,000
MORTGAGE NOTE PAYABLE (Note 5) 2,574,000 2,640,000
DEFERRED INCOME TAXES (Notes 1 and 8) 667,000 560,000
TOTAL LIABILITIES 16,044,000 13,706,000
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY (Note 7)
Common stock, $.35 par value:
Authorized - 3,000,000 shares
Issued- 1,480,015 in 1996 and 1995
Outstanding - 1,168,229 in 1996; 1,180,329
in 1995 518,000 518,000
Additional paid-in capital 3,401,000 3,401,000
Retained earnings 5,253,000 4,795,000
9,172,000 8,714,000
Less treasury stock - at cost 311,786 shares in
1996; 299,686 in 1995 388,000 313,000
TOTAL STOCKHOLDERS' EQUITY 8,784,000 8,401,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,828,000 $ 22,107,000
<FN>
See notes to financial statements
HALIFAX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
1996 1995 1994
Cash flows from operating activities:
Net income $ 763,000 $ 858,000 $ 853,000
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 599,000 658,000 652,000
(Gain) on sale of equipment - (2,000) -
Provision for losses on accounts receivable
and contracts - -
(Increase) decrease in accounts receivable (562,000) 2,315,000 (3,194,000)
(Increase) decrease in other current
receivables 1,000 (15,000) 5,000
(Increase) decrease in inventory 688,000 (43,000) 786,000
(Increase) decrease in other current assets 77,000 189,000 63,000
(Increase) decrease in other assets (44,000) 55,000 (85,000)
(Increase) decrease income tax receivable (111,000) (40,000) -
Increase (decrease) in accounts payable and
accrued expenses 5,502,000 (583,000) 522,000
Increase (decrease) in income taxes payable 90,000 (154,000) (15,000)
Increase (decrease) in deferred income taxes 107,000 281,000 24,000
Total adjustment 6,347,000 2,661,000 (1,242,000)
Net cash provided (used) by operating
activities 7,110,000 3,519,000 (389,000)
Cash flows from investing activities:
Acquisition of property and equipment (247,000) (393,000) (436,000)
Proceeds from sale of property and
equipment 3,000 7,000 12,000
Acquisitions (400,000) (400,000) (2,598,000)
Net cash used in investing activities (644,000) (786,000) (3,022,000)
Cash flows from financing activities:
Proceeds from borrowing of long-term debt 16,271,000 17,199,000 47,855,000
Retirement of long-term debt (19,632,000) (20,000,000) (44,289,000)
Cash dividends paid (305,000) (303,000) (288,000)
Proceeds from sale of stock upon exercise of
stock options - - 66,000
Purchase of treasury stock (75,000) (120,000) -
Net cash provided (used) by financing
activities (3,741,000) (3,224,000) 3,344,000
Net (decrease) increase in cash 2,725,000 (491,000) (67,000)
Cash at beginning of year 18,000 509,000 576,000
Cash at end of year $ 2,743,000 $ 18,000 $ 509,000
<FN>
See notes to financial statements.
HALIFAX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996, 1995, AND 1994
Common Stock Additional Treasury Stock
Paid-In Retained
Shares Par Value Capital Earnings Shares Cost Total
Balance
March 31, 1993 1,468,765 $ 514,000 $ 3,339,000 $ 3,675,000 282,586 $ (193,000) $ 7,335,000
Cash Dividends
($.24 per share) - - - (288,000) - - (288,000)
Net Income - - - 853,000 - - 853,000
Exercise of
Stock options 11,250 4,000 62,000 - - - 66,000
Balance
March 31, 1994 1,480,015 $ 518,000 $ 3,401,000 $ 4,240,000 282,586 $ (193,000) $ 7,966,000
Cash Dividends
($.255 per share) - - - (303,000) - - (303,000)
Net Income - - - 858,000 - - 858,000
Purchase of
Treasury stock - - - - 17,100 (120,000) (120,000)
Balance
March 31, 1995 1,480,015 $ 518,000 $ 3,401,000 $ 4,795,000 299,686 $ (313,000) $ 8,401,000
Cash Dividends
($.26 per share) - - - (305,000) - - (305,000)
Net Income - - - 763,000 - - 763,000
Purchase of
Treasury stock - - - - 12,100 (75,000) (75,000)
Balance
March 31, 1996 1,480,015 $ 518,000 $ 3,401,000 $ 5,253,000 311,786 $ (388,000) $ 8,784,000
<FN>
See notes to financial statements.
HALIFAX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
1. SIGNIFICANT ACCOUNTING POLICIES AND BUSINESS ACTIVITY
Business Activity - Halifax Corporation, (the Company) provides
Electronic services and Facilities support to
Government and industry. These services include installation,
maintenance, field engineering, operations and logistics support
for equipment systems and facilities from the most technically
sophisticated electronics to common hardware. Revenues from
services rendered to the United States Government and the relative
percentages of such revenues to total revenues for the years ended
March 31, 1996, 1995 and 1994 are $34,420,000 (73%), $37,750,000
(83%) and $67,643,000 (93%), respectively. For the years ended
March 31, 1996, 1995 and 1994, the Company derived 0%, 15% and 60%,
respectively, of its revenue from its MPS contract with the U.S.
Marine Corps. The MPS contract was completed in the first quarter
of fiscal year 1995.
Principles of Consolidation - The Company's consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany transactions are
eliminated in consolidation.
Revenue Recognition - On cost-type contracts, revenues are recorded
as reimbursable costs are incurred and related fixed and award fees
are recorded using the percentage of completion method. On time and
materials contracts, revenues are recorded at the contractual rates
as labor hours and other direct expenses are incurred. On fixed
price contracts, revenues are recorded using the percentage of
completion method. Revenues collected in advance for commercial
maintenance contracts are deferred and recognized over the term of
the related agreements. For all contracts, recognition is made of
any anticipated losses when identified. Disputes involving amounts
owed the Company by customers arise in the normal course of the
Company's business. These disputes are primarily due to changes in
contract specifications and disagreements over the interpretation
of contract provisions. Such disputes are recorded at the lesser of
their estimated net realizable value or actual costs incurred.
Claims against the Company and contract losses are recognized when
loss is considered probable and reasonably determinable in amount.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates.
Property and Depreciation - Property and equipment is stated at cost.
Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets.
Inventory - Inventory consists principally of spare computer parts
valued at the lower of cost or market on the first-in first-out basis
and is displayed on the consolidated balance sheet net of allowances
for inventory obsolence of $804,000 and $611,000 at March 31, 1996
and 1995, respectively.
Income Taxes - The Company has adopted the provisions of Statement of
Financial Accounting Standards Number 109, "Accounting for Income
Taxes" (SFAS 109). Under SFAS 109, deferred taxes are provided on
all temporary differences measured using enacted tax rates expected
to be in effect during the periods in which the temporary
differences reverse.
Intangibles and Other Assets - Other assets includes cost in excess
of net assets of acquired companies described in Note 2 which is
being amortized using the straight-line method over 25 years.
Management regularly reviews the valuation and amortization to
determine possible impairment by comparing the carrying value to
the undiscounted future cash flows of the related assets.
New Accounting Pronouncements - In 1995, the Financial Accounting
Standards Board (FASB) issued 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." SFAS
No. 121 requires that certain long-lived assets to be held and used
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS No. 121 also requires that certain
long-lived assets to be disposed of be reported at the lower of the
carrying amount or fair value less the cost to sell. The Company
will adopt SFAS No. 121 in fiscal 1997, as required, and is in the
process of evaluating the impact of adopting this standard.
Reclasses - Certain prior years balances have been reclassed to
conform to the 1996 presentation.
2. ACQUISITION
On April 1, 1996, the Company completed the acquisition of CMS
Automation, Inc. (CMSA), a private Richmond, VA based computer
network integration and solutions company. Financial consideration
was in the Company's stock with an assumption of debt. There was an
initial payment of approximately 140,000 shares from Treasury
Stock representing approximately 12% of Halifax outstanding
shares at closing and there may be additional
payments of common stock over the next three years based on the
annual earnings of CMSA. The Company filed reports of the
Acquisition Transaction with the SEC on Form 8-K on April 16, 1996
and on June 17, 1996.
The following proforma information is unaudited and reflects the
acquisition as if CMSA had been acquired as of April 1, 1995.
FY96 (Unaudited) Proforma
(000) Halifax CMSA Adjustments Tax Effect Total
Revenues $47,159 $21,249 - - $68,408
Net Income 763 (109) 226 89 791
Earnings per share 0.65 .60
Weighted Average Number of
Common Shares Outstanding #1,171,254 #1,310,884
The acquisition will be accounted for as a purchase with the purchase
price allocated to the assets and liabilities based on their
estimated fair value. The initial purchase price and
estimated costs of the transaction exceed the fair value of net
assets purchased by $348,000 which will be capitalized as part
of the purchase price in excess of the fair value of the net assets
acquired.
On June 30, 1993, the Company purchased substantially all of the
assets and liabilities of the Field Services Division of Electronic
Associates, Inc. (EAI) which is primarily engaged in the
maintenance of electronic equipment and software for an initial
purchase price of approximately $2.4 million. Additional payments
of $1,000,000 were paid over the next 3 years since certain revenue
objectives were achieved. The Company paid $200,000 relating to
this requirement in 1994 and $400,000 in both 1995 and 1996.
The acquisition was accounted for as a purchase with the purchase
price having been allocated to the assets and liabilities based on
their estimated fair market value. The initial purchase price and
related costs exceeded the fair value of the net assets purchased by
$1,235,000. A portion of the purchase price was allocated to
contract rights ($400,000) and a covenant not to compete ($150,000)
which are being amortized on a straight- line-basis over 10 and 3
years, respectively. The additional payments noted above have
been capitalized as part of the purchase price in excess of the fair
value of the net assets acquired. Accumulated amortization of costs
in excess of net assets acquired, contract rights and covenants not
to compete at March 31, 1996 are $138,000, $110,000 and $107,000,
respectively.
The pro forma information provided below is unaudited and reflects
the acquisition as if EAI had been acquired as of the beginning of
the year presented, after accounting for the effect of costs in
excess of net assets acquired, contract rights, capitalized
acquisition costs and noncompetition covenant amortization, and the
increased interest expense on funds used to finance the
acquisition. The pro forma information (in 000s) is not
necessarily indicative of operations that would have occurred had
the transaction been consummated at the beginning of the period
presented.
Proforma Tax
FY94 (Unaudited) Halifax EAI Adjustments Effect Total
Revenues $72,501 $ 3,546 $76,047
Net Income 853 155 (67) (29) 913
Earnings per share 0.71 0.13 (0.06) (0.02) 0.77
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of:
March 31,
1996 1995
Amounts Billed $ 10,886,000 $ 9,415,000
Amounts currently billable 511,000 1,048,000
Retainages and amounts awaiting audit 423,000 482,000
Claims 7,000 302,000
Total 11,827,000 1,832,000
Allowance for possible losses on accounts
receivable and claims (188,000) (170,000)
Total $ 11,639,000 $ 11,077,000
Retainages are generally billable upon acceptance of work by
customers or completion of contract audits by the Government. It is
anticipated that the accounts receivable balance at March 31,
1996 will be substantially collected within one year. The Company
has a several claims against the Government which are in various
stages of the settlement process. Management is unable to determine
precisely when these claims will be settled because, to some extent,
settlement is dependent on action by Government representatives
and other factors outside the control of the Company. However, in
the opinion of management, adequate provision has been
made to cover the settlement of all claims and ultimate resolution
of these matters is not expected to have a material adverse effect
on the Company's consolidated financial position or results of
operations.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of:
March 31,
Estimated
1996 1995 Useful Lives
Automotive equipment $ 336,000 $ 312,000 4 years
Machinery and equipment 2,605,000 2,413,000 3 - 10 years
Furniture and fixtures 576,000 602,000 5 - 10 years
Building and improvements 3,834,000 3,812,000 32 years
Land 648,000 648,000
Total 7,999,000 7,787,000
Accumulated depreciation and amortization 3,472,000 3,070,000
Total $ 4,527,000 $ 4,717,000
5. LONG-TERM DEBT AND MORTGAGE NOTE PAYABLE
March 31,
1996 1995
Long-term debt consists of:
Revolving credit agreement amended effective
December 11, 1992, with a maximum credit line of
$7,000,000. Amounts available under this agreement
are determined by applying stated percentages to
the Company's eligible billed receivables and
inventory. Interest accrues at either the prime
rate of the lending bank or the LIBOR rate plus 2.0%
based on borrowings equal to or less than eligible
billed receivables and at either the prime rate plus
1/2% or the LIBOR rate plus 2.5% for borrowings in
excess of billed receivables. At March 31, 1996 the
interest rate was 8.25% This agreement expires
July 31, 1996, at which time all borrowings will
become due. $ - $ 2,765,000
Other notes payable and capital lease obligations with interest
rates ranging from 1/2% over the prime rate to 15%, due in
monthly installments and maturing at dates through 1997. The
prime rate was 8.25% at March 31, 1996. $ 20,000 $ 50,000
Mortgage note payable in monthly installments of $5,533 plus
interest at prime plus 1/2% through July 1, 1996.
At March 31, 1996 the prime rate was 8.25%. The note can be
extended through July 1, 2001 for a fee of 1/4% of the
outstanding balance at July 1, 1996. The note is collateralized
by buildings and land. $ 2,640,000 $ 2,707,000
Acquisition term loan facility dated June 30, 1993. Note is
payable in 60 equal monthly installments of $41,666 plus
interest. Interest accrues at prime plus 1/2%. The prime
rate was 8.25% at March 31, 1996. 1,209,000 1,708,000
$ 3,869,000 $ 7,230,000
Less: Current maturities 556,000 595,000
Total $ 3,313,000 $ 6,635,000
Advances under the revolving credit agreement and term loan facilities are
collateralized by a first priority security interest in all the Company's
assets except for land and buildings. Additionally, advances under the term
loan facilities are secured by the acquired assets.
The revolving credit agreement also contains covenants which require the
Company to maintain certain net worth and financial statement ratios.
The aggregate annual maturities of long-term debt are:
1997 - $ 556,000
1998 - 573,000
1999 - 233,000
2000 - 67,000
2001 - 66,000
Thereafter - 2,374,000
Total - $ 3,869,000
6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of:
March 31,
1996 1995
Accrued expenses $ 1,151,000 $ 1,200,000
Accounts payable 7,915,000 2,181,000
Accrued payroll 346,000 297,000
Accrued vacation 646,000 614,000
Bank overdraft 847,000 367,000
Payroll taxes accrued and withheld 220,000 330,000
Deferred maintenance revenue 293,000 927,000
$ 11,418,000 $ 5,916,000
7. COMMON STOCK
Stock Options - Under the Company's 1984 Incentive Stock Option and
Stock Appreciation Rights Plan (as amended), options to purchase
shares of the Company's common stock have been granted to officers
and key employees at a price not less than the fair market value of
the stock at the date of grant. Any grants of options
or stock appreciation rights under the plan are limited to a maximum
of 110,000 shares of the Company's common stock. Options and/or
stock appreciation rights expire five years after the date of
grant. The 1984 plan terminated May 15, 1994. On September 16,
1994 the shareholders approved the new Key Employee Stock
Option Plan ("1994 Plan"). The maximum number of shares subject to
the 1994 Plan and approved for issuance is 120,000 shares of the
Company's common stock either authorized and unissued or shares
held in treasury. This number is subject to adjustment in the event
of stock splits, stock dividends or other recapitalization of the
Company's common stock.
A summary of options activity is as follows: Optioned Option Price
Shares Per Share Total
1984 Plan
Balance March 31, 1993 41,250 $ 5.88-8.50 $ 276,000
Options exercised (11,250) 5.88 (66,000)
Options granted 12,100 7.50 91,000
Balance March 31, 1994 42,100 $ 6.88-8.50 $ 301,000
Options forfeited upon retirement/
termination of employee (3,000) 6.88-7.50 (21,000)
Balance March 31, 1995 39,100 $ 6.88-8.50 $ 280,000
Options forfeited upon retirement/
termination of employees (4,000) 6.88-7.50 (28,140)
Balance March 31, 1996 35,100 $ 6.88-7.50 $ 251,860
Options exercisable at
March 31, 1996 24,500 $ 6.88-8.50 $ (170,990)
1994 Plan
Balance April 1, 1995 - $ - $ -
Options granted 32,000 7.00 224,000
Balance March 31, 1995 32,000 $ 7.00 $ 224,000
Options Granted 15,800 6.875-7.25 114,175
Options forfeited upon retirement/
termination of employee (3,000) 7.00-7.25 (21,250)
Balance March 31, 1996 44,800 $ 7.00-7.25 $ 316.925
Options exercisable at
March 31, 1996 - $ - $ -
Employee Plans - During fiscal 1985, the Company adopted a 401(k)
retirement plan covering substantially all non-union employees
with more than 3 months of service. The plan provides that the
Company will contribute an amount equal to 50% of a participant's
contribution up to 4% of salary, and at the Company's discretion,
additional amounts based upon the profitability of the Company. The
Company's contributions were $157,000 in 1996, $163,000 in 1995 and
$102,000 in 1994. The Company has an Employee Stock Purchase
Plan under which all employees of the Company are eligible to
contribute funds for the purchase of the Company's common
stock on the open market at market value. Under the Plan, the
Company agrees to pay all brokerage commissions associated with such
purchases.
8. INCOME TAXES
Deferred tax assets and liabilities on the balance sheet reflect the
net tax effect of temporary differences between carrying amounts of
assets and liabilities for financial statement purposes and the
amounts used for income tax purposes. The deferred assets and
liabilities are classified on the balance sheet as current or
noncurrent based on the classification of the related assets and
liabilities. The Company believes a valuation allowance is not
required.
The components of income tax expense are as follows for the years
ended March 31:
1996 1995 1994
Current:
Federal $ 335,000 $ 250,000 $ 440,000
State 75,000 43,000 73,000
Total current: 430,000 293,000 513,000
Deferred 68,000 282,000 24,000
Total $ 498,000 $ 575,000 $ 537,000
The components of the Company's deferred tax assets and liabilities
consist of the following at March 31:
1996 1995
Deferred tax assets - current:
Accounts receivable $ 71,000 $ (194,000)
Inventory 214,000 390,000
Accrued compensation 227,000 187,000
Sublease rental income - (22,000)
$ 512,000 $ 361,000
Deferred tax liability - noncurrent:
Contract Claims $ 40,000 $ -
Sublease rental income 21,000 -
Depreciation/Amortization 606,000 560,000
$ 667,000 $ 560,000
The sources and tax effects of temporary differences resulting in
deferred tax expense (benefit) are as follows for the years ended
March 31:
1996 1995 1994
Depreciation\amortization $ 77,000 $ 471,000 $ (5,000)
Allowance and reserves for accounts
receivable (18,000) 147,000 (41,000)
Income from contracts (201,000) 28,000 (3,000)
Vacation expense 8,000 3,000 (8,000)
Inventory cost capitalized for tax
purposes 187,000 (270,000) (10,000)
Sublease rental income - 2,000 (13,000)
Deferred contract costs - (90,000) 92,000
Deferred compensation expense 15,000 (9,000) 16,000
Other - - (4,000)
Total $ 68,000 $ 282,000 $ 24,000
The differences between the provision for income taxes at the
expected statutory rate and those shown in the consolidated
statements of earnings are as follows for the years ended March 31:
1996 1995 1994
Provision for income taxes
at statutory rate 34.0% 34.0% 34.0%
State taxes net of
federal benefit 4.3 3.6 3.6
Permanent differences 1.4 2.0 1.3
Other (.2) .5 (.3)
Total 39.5% 40.1% 38.6%
9. LEASING ACTIVITY
The Company is obligated under operating leases of office space and
certain equipment. The following is a schedule of the future
minimum lease payments under operating leases as of March 31, 1996.
Year ending March 31,
1997 $ 305,000
1998 83,000
1999 74,000
2000 71,000
2001 72,000
Total minimum lease payments $ 605,000
Total rental expense under operating leases was $201,000, $376,000
and $366,000 for the years ended March 31, 1996, 1995 and 1994,
respectively.
10. RELATED PARTY TRANSACTIONS
During the years ended March 31, 1996, 1995, 1994, the Company paid
$9,000, $14,000 and $56,000; respectively, to a law firm in which a
Company Board member is a partner.
11. COMMITMENTS AND CONTINGENCIES
The Company's contracts with the U.S. government are subject to cost
audits by Government authorities. Such audits have been completed
through March 31, 1990. It is not possible to predict the outcome
of future audits but it is the opinion of the Company's management
that unrecorded liabilities, if any, arising from such audits
would not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Upon the death of a Company officer or a certain former officer and
at the option of their estates, the Company is committed to
repurchase their shares (64,619) at current book value. At March
31, 1996, the aggregate book value of such shares was approximately
$460,000.
The Company is defendant or co-defendant in various lawsuits. In
the opinion of management, none of these lawsuits could
materially affect the consolidated financial position or results of
operations of the Company.
12. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The Company paid the following amounts for interest and income taxes
during the years ended March 31:
1996 1995 1994
Interest $ 573,000 $ 627,000 $ 661,000
Income taxes $ 457,000 $ 487,000 $ 537,000
13. QUARTERLY FINANCIAL DATA (unaudited)
(In thousands, except on a per share basis)
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1996
Revenues $ 8,894 $ 9,076 $ 11,217 $ 17,920
Income before income taxes 309 47 314 591
Net income 188 27 191 357
Per share
Earnings per share .16 .02 .16 .30
Dividends per share .065 .065 .065 .065
Market price
High 7-3/8 7 7 7-1/8
Low 6-1/4 6-1/4 5-7/8 6-1/2
<FN>
EPS totals to $.64 rather than $.65 due to rounding during computation at fiscal quarters.
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
1995
Revenue $ 14,071 $ 10,638 $ 9,510 $ 11,384
Income before income taxes 304 350 347 432
Net income 187 215 209 247
Per share
Earnings per share .16 .18 .18 .20
Dividends per share .06 .065 .065 .065
Market price 8-1/8 7-3/4 7-3/4 7-1/8
Low 6-5/8 6-3/8 6-3/8 6-3/8
Halifax Corporation
Valuation and Qualifying Accounts
Schedule II
March 31, 1996
Balance at Balance at
Beginning Additions end of
of year at Cost Deductions year
Year Ended March 31, 1996:
Allowance for possible
losses on contract
receivables and claims $ 170,000 $ 20,000 $ 2,000 $ 188,000
Allowance for inventory $ 611,000 $ 1,195,000 $ 1,002,000 $ 804,000
obsolescence
Year Ended March 31, 1995:
Allowance for possible
losses on contract
receivables and claims $ 242,000 $ 39,000 $ (111,000) $ 170,000
Allowance for inventory
obsolescence $ 539,000 $ 575,000 $ (503,000) $ 611,000
Year Ended March 31, 1994:
Allowance for possible
losses on contract
receivables and claims $ 212,000 $ 57,000 $ 27,000 $ 242,000
Allowance for inventory
obsolescence $ 422,000 $ 296,000 $ 179,000 $ 539,000