UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
/ / TRANSITION REPORT PURSANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14224
IFR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 48-0777904
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10200 WEST YORK STREET, WICHITA, KANSAS 67215
(Address and zip code of principal executive offices)
(316) 522-4981
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
----- -----
There were 5,491,635 shares of common stock, par value $.01 per share, of
the Registrant outstanding as of October 31, 1995.
IFR SYSTEMS, INC.
FORM 10-Q
INDEX
PART I -- FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1995
and September 30, 1995 3
Condensed Consolidated Statements of Income for the three
months ended September 30, 1995 5
Condensed Consolidated Statements of Cash Flow for the
three months ended September 30, 1995 and 1994 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II -- OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 9
SIGNATURES 10
2
PART 1 -- FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, JUNE 30,
1995 1995
------------ ------------
(UNAUDITED) (NOTE)
(000'S OMITTED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 140 $ 662
Accounts receivable, less $452 and $472
allowance for doubtful accounts, respectively 14,276 11,819
Inventories:
Finished products 8,191 8,579
Work in progress 8,273 8,692
Materials 7,185 6,790
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23,649 24,061
Prepaid expenses and sundry 405 296
Deferred income taxes 822 822
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TOTAL CURRENT ASSETS 39,292 37,660
PROPERTY AND EQUIPMENT
Property and equipment 14,092 13,680
Allowance for depreciation (deduction) (6,660) (6,204)
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7,432 7,476
PROPERTY UNDER CAPITAL LEASE
Building and machinery 3,436 3,436
Amortization (deduction) (1,176) (1,124)
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2,260 2,312
OTHER ASSETS
Cost in excess of net assets acquired, less
amortization of $1,394 and $1,271, respectively 9,723 9,843
Patents, trademarks and other intangibles, less
amortization of $1,275 and $1,202, respectively 532 605
Loan proceeds appropriated for debt service
and other 611 506
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10,766 10,954
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$ 59,750 $ 58,402
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Note: The balance at June 30, 1995 has been derived from the audited financial
Statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements.
3
SEPTEMBER 30, JUNE 30,
1995 1995
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(UNAUDITED) (NOTE)
(000'S OMITTED)
LIABILITY AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term bank borrowings (Note 2) $ 7,970 $ 5,545
Accounts payable 2,512 3,500
Accrued compensation and payroll taxes 2,031 2,187
Other liabilities and accrued expenses 2,277 2,807
Current maturity of capital lease obligations 231 251
Current maturity of long-term debt 88 88
Federal and state income taxes and local taxes 597 334
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TOTAL CURRENT LIABILITIES 15,706 14,712
CAPITAL LEASE OBLIGATIONS 2,287 2,346
LONG-TERM DEBT 2,621 2,635
DEFERRED INCOME TAXES 73 73
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value---authorized
1,000,000 shares, none issued --- ---
Common Stock, $.01 par value---authorized
50,000,000 shares, issued 6,177,500 shares 62 62
Additional paid in capital 6,172 6,187
Cost of common stock in treasury---685,865
and 689,784 shares, respectively (deduction) (5,846) (5,880)
Retained earnings 38,675 38,267
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39,063 38,636
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$ 59,750 $ 58,402
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See notes to condensed consolidated financial statements.
4
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
1995 1994
(000'S OMITTED, EXCEPT PER SHARE DATA)
SALES $ 19,857 $ 17,196
COST OF PRODUCTS SOLD 12,783 11,227
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GROSS PROFIT 7,074 5,969
OPERATING EXPENSES
Selling 2,385 1,984
Administrative 1,494 1,293
Engineering 2,372 2,327
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6,251 5,604
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OPERATING INCOME 823 365
OTHER INCOME (EXPENSE) (150) (51)
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INCOME BEFORE INCOME TAXES 673 314
INCOME TAXES 265 130
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NET INCOME $ 408 $ 184
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Net Income Per Common Share $ 0.07 $ 0.03
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Average Common Shares Outstanding 5,490 5,257
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See notes to condensed consolidated financial statements.
5
IFR SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1995 1994
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(000's OMITTED)
OPERATING ACTIVITIES
Net income $ 408 $ 184
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of property
and equipment 508 547
Amortization of intangibles 193 198
Changes in operating assets and liabilities:
Accounts receivable (2,457) 1,454
Inventories 412 485
Other current assets (109) (44)
Accounts payable and accrued liabilities (1,674) (1,096)
Other current liabilities 263 (197)
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NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES (2,456) 1,531
INVESTING ACTIVITIES
Purchases of property and equipment (412) (342)
Sundry (5) 1
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NET CASH USED IN INVESTING ACTIVITIES (417) (341)
FINANCING ACTIVITIES
Principal payment on capital lease obligations (79) (57)
Principal payment on long-term debt (14) -
Proceeds from issuance of common stock 19 1
Proceeds from short-term bank borrowings 6,230 6,770
Principal payments on short-term bank
borrowings (3,805) (7,960)
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Net Cash Provided by (Used in) Financing
Activities 2,351 (1,246)
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DECREASE IN CASH AND CASH EQUIVALENTS (522) (56)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 662 64
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 140 $ 8
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See notes to condensed consolidated financial statements.
6
IFR SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited Condensed Consolidated Financial Statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended September 30,
1995 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1996. For further information, refer to the Consolidated
Financial Statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended June 30, 1995.
NOTE 2 -- SHORT TERM BANK BORROWINGS
The Company has unsecured lines of credit with a bank whereby it could
borrow in the aggregate up to $10,000,000 at interest rates approximating the
prime rate charged by major banks. At September 30, 1995 the Company had unused
lines of credit aggregating $2,030,000.
NOTE 3 -- ACQUISITION
On June 21, 1995, the Company acquired substantially all of the assets of
York Technology Limited, a company incorporated in England, and York Technology,
Inc., a New Jersey Corporation, as well as the real estate and building
previously leased by York Tech Ltd. The acquisition has been accounted for as a
purchase. On an unaudited pro forma basis, sales, net income and net income per
share for the quarter ended September 30,1994 were $19,464,000, $291,000 and
$.06 respectively. This pro forma data presents the consolidated results of
operations as if the acquisition had occurred on July 1, 1994, after giving
effect to certain adjustments, including amortization of intangibles, increased
interest expense and related income tax expense. The pro forma results have
been prepared for comparative purposes only and do not purport to indicate the
results of operations which would have actually occurred had the acquisition
been in effect on the date indicated, or which may occur in the future.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales increased 15 percent in the first quarter ended September 30, 1995 to
$19,857,000, up $2,661,000 over the first quarter of the prior year. Sales of
fiber optics test equipment and commercial communications service monitors
accounted for the increase. The increase in sales of fiber optics test
equipment is due primarily to the acquisition of York Technology Companies.
Sales to the U.S. Army were down $1,962,000 for the current quarter as compared
to the previous year quarter. This was due to unusually strong shipments in the
prior year quarter.
Gross margins increased to 36 percent for the current year quarter as
compared to 35 percent in the previous year quarter. This increase is primarily
due to a higher mix of fiber optics test equipment sales.
Operating expenses decreased as a percent of sales from 33 percent for the
prior year quarter to 32 percent for the current year quarter. This increase is
due in part to higher commission expenses related to the increase in sales and
higher administrative expenses related to the acquisition of York Technology
Companies.
The estimated effective income tax rate was 39 percent compared to 41
percent for the prior year quarter. This decrease is due to an increase in the
estimated annual pre-tax income relative to the amount of nondeductible goodwill
amortization.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operations were $2,456,000 for the three month period
ended September 30, 1995. This compares to cash flows provided by operations of
$1,531,000 in the prior year quarter. This decrease was primarily due to an
increase in accounts receivable of $2,180,000 for the current quarter as
compared to a decrease of $1,454,000 in the prior year quarter. Funding for the
company pension plan of $1,035,000 also contributed to the decrease. Working
capital increased from $22,948,000 at June 30, 1995 to $23,586,000 at September
30, 1995.
The Company has available unsecured lines of credit for $10,000,000 which
expire on June 30, 1996. At September 30, 1995, $2,030,000 was outstanding
under the lines of credit.
The Company anticipates that available lines of credit and funds generated
from operations will be adequate to meet capital asset expenditures and working
capital needs for the current fiscal year ending June 30, 1996.
8
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Acquisition Agreement for York Technology, Inc. dated June 21, 1995
(Incorporated by reference to Exhibit 2.1 to the Company's Form 8-K
dated July 6, 1995, File No. 0-14224)
2.2 Acquisition Agreement for York Technology, Ltd. dated June 21, 1995
(Incorporated by reference to Exhibit 2.2 to the Company's Form 8-K
dated July 6, 1995, File No. 0-14224)
2.3 Building transfer agreement with TKM Group Pension Trust Limited
dated June 21, 1995. (Incorporated by reference to Exhibit 2.3 to
the Company's Form 8-K dated July 6, 1995, File No. 0-14224)
2.4 Supplemental Agreement dated June 29, 1995. (Incorporated by
reference to Exhibit 2.4 to the Company's Form 8-K dated July 6,
1995, File No. 0-14224)
11.0 Statement Re: Computation of Earnings Per Share
27.0 Financial Data Schedule
(b) During the quarter for which this report is filed, the Registrant
filed a Form 8-K dated June 21, 1995 reporting the acquisition of
substantially all of the assets of York Technology Limited, a company
incorporated in England, and York Technology, Inc., a New Jersey
corporation, as well as the real estate and building previously leased
by York Technology Limited. The Registrant subsequently filed a Form
8-K/A, Amendment No. 1 to the Form 8-K described above, which included
financial statements of York Technology Limited and pro forma
financial statements of the Registrant after giving effect to the
acquisition transaction described above.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IFR SYSTEMS, INC.
Date: October 31, 1995 /s/ Alfred H. Hunt
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Alfred H. Hunt, III,
President and CEO
(Duly authorized officer)
/s/ Bruce Bingham
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Bruce C. Bingham,
Chief Financial Officer
and Treasurer
(Principal financial and chief
accounting officer)
10