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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-8037
Aeroflex Incorporated
(Exact name of registrant as specified in its charter)
Delaware 11-1974412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 South Service Road, Plainview, New York 11803
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 694-6700
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Class Which Registered
-------------- --------------------------
Common Stock, $.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
---------------
(Title of Class)
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 period 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
State the aggregate market value of the voting stock held by non-affiliates
of the registrant. (The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within 60 days prior to the date of filing).
As of September 14, 1995 - approximately $55,263,500.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date (applicable only to
corporate registrants). Common Stock, par value $.10 per share; outstanding as
of September 14, 1995 - 11,874,209 (excluding 84,105 shares held in treasury).
Documents incorporated by reference: Parts II and IV - The Annual Report to
Stockholders for the fiscal year ended June 30, 1995 to the extent specifically
identified or incorporated herein. Part III - Registrant's definitive proxy
statement to be filed pursuant to Regulation 16A of the Securities Act of 1934.
PART I
ITEM ONE - BUSINESS
Aeroflex Incorporated, through its subsidiaries (collectively, unless the
context requires otherwise, referred to as the "Company" or "Aeroflex") is a
diversified manufacturer of advanced technology systems and components,
primarily for government and defense contractors, and shock and vibration
isolation and control systems for the commercial, industrial and defense
markets. Aeroflex also provides defense consulting services involving systems
analysis, design and engineering primarily to government contractors and the
U.S. Armed Forces.
Operations are grouped into two segments: electronics and isolator
products. These segments, their products and the markets they serve are
described below.
In March 1995, the Company, pursuant to a Board of Directors resolution,
adopted a plan to consolidate its Puerto Rican manufacturing operations into its
existing facilities in New York and New Jersey. The Company intends to cease
manufacturing operations in Puerto Rico by August 31, 1995 and expects the
consolidation to be complete by October 1995.
As of June 30, 1995, the Company has accounted for certain segments, namely
commercial and custom envelopes (Huxley Envelope Corp.) and telecommunication
systems services (T-CAS Corp.) as discontinued operations. The following
description of the Company's business does not include these discontinued
operations. These segments are described under the caption "Discontinued
Operations".
Electronics
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Microelectronics - ("Circuit Technology")
- -----------------------------------------
Since 1974, the Company has been engaged in the design, manufacture and
sale of state-of-the-art microelectronic assemblies for the electronics
industry. In January 1994, the Company acquired substantially all of the net
operating assets of the microelectronics division of Marconi Circuit Technology
Corporation, which manufactures a wide variety of microelectronic assemblies.
This acquisition increased the range of products offered and enhanced the
Company's engineering capability.
The Company's microelectronic assemblies are called "Hybrids" because they
combine elements of integrated circuit and printed circuit board technologies.
They provide many of the advantages of integrated circuits relative to printed
circuit boards, such as miniaturization, increased capability and greater
reliability and environmental stability. However, unlike integrated circuits,
they can be economically manufactured in quantities of hundreds to several
thousands. Hybrids are multi-layered electronic circuits, containing very small
and barely visible passive and active elements (those that carry, transmit,
receive, generate or amplify signals) which are mounted and wired together on a
single multi- layered ceramic surface in patterns designed to perform specific
electronic functions. These functions include amplification, switching, signal
conversion, voltage regulation and decoding of microwave signals. They are
especially suited to aircraft, spacecraft, missile and industrial applications
where space is limited, such as in navigation equipment, airborne computers,
sonar systems, medical diagnostic instrumentation and computer instrumentation.
One such Hybrid Microcircuit product family, the MIL-STD-1553 Data
Bus product line, has a particular broad range of applications. These
microcircuits, which have been adopted by the Tri-services (Army, Navy,
and Air Force) as a standard interface, act as a digital data communication
link between various computer-based equipment.
A series of Monolithic Data-bus Transceivers and Remote Terminals has been
introduced by the Company, many of which are described by "Standard Military
Devices" (SMD) drawings, thereby facilitating their use in current and future
avionic systems.
The Company's Microcircuits are used on numerous avionic systems including
the F-16 and F-18 aircraft and the AMRAAM and Tomahawk-cruise missiles. They are
also qualified for possible future use on the updates to older platforms,
including F-15, F-14 and Space Shuttle. The Data-bus microcircuits are used in a
wide variety of aerospace and seaboard navigation and communication systems. A
Motor Drive Hybrid microcircuit has been qualified for the AN/PVS-6, a
miniature, eyesafe, laser rangefinder which entered production in 1993.
The Company has production contracts for the Serial Interface Module and
Current Mode Coupler Module used on the ARINC 629 Data-bus which is the
commercial equivalent of MIL-STD-1553. This commercial data communications
interface is used on the Boeing 777.
Multichip Modules ("MCM's") are a further advancement of the hybrid
microcircuit technology, in which large digital devices such as microprocessors,
SRAM and EEPROM memories are combined with multilayer ceramic packages to form
complex digital systems or subsystems. Multichip modules perform functions
similar to hybrids, except the emphasis is on miniaturizing and synthesizing
digital functions such as microprocessor systems and mass memories. The Company
has been qualified on several MCM designs on both the F-16 and new F-22 Advanced
Tactical Fighter (ATF). Application specific multi-chip modules have significant
market potential in avionics, workstations, telecommunications and satellites.
The Company has expanded its standard memory module product line with the
addition of thirteen new memory modules. these products, which consist of SRAM
and Flash memory modules, take advantage of the Company's multichip module
expertise. They are designed to be used for a wide range of computer and general
purpose circuit board applications.
The Company continues to expand the market for the R4400 microprocessor
modules with the sale of evaluation devices for several new avionics/missile
applications. The Intel I486 dual microprocessor module is being increasingly
ordered for avionics and missile applications, in production quantities.
Instrument Products - ("Comstron" and "Lintek")
- ----------------------------------------------
Frequency Synthesizers and Components
-------------------------------------
In November 1989, the Company acquired Comstron Corporation which is now an
operating division of Aeroflex Laboratories Incorporated, a wholly-owned
subsidiary of Aeroflex. Comstron is a leader in radio frequency and microwave
technology used in the manufacture of fast switching frequency synthesizers and
components.
A frequency synthesizer is a device or circuit that synthetically produces
a large number of frequencies based upon a single reference frequency. The best
way to tune a radio or receiver is with a crystal frequency reference. When
multiple frequencies are necessary, multiple crystals and switches are required.
Eventually it becomes first impractical, and then impossible, to use a large
number of crystals due to size constraints. A frequency synthesizer replaces
millions or billions of crystals.
The Company's synthesizers operate in a broad frequency range of 10 MHz to
40GHz with excellent spectral purity. Their small size and modular construction
allow for easy systems configuration and facilitation of repair. The Company,
together with Hewlett Packard, helped develop the Modular Measurement System
(MMS) standard which has been selected as the architecture underlying the RF and
microwave sections of a number of automated test equipment (ATE) systems,
including CASS, the U.S. Navy's next generation automated test system. The
synthesizers also significantly improve the performance and reliability of
existing radars. The Company's synthesizers have been selected by Westinghouse
to upgrade its TPS 63 and 70 series radars. Additionally, the synthesizers
improve the performance of threat simulators as well as radar cross section and
antenna measurement systems.
With the 1993 introduction of the new model FS-5000 synthesizer series, the
Company strengthened its leadership position in the Ultra-Fast Switching
Frequency Synthesizer market. The FS-5000 series is ten times faster, less than
half the size and offers superior performance to the Company's previous
synthesizers.
Component technology, which contributes to the synthesizer's exceptional
performance, includes custom microwave and RF hybrids and filters manufactured
by the Company.
Radar Cross-Section and Antenna Pattern Measurement
---------------------------------------------------
In January 1995, the Company acquired Lintek Inc. as a wholly owned
subsidiary of Aeroflex. Aeroflex Lintek Corp. is a leader in high speed
instrumentation radar systems and antenna measurement systems. These systems are
used by the Department of Defense and by industry. Lintek Inc. was incorporated
in 1988 for the purpose of developing and selling instrumentation radar systems,
and currently has systems in place with many of the large aerospace companies
and with major government laboratories.
The instrumentation radar systems are used to measure the radar
reflectivity or Radar Cross Section (RCS), both scale models and actual
examples, of aircraft and other objects. These measurements are made in many
diverse environments from factory floor, to laboratory, to flight lines or
aircraft carriers. These radar systems operate in the frequency range of 100MHz
to 100GHz. In addition to the radar system hardware, Aeroflex Lintek Corp. has
developed various analytical processing and display algorithms to assist in the
interpretation of the radar data.
Aeroflex Lintek has three lines of radar systems: the Elan series, the
Model 5000, and the Model 4000. These systems vary in price and performance. The
Company believes that the Elan series radar system is the highest performance
system in the industry, the Model 5000 is the price performance leader, and the
Model 4000 is the low cost entry level system.
The antenna measurement systems are used in the design and manufacturing of
all types of antennas. This product line is derived from the expertise gained in
high speed data acquisition and display techniques used in instrumentation radar
products. These products comprise a growing portion of Aeroflex Lintek's
sales due to the growth in personal communications and the demand for these
systems abroad.
Electronic Systems
- ------------------
Building on technology acquired from Comstron, Aeroflex develops and
manufactures complex communications and guidance systems and subsystems
including HF, VHF and UHF receivers, communications jammer emulators, weather
radar receivers, up/down converters, frequency agile radar local oscillators and
low phase noise frequency sources. The Company is participating in two
significant system upgrade programs. It has developed a phase shifter for the
U.S. Air Force's mid-life upgrade F-16 Identification Friend or Foe (IFF) system
and a tunable solid state local oscillator for the U.S. Navy MK-92 fire control
radar.
Aeroflex also designs and develops special purpose microprocessor and
memory boards for severe service applications, including the digital control
unit for the PATHFINDER pod-mounted night vision system, and a militarized
version of Intel's 286/10 multibus boards for the Airport Surface Detection
Equipment (ASDE) program.
Since 1980, through its wholly-owned subsidiary, Aeroflex Systems Corp.
("Aeroflex Systems"), the Company has been supplying analytical, design and
engineering, and specialized computer software support services to military
contractors involved in major weapon systems programs and to the U.S. Armed
Forces. These services include providing personnel and specialized expertise at
all stages of a project's design and production related to: system reliability
and maintainability; the development and operation of systems to track
differences in the component configuration of each unit built in a program; the
analysis and interpretation, by means of specialized computer software, of test
data to assist in modifying a system's design; the design and operation,
throughout the life of a system, of strategies and programs for maintaining
appropriate spare parts inventories, planning repair schedules and managing
other logistical matters; and the training of contractor or military personnel
with regard to all these applications.
Aeroflex Systems is active on several DOD Post Production Support
initiatives to reduce the high cost of spare parts and to enable the
establishment of competitive procurements for items previously available from
only a single manufacturer. Its parts Breakout Project for the Navy Department
is one such program that will enable the government to make follow-on
procurements on a competitive basis.
Electro-Optics
- --------------
Scanning Devices
- ----------------
Since 1975, the Company has been engaged in the development and manufacture
of electro-optical scanning devices used in infra-red night vision systems.
These systems detect temperature differences in the infra-red radiation
emanating from objects in target areas. The differences are then electronically
amplified and converted to visible light to create a visual image of the zone
being scanned, enabling accurate observation and weapon firing control through
smoke, darkness and battlefield haze. The common module device manufactured by
the Company consists of a metal framed module containing a two-sided mirror
which, on one side, receives the infra-red radiation and reflects it onto
cryogenically cooled electronic receptors and, on the other side, reflects the
amplified visible image to the viewer. The mirror is driven by small torque
motors in a repetitive motion to provide a wider scan of the target area. The
Company has shipped more than 30,000 common module scanner units to date.
Applications include the TOW anti-tank missile systems of the M-1 Abrams tank,
the M2/M3 Bradley Fighting Vehicle and the AH-1 Super Cobra helicopter, the
Hellfire and the Stinger target acquisition systems of the OH-58D AHIP
helicopter, the TADS/PNVS system of the AH64 Apache attack helicopter, and the
LANTIRN system which directs firing of Maverick missiles from various fighter
aircraft.
The Company has completed development and has recently received a
production order for the next generation polygon rotary scanner for the U.S.
Army's thermal weapons sight (TWS), under contract to Hughes Electro-Optical
Data Systems Group. TWS is a low cost, lightweight thermal imaging device that
detects targets based on thermal radiation contrasts with background and
utilizes a solid state thermal cooling system. This scanner is intended for use
on standard issue U.S. Army assault rifles and crew served weapons.
The polygon scanner assembly consists of a polygon mirror, a brushless DC
motor and a magnetic encoder. Unlike scanners that oscillate a mirror, the TWS
assembly scans a scene by rotating a polygon with twelve-mirrored sides ten
revolutions per second. As each side of the polygon sweeps by, it produces a
continuous succession of scans. Constant rotational speed, synchronized to the
system's clock reference, is maintained by a phase lock servo-control loop.
Stabilization and Tracking Devices
----------------------------------
Since 1961, the Company has been engaged in the design, development and
production of stabilization tracking devices and systems. These are dynamically
positioned pedestals on or in moving vehicles such as trucks, ships and
aircraft, upon which tracking equipment, such as a radar antenna, is mounted.
The pedestal, through the continuous balancing action of gyroscopes and
servo-mechanical stabilizers operating in all three dimensions, enables the
mounted equipment to remain almost perfectly balanced and motionless. The
equipment can then automatically track or focus on a target as accurately as if
it were on solid ground despite the motion of the vehicle. The Company's
stabilization and tracking devices are a part of major surveillance,
reconnaissance and weapon firing control systems and play an important role in
high altitude aircraft as well as in other aircraft, ships and ground vehicles
which require precise, highly stable mounting for cameras, antennae and lasers.
Specific applications include the precise mirror pointing system for the LACE
satellite UVPI experiment and the antenna pedestal assembly for the AC130H
gunship aircraft.
Magnetic Motors
---------------
Magnetic motor products consist of electronically commutated brushless DC
motors, actuators, torque motors, solid state magnetic sensors and AC motors.
Brushless DC motors differ from conventional DC motors in that the current
which produces mechanical energy is applied to stationary coils via electronic
switches without physical contact rather than by stationary rods brushing
against the rotating coil. By avoiding friction, sparks and the wearing and
fragmenting of the brush rods, brushless DC motors provide cleaner operation and
longer maintenance-free life than conventional motors. These characteristics
make brushless DC motors well-suited for use in vacuum situations such as outer
space where lubricants needed to slow brushwear dissipate rapidly, in
environments containing volatile or explosive materials and gases, and in
applications where clean operation is critical. The users of these motors
include major contractors engaged in military and aerospace technology and
companies manufacturing jet engines, aircraft windshield wipers, medical and lab
equipment, as well as cryogenic super-cooling pumps. Platforms using the motors
include the Maverick Missile, Space Shuttle, M-1 Abrams tank and the Galileo
spacecraft. Actuators operate various mechanisms on spacecraft, satellites and
aircraft, including the forward wing mechanism of the Beech Starship.
Torque motors are DC motors which convert electrical current to
mechanical force for precisely controlled, usually repetitive movement,
over limited distances and arcs less than 180 degrees. These motors are
utilized in the Company's stabilization systems and infra-red scanner modules,
as well as other applications where precise movement is required, such
as for positioning antennae, optical systems, mechanical vanes and valves.
The Company's solid state magnetic sensors provide precise positioning and
precise measurement and control of speed in a variety of products including
tachometers, computer peripheral equipment and heavy industrial machines.
The Company also manufactures various types of AC electrical mechanisms
sold either separately or as part of assemblies such as industrial and military
fans, blowers, gear motors, induction motors, generators and tachometers.
Isolator Products
- -----------------
Since 1961, the Company has been engaged in the development, manufacture
and sale of severe service shock and vibration isolation systems. These devices
consist of helically-wound steel wire rope contained between rugged metal
retainer bars, and are used to store and dissipate potentially destructive
vibration and shock. The purchasers of helical isolators are manufacturers or
users of equipment sensitive to shock and vibration who need to reduce
shock/vibration to levels compatible with equipment fragility to extend the
useful life of this equipment. Isolators are also used to prevent vibrations in
equipment from causing disturbances to surrounding equipment, structures and
configurations. They are manufactured in a variety of materials and with special
anti-corrosion coatings according to each customer's specifications. In
addition, a line of isolated systems evolved in response to the custom
requirements of customers. Systems capability includes integrated avionics trays
and bases, skids and pallets.
Markets for helical isolation systems include the military, aerospace,
geophysical exploration, aircraft, communications, transportation and power
plants. Specific applications include sensitive mobile equipment, reusable
shipping containers, shipboard electronics and navigational equipment, avionics
and other airborne gear, nuclear and seismic construction, power generation
equipment, and heavy duty rotating and reciprocating machines.
In October 1983, the Company acquired Vibration Mountings and Controls,
Inc. ("VMC"), which manufactures a line of off-the-shelf noise, shock and
vibration control devices including a commercial version of the cup mount
isolator referred to below. These rubber and spring isolators, which are
manufactured in a wide variety of sizes, strengths and configurations, are used
primarily in commercial applications to protect heavy rotating equipment,
heating, ventilating and air conditioning pumps and compressors, and diesel
engines. In December 1986, the Company acquired the operating assets of Korfund
Dynamics Corporation ("KDC"), a manufacturer of an industrial line of spring and
rubber shock mounts.
A complementary line of off-the-shelf elastomeric cupmounts was introduced
in fiscal 1991. The cupmount is a lightweight, low profile isolator which is
available in two sizes and two types of elastomer-silicone for high temperature
applications and neoprene where extreme high temperature is not a factor. The
elastomer-in-compression design is particularly effective in interrupting
structure borne noise transmission. Cupmount isolators are produced and sold in
large quantities and appeal to different segments of existing isolator markets
and numerous industrial markets.
During fiscal 1992, the Company introduced two new series of wire rope
isolators, the arch and the circular arch. The arch isolator offers greater
stability than the helical isolator for severe shock applications such as Navy
shipboard electronic equipment. The circular arch was developed in a compact,
circular configuration to fit into smaller space envelopes and compete on a
performance and cost basis with existing competitive proprietary designs. In
fiscal 1995, the Company has successfully introduced the circular arch to the
industrial market as an improved solution to shock and vibration problems
encountered with computers in the mobile market.
During the last several years, the Company has developed and introduced a
series of new products to the marketplace to broaden the VMC and KDC product
lines. These new complementary products have enabled the Company to enter new
markets, namely, the off-highway market, portable power market, truck and bus
market and the seismic marketplace.
Competition
- -----------
In all phases of its continuing operations, the Company competes in both
performance and price with companies considerably larger than itself in
financial resources and sales, and which are more diversified than the Company.
In the manufacturing of stabilization and tracking devices, scanning devices,
frequency synthesizers, radar cross-section and antenna pattern measurement
instrumentation and isolators, there are several major competitors manufacturing
similar or comparable products. In the manufacture of microelectronics, magnetic
motors and electronic systems, there are numerous nationwide, regional and local
competitors manufacturing and distributing similar or comparable products. The
engineering and support services division competes primarily on the local and
regional levels. The Company believes that in all of its operations it competes
favorably in the principal competitive factors of technology, performance,
reliability, quality, customer service and price.
To the extent that the Company is engaged in government contracts, its
success or failure, to a large measure, is based upon its ability to compete
successfully for contracts and to complete them at a profit. Such government
business is necessarily affected by many factors such as variations in the
military requirements of the government and defense budget allocations.
Government Sales
- ----------------
Approximately 74% and 72% of the Company's sales from continuing operations
for fiscal 1995 and 1994, respectively, were to agencies of the United States
Government or to prime defense contractors or subcontractors of the United
States Government. The Company's government contracts have been awarded either
on a bid basis or after negotiation. The contracts are primarily fixed price
contracts, though the Company also has government contracts providing for cost
plus fixed fee. The contracts of the Company with the United States Government
and prime defense contractors or subcontractors contain customary provisions for
termination at the convenience of the government without cause. In the event of
such termination, the Company is entitled to reimbursement for its costs and to
receive a reasonable profit, if any, on the work done prior to termination.
Revenues and costs on government contracts are recognized based upon
shipments or billings on manufacturing contracts. Revenues and costs on certain
consulting contracts are recognized based upon costs incurred.
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.
Marketing and Distribution
- --------------------------
The Company markets its products through an internal sales force of 30
persons and over 120 sales representative organizations located nationwide and
worldwide. The Company's engineers and marketing personnel, many of whom have
technical backgrounds, advise prospective purchasers regarding the Company's
products and how such products can be custom designed to be incorporated into
specific government programs and other applications. These efforts are supported
by product brochures and by published articles and advertisements in trade
journals.
Product Research and Development
- --------------------------------
The Company's product development efforts primarily involve engineering and
design relating to the improvement of existing products or the adaptation of
such products to new applications. The Company's efforts also include developing
prototype components to bid on specific programs. Several of the Company's
executive officers and almost all of its engineers have been involved at various
times and to varying degrees in these activities. Product development and
similar costs not recoverable under contractual arrangements are expensed in the
year incurred. These costs were approximately $2,389,000 and $694,000 for fiscal
1995 and 1994, respectively. The increased expenditures were primarily in the
microelectronics product line, incurred to develop additional new products.
Backlog
- -------
At June 30, 1995, the Company's backlog of orders was approximately
$34,681,000. Approximately 75% was scheduled to be delivered on or before June
30, 1996. Approximately 85% of this backlog represents orders for military or
national defense purposes.
At June 30, 1994, the Company's backlog of orders was approximately
$40,950,000. Approximately 83% was scheduled to be delivered before June 30,
1995. Approximately 89% of this backlog represented orders for military or
national defense purposes.
Principal Materials
- -------------------
The principal materials used by the Company in manufacturing and assembling
its products are steel, aluminum, rubber, magnetic materials, iron and copper.
Many of the component parts used by the Company in its products are also
purchased, including semiconductors, transformers, amplifiers, bearings and
ceramic materials. These materials and components, none of which are presently
in short supply, are purchased from time to time on the open market. The Company
has no long-term commitments for their purchase.
Patents and Trademarks
- ----------------------
The Company owns several patents, patent licenses and trademarks. While the
Company considers that in the aggregate its patents and trademarks are important
in its operations, it does not consider that one or any group of them is of such
importance that termination could materially affect its business.
Employees
- ---------
As of June 30, 1995 the Company had approximately 650 employees, of whom
approximately 360 were engaged in a manufacturing capacity, and approximately
290 in clerical, administrative, engineering or sales positions. Approximately
240 employees of the Company are covered by various collective bargaining
agreements. The Company considers its employee relations to be satisfactory.
Financial Information About Industry Segments
- ---------------------------------------------
The sales and operating profits of each industry segment and the
identifiable assets attributable to each industry segment for each of the three
years in the period ended June 30, 1995 are set forth in Note 16 of Notes to
Consolidated Financial Statements, which note is incorporated herein by
reference.
Discontinued Operations
The Company has accounted for certain segments as discontinued operations.
A description of these operations is as follows:
Commercial and Custom Envelopes
--------------------------------
In November 1993, the Company sold substantially all of the net operating
assets of its wholly-owned subsidiary, Huxley Envelope Corp. ("Huxley"), for
$5,550,000. Huxley is a manufacturer of specialized envelopes for high-volume
direct-mail users. The loss on disposal of $2,108,000 in fiscal 1994 represents
a loss from Huxley's operations of $187,000 and a loss on its disposal of
$1,921,000. The sale did not include Huxley's New York City manufacturing
facility which was sold in the fourth quarter of fiscal 1995 for approximately
$2,400,000. The sale of the facility, along with the resolution of certain other
contingencies, resulted in a net of tax gain of $240,000.
Telecommunication Systems Services
----------------------------------
Through T-CAS Corp. ("T-CAS"), a wholly-owned subsidiary which was acquired
in 1988, the Company also specialized in the design and implementation of
telecommunications and electronic systems for government, industrial and
commercial customers nationwide and abroad. T-CAS' services included systems
concepts and operational criteria, detailed engineering designs, equipment
specifications, site preparation, construction, field engineering,
installations, on-site training and technical assistance. The Company's plan to
discontinue this operation included the completion of existing contracts (which
were completed at June 30, 1993) and an orderly dissolution.
In September 1993, the Company entered into an agreement with the U.S. Air
Force in full settlement of claims against the U.S. Air Force on two
telecommunication contracts. The settlement represents a final mutual release of
all claims between the parties relative to these two contracts. In May 1995, the
Company received $170,000 in settlement of another claim against a former
customer. These settlements, together with other unrelated settlements of claims
and adjustments of previously recorded loss reserves, resulted in after tax
gains of $2,295,000 and $222,000, which were included in discontinued operations
in the first quarter of fiscal 1994 and fourth quarter of fiscal 1995,
respectively.
Income from discontinued operations for the fiscal year ended June 30, 1993
reflects Huxley's income, net of tax.
ITEM TWO - PROPERTIES
The executive offices of the Company and the manufacturing facilities of
Aeroflex Laboratories Incorporated, a subsidiary of the Company, occupying an
aggregate of approximately 69,000 square feet, are located in premises which the
Company owns in Plainview, Long Island, New York. An industrial development
agency loan is secured by the premises, with an outstanding balance of
approximately $230,000 at June 30, 1995.
Aeroflex Laboratories Incorporated also leases manufacturing facilities in
Farmingdale, Long Island, New York and Boca Raton, Florida of approximately
20,000 and 11,000 square feet, respectively. The annual rental of these
properties is approximately $118,000 and $72,000 respectively.
The manufacturing operations of the Company's subsidiary, Aeroflex
International, Inc., are located in approximately 40,000 square feet of leased
premises located in Caguas West Industrial Park, Caguas, Puerto Rico. There are
three leases, each covering part of the premises, expiring through 1996. The
annual rentals are approximately $137,000. In connection with the Company's
restructuring of its operations, it expects to have vacated these premises by
October 31, 1995.
The Company's subsidiary, Aeroflex Lintek Corp., occupies approximately
8,500 square feet of space in Powell, Ohio. This property contains an annual
rental of $42,000.
The Company's subsidiary, Aeroflex Systems Corp., leases approximately
2,000 square feet of office space in Oxon Hill, Maryland. The annual rental on
this property is approximately $22,000.
The Company's subsidiary, Vibration Mountings and Controls, Inc., conducts
manufacturing operations at a plant located in Bloomingdale, New Jersey. The
plant, which the Company owns, consists of approximately 72,000 square feet.
The Company believes that its facilities are adequate for its current and
presently foreseeable needs.
ITEM THREE - LEGAL PROCEEDINGS
Filtron Co. Inc., ("Filtron") a subsidiary of the Company whose operations
were discontinued in October 1991, was one of several defendants named in a
personal injury action initiated in 1994 by several plaintiffs in the Supreme
Court of the State of New York, County of Kings.
According to the allegations of the Amended Verified Complaint, the
plaintiffs, who are current or former employees of a company to whom Filtron
sold RFI filters/capacitors, and their wives, are seeking to recover,
respectively, directly and derivatively, on diverse theories of negligence,
strict liability and breach of warranty, for injuries allegedly suffered from
exposure to a liquid substance or material which Filtron incorporated for a
period of time in the RFI filters/capacitors which it manufactured. The
plaintiffs are seeking damages which cumulatively may exceed $500 million.
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.
ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM FIVE - MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) The Common Stock trades on the New York Stock Exchange under the symbol
ARX. The following table shows the quarterly range of the high and low closing
prices for the Common Stock, as reported by the National Quotation Bureau
Incorporated, for the calendar periods indicated.
Common Stock
High Low
---- ----
1993
- ----
First Quarter................................ $2.00 $1.75
Second Quarter............................... 2.25 1.75
Third Quarter................................ 3.63 2.25
Fourth Quarter............................... 3.88 3.13
1994
- ----
First Quarter................................ 5.00 3.75
Second Quarter............................... 4.75 3.63
Third Quarter................................ 4.13 3.63
Fourth Quarter............................... 4.00 3.50
1995
- ----
First Quarter................................ 4.38 3.50
Second Quarter............................... 4.88 3.63
Third Quarter (through August 31)............ 5.63 4.25
(b) As of August 31, 1995, there were approximately 1,400 record holders of
the Company's Common Stock.
(c) The Company has never paid any cash dividends on its Common Stock.
There have been no stock dividends declared or paid by the Company on its Common
Stock during the past three years. Future dividends, if any, will be dependent
upon the earnings and financial position of the Company and such other factors
as the Board of Directors shall deem appropriate. In addition, the Company's
existing Revolving Credit Agreement prohibits, and its 7- 1/2% Senior
Subordinated Convertible Debenture Indenture Agreement limits, it from paying
cash dividends.
ITEM SIX - SELECTED FINANCIAL DATA
AEROFLEX INCORPORATED AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(In thousands except ratios and per share data)
Year ended June 30,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Earnings Statement Data (4) (5)
Net Sales...................... $ 71,113 $ 65,602 $ 52,031 $ 48,109 $ 48,778
Income (Loss) from
Continuing Operations........ 6,587(1)(2)5,850(3) 1,736 227 (6,758)
Income (Loss) from
Discontinued Operations...... 462 187 500 635 (24,916)
Extraordinary Item-Tax Benefit
of Loss Carryovers (5)....... - - - 143 -
Net Income (Loss).............. 7,049 6,037(3) 2,236 1,005 (31,674)
Income (Loss) from Continuing
Operations Per Common Share
and Common Share Equivalent
Primary.................... $ .53(1)(2)$ .55(3) $ .20 $ .03 $ .(81)
Fully Diluted.............. .52(1)(2) .50(3) .19 .03 .(81)
Net Income (Loss) Per Common
Share and Common Share
Equivalent
Primary.................... .57 .57 .26 .12 (3.81)
Fully Diluted.............. .55 .51 .24 .12 (3.81)
Weighted Average Number of
Common Shares and Common
Share Equivalents Outstanding
Primary.................... 12,352 10,526 8,757 8,661 8,319
Fully Diluted.............. 14,249 12,401 10,920 8,661 8,319
June 30,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Balance Sheet Data
Working Capital................ $ 31,533 $ 28,572 $ 14,982 $ 15,751 $ 21,055
Total Assets................... 71,936 71,016 60,185 62,473 80,105
Long-term Debt
(including current portion).. 13,787 18,408 21,871 28,098 45,530
Stockholders' Equity........... 46,344 39,571 27,208 25,025 23,705
Other Statistics (5)
After Tax Profit Margin (Loss)
from (continuing operations).. 9.3%(1)(2) 8.9%(3) 3.3% 0.5% (13.9)%
Return on Average Stockholders'
Equity (from continuing
operations).................. 15.3%(1)(2)17.5%(3) 6.6% 0.9% (17.3)%
Stockholders' Equity
Per Share (6) $ 3.95 $ 3.37 $ 3.14 $ 2.87 $ 2.80
(1) Includes $2,000,000 ($.14 per share fully diluted and $.16 primary) of
insurance proceeds received on the death of the former chairman.
(2) Includes a $1,494,000 net of tax restructuring charge ($.10 per share fully
diluted and $.12 primary) for the consolidation of the Company's Puerto
Rican operations into its domestic facilities.
(3) Includes income tax benefit of $1,716,000, or $.14 per share ($.16 per
share primary for the year), relating to the recognition of a portion of
the Company's unrealized net operating loss carryforward in accordance with
Statement of Financial Accounting Standards No. 109.
(4) See Note 3 to the Consolidated Financial Statements for a discussion of
discontinued operations.
(5) In fiscal 1995, 1994, and 1993 the tax benefit from prior years' loss
carryforwards was presented as a part of the provision for income taxes; in
1992 it was presented as an extraordinary item.
(6) Calculated by dividing stockholders' equity, at the end of the year,
by the number of shares outstanding at the end of the year.
ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Fiscal 1995 Compared to Fiscal 1994
Net sales increased to $71,113,000 in fiscal 1995 from $65,602,000 in fiscal
1994. Income from continuing operations for fiscal 1995 improved to $6,587,000
including $2,000,000 of insurance proceeds received on the death of the former
chairman and a net of tax restructuring charge of $1,494,000 for the
consolidation of the Company's Puerto Rican operations into its existing
domestic facilities. Fiscal 1994 income from continuing operations was
$5,850,000 including an income tax benefit of $1,716,000 for the recognition of
a portion of the Company's unrealized net operating loss carryforward.
Net sales in the electronics segment increased to $55,607,000 for the year ended
June 30, 1995 from $51,585,000 for the year ended June 30, 1994 primarily as a
result of the acquisition of the microelectronics division of Marconi Circuit
Technology Corporation in January 1994, the acquisition of Lintek, Inc. in
January 1995 and increased sales volume of electronic systems. Operating
profits, exclusive of the restructuring charge, improved by $1,788,000 as a
result of the higher sales and improved margins, partially offset by increased
research and development costs primarily in the microelectronics division.
Net sales in the isolator products segment increased to $15,506,000 for the year
ended June 30, 1995 from $14,017,000 for the year ended June 30, 1994. The
increase is attributable to higher sales volumes in all product areas within the
segment commercial, industrial and military. Operating profits, exclusive of the
restructuring charge, increased by $220,000. The increase in volume was
partially offset by an unfavorable change in the product mix and lower margins
in the military isolator division.
Cost of sales as a percentage of sales decreased to 66.9% from 68.9% between the
two years as a result of improved profit margins primarily in the instrument
products division. Selling, general and administrative costs increased to
$15,752,000 from $14,214,000 primarily due to a $1,695,000 increase in research
and development costs.
Interest expense increased to $1,464,000 from $1,440,000. Decreased levels of
borrowings were offset by increased interest rates. Interest and other income
increased by $487,000 as a result of the short-term investments made with the
proceeds from the 7-1/2% debentures.
The income tax provisions for the years ended June 30, 1995 and 1994 differed
from the amounts computed by applying the U.S. Federal income tax rate to income
from continuing operations before income taxes primarily as a result of the tax
benefits of loss carryforwards (both realized and unrealized). In addition, the
income tax provision for the year ended June 30, 1995, was further impacted by
the non-taxable life insurance proceeds of $2,000,000.
Income from discontinued operations for the year ended June 30, 1995 includes a
gain related to the sale of the former Huxley Envelope Corp. ("Huxley") building
of $240,000 and a gain related to T-CAS Corp. ("T-CAS") of $222,000. Income from
discontinued operations for the year ended June 30, 1994 was comprised of a loss
related to Huxley of $2,108,000 and a gain related to T-CAS of $2,295,000.
In November 1993, the Company sold substantially all of the net operating assets
of its Huxley subsidiary. The disposal is being accounted for as a discontinued
operation, and, accordingly, Huxley's operations have been reported separately
from continuing operations. The loss of $2,108,000 in fiscal 1994 represents a
loss from Huxley's operations of $187,000 and a loss on the disposal of
$1,921,000. The gain of $240,000 in fiscal 1995, is due primarily to a gain from
the sale of the former Huxley building.
In September 1993, the Company entered into an agreement with the U.S. Air Force
in full settlement of claims against the U.S. Air Force for extra work, delays
and other out-of-scope costs on two telecommunication contracts which were the
primary reasons for T-CAS' loss in 1991. The settlement represents a final
mutual release of all claims between the parties relative to these two
contracts. The settlement, together with other unrelated settlements of claims
and adjustments of previously recorded loss reserves, resulted in an after tax
gain of $2,295,000 which was included in discontinued operations in the first
quarter of fiscal 1994. The gain of $222,000 in fiscal 1995, is due primarily to
a settlement of another claim against a former customer.
Fiscal 1994 Compared to Fiscal 1993
Net sales increased by 26% to $65,602,000 in fiscal 1994 from $52,031,000 in
fiscal 1993. Income from continuing operations improved to $5,850,000 from
$1,736,000.
Net sales in the electronics segment increased to $51,585,000 for the year ended
June 30, 1994 from $39,145,000 for the year ended June 30, 1993 primarily as a
result of increased volume of microelectronics. Effective January 1, 1994, the
Company acquired the microelectronics division of Marconi Circuit Technology
Corporation ("Marconi") and, accordingly, the net sales of the Company include
the acquired division for the period from January 1, to June 30, 1994 which
sales were approximately $8,300,000. Operating profits increased by $2,245,000
in this segment as a result of the greater sales volume and increased gross
profit margins partially offset by increased selling, general and administrative
costs.
Net sales in the isolator products segment increased to $14,017,000 for the year
ended June 30, 1994 from $12,886,000 for the previous year primarily as a result
of increased sales in the commercial and industrial markets. Operating profits
increased by $495,000 as a result of the increased sales and increased gross
profit margins, offset, in part, by increased selling, general and
administrative costs.
Cost of sales as a percentage of sales decreased to 68.9% from 69.8% as a result
of improved profit margins in both segments. Selling, general and administrative
costs as a percentage of sales decreased to 21.7% from 22.5% as the Company has
been able to contain such costs despite increased sales.
Interest expense decreased to $1,440,000 from $1,828,000 due to decreased levels
of borrowings. Interest and other income were lower by $95,000, primarily due to
the lower interest income as a result of the sale of certain marketable
securities and lower interest rates.
The income tax provisions for the years ended June 30, 1994 and 1993 were
different from the amounts computed by applying the U.S. Federal income tax rate
to income from continuing operations before income taxes primarily as a result
of the tax benefits of loss carryforwards and the exemption of the earnings of
the Company's Puerto Rican subsidiary from U.S. Federal income taxes. The income
tax benefit for the year ended June 30, 1994 includes a benefit of $1,716,000
relating to a portion of the Company's unrealized net operating loss
carryforward recognized in accordance with Statement of Financial Accounting
Standards No. 109. The income tax provision for the year ended June 30, 1993
also included a $150,000 charge in excess of previously recorded provisions for
an agreed settlement of open U.S. Federal income tax for years 1986 through
1990.
Income from discontinued operations for the year ended June 30, 1994 was
comprised of a loss related to Huxley of $2,108,000 and a gain related to T-CAS
of $2,295,000. Income from discontinued operations for the year ended June 30,
1993 reflects Huxley's income, net of tax, for that period.
Liquidity and Capital Resources
June 30, 1995 Compared To June 30, 1994
- ---------------------------------------
The Company's working capital at June 30, 1995 was $31,533,000 as compared to
$28,572,000 at June 30, 1994. The current ratio increased to 3.5 to 1 at June
30, 1995 from 3.3 to 1 at June 30, 1994. The increases were primarily due to the
increase in cash and cash equivalent balances to $11,330,000 from $8,238,000.
Cash provided from operating activities was $8,300,000 (including $2,000,000 of
life insurance proceeds) for the year ended June 30, 1995 and $5,477,000 for the
year ended June 30, 1994. Cash used by investing activities of $21,000 in 1995
was primarily for capital expenditures, which were substantially offset by funds
provided by the sale of the former Huxley building. The net cash provided by
operating and investing activities was used to reduce outstanding debt by
$4,939,000 for the year ended June 30, 1995. Cash and cash equivalents at June
30, 1995 includes $6,800,000 invested in commercial paper and certificates of
deposit.
As of April 11, 1994, the Company entered into a revised revolving credit and
term loan agreement with two banks which is secured by accounts receivable,
inventory and the Company's stockholdings in certain of its subsidiaries. The
agreement provides for a revolving credit line of $16,000,000, which expires on
March 31, 1997, and a term loan of $4,000,000, which was repaid during the third
quarter of 1995. See Note 9 to the Consolidated Financial Statements.
During June 1994, the Company completed a sale of $10,000,000 principal amount
of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S. persons. The
debentures are due June 15, 2004 subject to prior sinking fund payments of 10%,
10%, 15% and 15% of the principal amount on September 15, 2000, 2001, 2002 and
2003, respectively. The debentures are convertible into the Company's common
stock at a price of $5-5/8 per share.
The Company believes that internally generated funds and available lines of
credit will be sufficient for its working capital requirements, capital
expenditure needs, restructuring costs and the servicing of its debt for the
fiscal year ending June 30, 1996. At June 30, 1995, the Company had no
borrowings under its revolving credit and term loan agreement.
In November 1993, the Company disposed of its Huxley subsidiary, excluding its
New York City manufacturing facility, for $5,550,000. The net cash proceeds from
the sale were used to repay indebtedness under the revolving credit and term
loan agreement. The land and building were sold in the fourth quarter of 1995
for approximately $2,400,000.
In January 1994, the Company acquired substantially all of the net operating
assets of the microelectronics division of Marconi Circuit Technology
Corporation for $5,650,000. The operations acquired have been consolidated with
the Company's wholly-owned subsidiary, Aeroflex Laboratories, Incorporated. The
acquired division's net sales of microelectronic products were approximately
$17,500,000 for the twelve months ended December 31, 1993.
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 may 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. 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.
Management believes that potential reductions in military 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.
The Company's backlog of orders at June 30, 1995 and 1994 was $34,681,000 and
$40,950,000, respectively.
At June 30, 1995, the Company had net operating loss carryforwards of
approximately $14,000,000 for Federal income tax purposes.
At June 30, 1995 and 1994 the Company had $1,312,000 and $1,506,000,
respectively, of prior years' Puerto Rican source earnings held in qualified
Puerto Rican investments which enable the Company to take advantage of reduced
withholding taxes to be paid when these earnings are repatriated. See Notes 5
and 12 to the Consolidated Financial Statements.
Under present tax laws, the earnings of the Company's Puerto Rican facility are
substantially exempt from United States income tax and partially exempt from
Puerto Rican income taxes. As a result of the consolidation of the Company's
Puerto Rican operations into its domestic facilities (Note 2) the Company will
no longer have this partial exemption from income taxes.
The Company is undergoing routine audits by various taxing authorities of
several of its U.S. Federal, state and local income tax returns covering
different periods from 1991 to 1993. Management believes that the probable
outcome of these various audits should not materially affect the consolidated
financial statements of the Company.
ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company and its subsidiaries, and
the reports thereon of KPMG Peat Marwick LLP and Deloitte & Touche LLP dated
August 11, 1995 and August 12, 1994, respectively, are set forth below.
- Consolidated balance sheets at June 30, 1995 and 1994.
- Consolidated statements of earnings, stockholders' equity and
cash flows for the years ended June 30, 1995, 1994 and 1993.
- Notes to consolidated financial statements.
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS June 30,
1995 1994
---- ----
Current Assets:
Cash and cash equivalents (Note 1) $ 11,330,000 $ 8,238,000
Current portion of invested cash (Notes 5 and 9) 635,000 150,000
Accounts receivable, less allowance for doubtful
accounts of $437,000 and $434,000 at
June 30, 1995 and 1994, respectively (Note 9) 18,898,000 16,804,000
Inventories (Notes 6 and 9) 12,330,000 14,087,000
Deferred income taxes (Note 12) 467,000 640,000
Prepaid expenses and other current assets 605,000 937,000
----------- ----------
Total Current Assets 44,265,000 40,856,000
Invested Cash (Notes 5 and 9) 677,000 1,356,000
Property, Plant and Equipment, net (Notes 7 and 9) 13,859,000 13,180,000
Cost in Excess of Fair Value of Net Assets of
Businesses Acquired, net of
accumulated amortization of $1,780,000 and
$1,475,000, at June 30, 1995
and 1994, respectively (Note 1) 10,297,000 10,602,000
Net Assets of Discontinued Operations (Note 3) - 2,403,000
Deferred Income Taxes (Note 12) 589,000 403,000
Other Assets 2,249,000 2,216,000
------------ -----------
Total Assets $ 71,936,000 $ 71,016,000
============ ============
See notes to consolidated financial statements
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY June 30,
1995 1994
---- ----
Current Liabilities:
Current portion of long-term debt (Note 9) $ 1,936,000 $ 820,000
Accounts payable 3,343,000 3,222,000
Accrued expenses and other current liabilities
(Note 8) 6,916,000 7,580,000
Income taxes payable (Note 12) 537,000 662,000
----------- -----------
Total Current Liabilities 12,732,000 12,284,000
----------- -----------
Long-Term Debt (Note 9) 1,851,000 7,588,000
----------- -----------
Other Long-Term Liabilities 1,009,000 1,573,000
----------- -----------
Senior Subordinated Convertible Debentures (Note 10) 10,000,000 10,000,000
----------- -----------
Commitments and Contingencies
(Notes 2, 3, 4, 5, 10, 12, 14 and 15)
Stockholders' Equity (Notes 9 and 11):
Preferred stock, par value $.10 per share;
authorized 1,000,000 shares:
Series A Junior Participating Preferred stock,
par value $.10 per share; authorized 150,000 shares - -
Common stock, par value $.10 per share; authorized
25,000,000 shares; issued 11,818,000 and 11,799,000
shares at June 30, 1995 and 1994, respectively 1,182,000 1,180,000
Additional paid-in capital 56,101,000 56,116,000
Accumulated deficit (10,584,000) (17,633,000)
----------- -----------
46,699,000 39,663,000
Less: Treasury stock, at cost (92,000 and
58,000 shares at June 30, 1995 and 1994,
respectively) 355,000 92,000
----------- -----------
46,344,000 39,571,000
----------- -----------
Total Liabilities and Stockholders' Equity $71,936,000 $71,016,000
=========== ===========
See notes to consolidated financial statements
AEROFLEX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended June 30,
1995 1994 1993
---- ---- ----
Net Sales $ 71,113,000 $ 65,602,000 $ 52,031,000
Cost of Sales 47,542,000 45,168,000 36,320,000
------------ ------------ ------------
Gross Profit 23,571,000 20,434,000 15,711,000
Selling, General and Administrative Costs 15,752,000 14,214,000 11,695,000
Restructuring Charge (Note 2) 1,669,000 - -
----------- ------------ -----------
Operating Income 6,150,000 6,220,000 4,016,000
----------- ------------ -----------
Other Income (Expense)
Life Insurance Proceeds (Note 13) 2,000,000 - -
Interest Expense (1,464,000) (1,440,000) (1,828,000)
Other Income (including interest and
dividends of $669,000, $163,000 and
$283,000) 751,000 264,000 359,000
---------- ---------- ----------
Total Other Income (Expense) 1,287,000 (1,176,000) (1,469,000)
---------- ---------- ----------
Income From Continuing Operations
Before Income Taxes 7,437,000 5,044,000 2,547,000
Provision (Benefit) For Income Taxes
(Note 12) 850,000 (806,000)* 811,000
---------- ---------- ---------
Income From Continuing Operations 6,587,000 5,850,000 1,736,000
---------- ---------- ---------
Discontinued Operations (Note 3):
Income (loss) from operations of
discontinued subsidiaries, net of
income taxes - (187,000) 500,000
Gain on disposal of subsidiaries,
net of income taxes 462,000 374,000 -
----------- ----------- -----------
Income From Discontinued Operations 462,000 187,000 500,000
----------- ----------- -----------
Net Income $ 7,049,000 $ 6,037,000 $ 2,236,000
=========== =========== ===========
Income Per Common Share:
Primary
Continuing Operations $ .53 $ .55* $ .20
Discontinued Operations .04 .02 .06
----- ----- -----
Net Income $ .57 $ .57 $ .26
===== ===== =====
Fully Diluted
Continuing Operations $ .52 $ .50* $ .19
Discontinued Operations .03 .01 .05
----- ----- -----
Net Income $ .55 $ .51 $ .24
===== ===== =====
Weighted Average Number of Common
Shares Outstanding
Primary 12,352,000 10,526,000 8,757,000
Fully Diluted 14,249,000 12,401,000 10,920,000
========== ========== ==========
* Includes income tax benefit of $1,716,000 relating to the recognition of a
portion of the Company's unrealized net operating loss carryforward in
accordance with Statement of Financial Accounting Standards No. 109.
See notes to consolidated financial statements
AEROFLEX INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1995, 1994 and 1993
Retained
Additional Earnings
Common Stock Paid-in (Accumulated Treasury Stock
Total Shares Par Value Capital Deficit) Shares Cost
----- ------ --------- ------- ------- ------------------
Balance, July 1, 1992 $25,025,000 9,905,000 $ 990,000 $57,139,000 $(25,906,000) 1,181,000 $(7,198,000)
Retirement of Treasury
Stock - (1,181,000) (118,000) (7,080,000) - (1,181,000) 7,198,000
Warrants Issued to
Placement Agent 39,000 - - 39,000 - - -
Treasury Stock Received
from the Employee
Stock Ownership Plan (92,000) - - - - 58,000 (92,000)
Net Income 2,236,000 - - - 2,236,000 - -
---------- --------- --------- ---------- ---------- -------- --------
Balance, June 30, 1993 27,208,000 8,724,000 872,000 50,098,000 (23,670,000) 58,000 (92,000)
Stock Issued Upon
Conversion of
Debentures (Note 10) 6,131,000 3,050,000 305,000 5,826,000 - - -
Stock Issued Upon
Exercise of Stock
Options 64,000 25,000 3,000 61,000 - - -
Warrants Issued to
Placement Agent
(Note 10) 131,000 - - 131,000 - - -
Net Income 6,037,000 - - - 6,037,000 - -
---------- ----------- ---------- ---------- ---------- --------- --------
Balance, June 30, 1994 39,571,000 11,799,000 1,180,000 56,116,000 (17,633,000) 58,000 (92,000)
Treasury Stock Received
from the Employee
Stock Ownership Plan (28,000) - - - - 7,000 (28,000)
Retirement of Treasury
Stock - (65,000) (6,000) (114,000) - (65,000) 120,000
Purchase of Treasury
Stock (355,000) - - - - 92,000 (355,000)
Stock Issued Upon Exercise
of Stock Options 107,000 84,000 8,000 99,000 - - -
Net Income 7,049,000 - - - 7,049,000 - -
---------- ---------- ---------- ----------- ------------ ------- ---------
Balance, June 30, 1995 $46,344,000 11,818,000 $1,182,000 $56,101,000 $(10,584,000) 92,000 $(355,000)
=========== ========== ========== =========== ============ ======= =========
See notes to consolidated financial statements
AEROFLEX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
1995 1994 1993
---- ---- ----
Cash Flows From Operating Activities:
Net income $ 7,049,000 $ 6,037,000 $ 2,236,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain from discontinued operations (462,000) (187,000) (500,000)
Depreciation and amortization 3,133,000 2,931,000 2,835,000
Provision for losses on accounts
receivable 10,000 173,000 79,000
Deferred income taxes (13,000) (1,450,000) (243,000)
Other (79,000) 13,000 (12,000)
Change in operating assets and
liabilities net of effects from
purchase of businesses:
Decrease (increase) in accounts
receivable (1,965,000) (2,091,000) (134,000)
Decrease (increase) in inventories 2,263,000 565,000 724,000
Decrease (increase) in prepaid
expenses and other assets (279,000) (689,000) 170,000
Increase (decrease) in accounts
payable, accrued expenses and
other long-term liabilities (1,232,000) 949,000 223,000
Increase (decrease) in income
taxes payable (125,000) (774,000) 859,000
---------- --------- ---------
Net Cash Provided By
Operating Activities 8,300,000 5,477,000 6,237,000
---------- --------- ---------
Cash Flows From Investing Activities:
Payment for purchase of businesses,
net of cash acquired (536,000) (5,650,000) -
Net cash provided by (used in)
discontinued operations 3,058,000 5,643,000 359,000
Capital expenditures (2,919,000) (2,205,000) (1,995,000)
Proceeds from sale of property,
plant and equipment 182,000 27,000 583,000
Decrease (increase) in invested cash 194,000 1,904,000 2,567,000
--------- --------- ---------
Net Cash Provided By (Used In)
Investing Activities (21,000) (281,000) 1,514,000
--------- --------- ---------
Cash Flows From Financing Activities:
Net proceeds from debenture offering - 9,220,000 6,101,000
Borrowings under debt agreements 293,000 1,991,000 6,570,000
Net debt repayments (5,232,000) (8,593,000) (20,224,000)
Purchase of treasury stock (355,000) - -
Proceeds from the exercise of stock
options 107,000 64,000 -
---------- --------- ----------
Net Cash Provided By (Used In)
Financing Activities (5,187,000) 2,682,000 (7,553,000)
---------- --------- ----------
Net Increase In Cash and
Cash Equivalents 3,092,000 7,878,000 198,000
Cash and Cash Equivalents At Beginning
Of Year 8,238,000 360,000 162,000
----------- ----------- ----------
Cash and Cash Equivalents At End Of Year $11,330,000 $ 8,238,000 $ 360,000
=========== =========== ==========
See notes to consolidated financial statements
AEROFLEX INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended June 30, 1995, 1994 and 1993
1. Summary of Significant Accounting Principles and Policies:
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
Aeroflex Incorporated (formerly ARX, Inc.) and its subsidiaries ("the
Company"), all of which are wholly-owned. As of June 30, 1995 the Company
has accounted for certain subsidiaries, namely telecommunication systems
services (T-CAS Corp.) and commercial and custom envelopes (Huxley Envelope
Corp.), as discontinued operations. These subsidiaries have not been
consolidated as part of the Company's continuing operations (Note 3). All
significant intercompany balances and transactions have been eliminated.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or market.
Revenue and Cost Recognition on Contracts
-----------------------------------------
Revenue and costs on contracts are recognized based upon shipments or
billings for manufacturing contracts and upon costs incurred for certain
engineering and support services contracts. Estimated costs at completion
are based upon engineering and production estimates. Provisions for
estimated losses on contracts-in-process are recorded in the period in which
such losses are first determined.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment is 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 and
are classified as selling, general and administrative costs. Research and
development expenses were approximately $2,389,000, $694,000 and $1,225,000
during the fiscal years 1995, 1994 and 1993, respectively.
Intangible Assets
-----------------
Intangible assets are recorded at cost, less accumulated amortization. The
excess of purchase price over the fair value of assets acquired is being
amortized on a straight-line basis over a period of 40 years except for
certain costs allocated to patents which are amortized over 15 years, the
remaining life of the patents at the time they were acquired by the Company.
The Company periodically evaluates the recoverability of the carrying value
of its intangible assets and the related amortization periods. The Company
assesses the recoverability of unamortized goodwill based on the
undiscounted projected future earnings of the related businesses. As of June
30, 1995, the cost in excess of fair value of net assets of businesses
acquired consists substantially of $9,202,000 related to the 1989
acquisition of Comstron Corporation, a manufacturer of frequency
synthesizers, subsystems and components.
Invested Cash
-------------
Invested cash consists primarily of certificates of deposit, having original
maturities of greater than three months, and is carried at cost, which
approximates market.
Income Per Share
----------------
Income per share is computed based upon the weighted average number of
common shares outstanding after giving effect to the assumed exercise of
dilutive stock options and warrants and, for fully diluted purposes, the
assumed conversion of debentures.
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.
Income Taxes
------------
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes", in the fourth quarter of fiscal 1993.
The effect of the change in accounting principle did not have a significant
impact on the 1993 financial statements. Under SFAS No. 109, deferred tax
assets and liabilities are measured based upon the differences between the
financial accounting and tax bases of assets and liabilities.
Reclassifications
-----------------
Reclassifications have been made to the 1994 and 1993 consolidated financial
statements to conform to the 1995 presentation.
2. Restructuring Charge:
In March 1995, the Company, pursuant to a Board of Directors resolution,
adopted a plan to consolidate its Puerto Rican manufacturing operations into
its existing facilities in New York and New Jersey. The Company intends to
cease manufacturing operations in Puerto Rico by August 31, 1995 and expects
the consolidation to be complete by October 1995. In connection with this
restructuring, the Company has recorded a charge to earnings of $1,669,000
in fiscal 1995, representing costs of abandonment of leasehold improvements,
severance costs for approximately 100 employees, lease termination costs,
write-down of excess equipment and other related costs. This amount includes
non-cash costs of approximately $597,000.
3. Discontinued Operations:
In November 1993, the Company sold substantially all of the net operating
assets of its wholly-owned subsidiary, Huxley Envelope Corp. ("Huxley"), for
$5,550,000. Huxley is a manufacturer of specialized envelopes for
high-volume direct-mail users. The sale did not include Huxley's New York
City manufacturing facility which was sold in the fourth quarter of fiscal
1995 for approximately $2,400,000. The sale of the facility, along with the
resolution of certain other contingencies, resulted in a net of tax gain of
$240,000.
Effective June 30, 1991, the Board of Directors of the Company approved a
formal plan to discontinue the operations of its wholly-owned subsidiary,
T-CAS Corp. ("T-CAS"), which was involved in the design and implementation
of telecommunication and electronic systems. The plan called for completion
of existing contracts and an orderly dissolution. As of June 30, 1993, all
contracts were completed.
In September 1993, the Company entered into an agreement with the U.S. Air
Force in full settlement of claims against the U.S. Air Force on two
telecommunication contracts. The settlement represents a final mutual
release of all claims between the parties relative to these two contracts.
In May 1995, the Company received $170,000 in settlement of another claim
against a former customer. These settlements, together with other unrelated
settlements of claims and adjustments of previously recorded loss reserves,
resulted in after tax gains of $2,295,000 and $222,000, which were included
in discontinued operations in the first quarter of fiscal 1994 and fourth
quarter of fiscal 1995, respectively.
Huxley and T-CAS have been reported as discontinued operations and,
accordingly, the Company's equity earnings (loss) from these subsidiaries
and the estimated gain (loss) on disposal, sale or discontinuance have been
reported separately from continuing operations.
The income from discontinued operations is as follows:
Year Ended June 30,
1995 1994 1993
---- ---- ----
Operating Revenues:
Huxley $ - $ 4,868,000 $ 15,307,000
T-CAS - 2,195,000 179,000
----------- ------------ ------------
$ - $ 7,063,000 $ 15,486,000
=========== ============ ============
Income (loss) from operations before income taxes:
Huxley $ - $ (187,000) $ 528,000
T-CAS - - -
----------- ------------ ------------
- (187,000) 528,000
Provision for
income taxes - - 28,000
----------- ------------ ------------
Income (loss) from
operations - (187,000) 500,000
----------- ------------ ------------
Estimated gain (loss)
on disposition
(net of tax):
Huxley 240,000 (1,921,000) -
T-CAS 222,000 2,295,000 -
------------ ---------- -----------
462,000 374,000 -
------------ ---------- -----------
Income from discontinued
operations $ 462,000 $ 187,000 $ 500,000
============ ========== ==========
The assets and liabilities of the discontinued operations have been
reclassified on the balance sheet from the historic classifications and
combined under the caption "net assets of discontinued operations". The
balance at June 30, 1994 consists primarily of the Huxley land and building
which were sold in fiscal 1995. Intercompany interest expense has been
allocated to the loss from discontinued operations based upon the net
assets of discontinued operations.
Net assets of discontinued operations consist of the following:
June 30,
1994
---------
Assets $ 3,066,000
Liabilities (663,000)
-----------
Net Assets $ 2,403,000
===========
4. Acquisition of Businesses:
In January 1995, the Company acquired substantially all of the net operating
assets of Lintek, Inc. ("Lintek") for $537,000 plus contingent consideration
based on the next five years' earnings to a maximum of an additional
$675,000. Any contingent consideration paid will be recorded as cost in
excess of fair value of net assets acquired. Lintek designs, develops and
manufactures radar cross section and antenna pattern measurement systems for
commercial and military applications, as well as surface penetrating radars.
The acquired company's net sales were approximately $2,600,000 for the year
ended December 31, 1994. On a pro forma basis, had the Lintek acquisition
taken place as of the beginning of the periods presented, results of
operations for those periods would not have been materially affected.
Effective January 1, 1994, the Company acquired substantially all of the net
operating assets of the microelectronics division of Marconi Circuit
Technology Corporation ("Circuit Tech") for $5,650,000 and assumed
liabilities of $3,115,000. The purchase was financed through borrowings
under the Company's revolving line of credit agreement. The acquired
division's net sales of microelectronic products were approximately
$17,500,000 for the twelve months ended December 31, 1993.
Summarized below are the unaudited pro forma results of operations of the
Company as if Circuit Tech had been acquired at the beginning of the fiscal
periods presented:
Pro Forma Year Ended
June 30,
---------------------
1994 1993
---- ----
(in thousands, except per share data)
Net Sales $ 73,757 $ 71,543
Income (Loss) From
Continuing Operations 5,703 (1,455)
Net Income (Loss) 5,890 (955)
Earnings Per Share
Primary
Income (Loss) From
Continuing Operations $ .54 $ (.17)
Net Income (Loss) .56 (.11)
Fully Diluted
Income (Loss) From
Continuing Operations .48 *
Net Income (Loss) .50 *
* Due to the loss, the effect of the debentures, options and warrants is
anti-dilutive.
The pro forma financial information presented above is not necessarily
indicative of either the results of operations that would have occurred had
the acquisition taken place at the beginning of the periods presented or of
future operating results of the combined companies.
The acquisitions have been accounted for as purchases and, accordingly, the
acquired assets and liabilities assumed have been recorded at their
estimated fair values at the respective dates of acquisition. The operating
results of Circuit Tech and Lintek are included in the consolidated
statements of earnings from the respective acquisition dates.
5. Invested Cash:
Invested cash represents prior years' Puerto Rican source earnings held in
qualified Puerto Rican investments which enables the Company to take
advantage of reduced withholding taxes to be paid when the Puerto Rican
source earnings are repatriated. These funds are currently invested
primarily in certificates of deposit and become available for repatriation
at the lower withholding tax rates through the year 1999. Despite the
cessation of operations in Puerto Rico, the funds will still be maintained
in such investments for the required statutory periods.
6. Inventories:
Inventories consist of the following:
June 30,
1995 1994
---- ----
Raw materials $ 5,509,000 $ 5,706,000
Work-in-process 3,398,000 5,800,000
Finished goods 3,423,000 2,581,000
----------- -----------
$12,330,000 $14,087,000
=========== ===========
Inventories include contracts-in-process of $1,076,000 and $3,163,000 at
June 30, 1995 and 1994, respectively, which consist substantially of
unbilled material, labor and overhead costs.
7. Property, Plant and Equipment:
Property, plant and equipment consists of the following:
June 30,
1995 1994
---- ----
Land $ 725,000 $ 725,000
Building and leasehold
improvements 11,141,000 10,422,000
Machinery, equipment, tools
and dies 18,494,000 18,665,000
Furniture and fixtures 5,339,000 5,001,000
Assets recorded under
capital leases 2,160,000 2,034,000
Transportation equipment 59,000 82,000
------------ ------------
37,918,000 36,929,000
Less accumulated depreciation
and amortization 24,059,000 23,749,000
------------ ------------
$ 13,859,000 $ 13,180,000
============ ============
8. Accrued Expenses and Other Current Liabilities:
Accrued expenses and other current liabilities include accrued salaries,
wages and other compensation of $2,380,000 and $2,545,000 at June 30, 1995
and 1994, respectively.
9. Long-Term Debt and Credit Arrangements:
Long-term debt consists of the following:
June 30,
1995 1994
---- ----
Revolving credit and term
loan agreement (a) $ - $ 4,000,000
Bank loans (b) 822,000 972,000
Equipment loan (c) 900,000 1,200,000
Capitalized lease
obligations (d) 1,795,000 1,895,000
Other 270,000 341,000
------------ ------------
3,787,000 8,408,000
Less current maturities 1,936,000 820,000
------------ ------------
$ 1,851,000 $ 7,588,000
============ ============
(a) As of April 11, 1994, the Company replaced a previous agreement with a
revised revolving credit and term loan agreement with two banks which is
secured by accounts receivable, inventory and the Company's stockholdings in
certain of its subsidiaries. The Agreement provides for a revolving credit
line of $16,000,000, which expires on March 31, 1997, and a term loan of
$4,000,000, which was repaid during the third quarter of 1995. The interest
rate on borrowings under this agreement is at various rates depending upon
certain financial ratios, with the present rate substantially equivalent to
the prime rate (9% at June 30, 1995). The Company paid a facility fee of
$100,000, and is required to pay a commitment fee of 1/4% per annum of the
average unused portion of the revolving credit line. The terms of the
agreement require compliance with certain covenants including minimum
consolidated working capital and tangible net worth, maintenance of certain
financial ratios, limitations on capital expenditures and lease commitments
and prohibition of the payment of cash dividends.
(b) The Company has loans with a bank bearing interest at rates ranging from
4.91% to 6.38%. These loans mature at various dates through 1999 and are
fully collateralized by the invested cash.
(c) The Company had a loan with a financial institution bearing interest at
a floating rate of 5/8% over the prime rate which was secured by certain
machinery and equipment. The loan was fully repaid in July 1995.
(d) The Company has several capitalized lease obligations with financial
institutions which have various terms through 1999 and aggregate quarterly
installments of $111,000.
Aggregate long-term debt as of June 30, 1995 matures in each fiscal year
as follows:
1996...............$ 1,936,000 1999............... 496,000
1997............... 513,000 2000............... 404,000
1998............... 438,000 Thereafter......... -
-----------
$ 3,787,000
===========
Interest paid was $1,333,000, $1,435,000 and $2,288,000 during the years
ended June 30, 1995, 1994 and 1993, respectively.
10. Senior Subordinated Convertible Debentures:
During June 1994, the Company completed a sale of $10,000,000 principal
amount of 7-1/2% Senior Subordinated Convertible Debentures to non-U.S.
persons. The debentures are due June 15, 2004 subject to prior sinking fund
payments of 10%, 10%, 15%, and 15% of the principal amount on September 15,
2000, 2001, 2002 and 2003, respectively. The debentures are convertible into
the Company's common stock at a price of $5-5/8 per share. The Company may
redeem the debentures at a price of 107-1/2% of the principal amount,
declining by 1.5 points per year beginning June 15, 1996 to 100% at June 15,
2000 and thereafter except that the Company can make such redemption prior
to December 15, 1995 under certain conditions. The net proceeds from the
offering were used initially to retire certain bank indebtedness and for
general working capital with excess proceeds placed in temporary short term
bank related investments. The cost of issuing these debentures, $947,000,
included a 6% fee paid and 100,000 warrants, exercisable at $6.75 per share,
issued to the placement agent. This amount is included in the Consolidated
Balance Sheet under the caption "Other Assets" and is being amortized over
the term of the debentures as interest expense.
During the quarter ended December 31, 1992, the Company completed a sale of
$6,870,000 of principal amount of 7% Convertible Senior Subordinated
Debentures. On February 14, 1994, the Company called for redemption all of
the outstanding debentures at 109% of the principal amount. The debentures
were convertible into the Company's common stock at a price of $2.25 per
share. As of March 31, 1994, all but $8,000 of the principal amount of
debentures had been presented for conversion, resulting in the issuance of
approximately 3,050,000 shares of common stock. The $8,000 was redeemed and
the issue was retired.
11. Stockholders' Equity:
(a) Stock Option Plans
Under stock option plans approved by the Company's shareholders, options may
be granted to purchase shares of the Company's common stock exercisable at
prices equal to the fair market value on the date of grant. The Incentive
Stock Option Plan, which expired in September 1991, provided for options
which become exercisable in two or three equal annual installments beginning
one year from the date of grant and expire five years from the date of
grant. During 1990, the Company's shareholders approved the Non-Qualified
Stock Option Plan which provides for options which become exercisable in one
or more installments and expire five years from the date of grant. In
December 1993, the Board of Directors adopted the Outside Director Stock
Option Plan which provides for options to non-employee directors, which
become exercisable in three installments and expire ten years from the date
of grant. In November 1994, the shareholders approved this plan and the 1994
Non-Qualified Stock Option Plan which provides for options which become
exercisable in one or more installments and expire five years from the date
of grant.
Additional information with respect to the Company's stock option plans is
as follows:
Shares Shares
Range of Under Available
Exercise Outstanding for Future
Prices Options Options
--------- ------------ ---------
Balance
July 1,
1992 $1.50-$7.73 1,395,000 *(80,000)
Authorized - - 900,000
Granted $2.00-$2.25 213,000 (213,000)
Canceled $2.25-$7.73 (238,000) 238,000
Termination
of Plan - - (468,000)
----------- ---------- ----------
Shares Shares
Range of Under Available
Exercise Outstanding for Future
Prices Options Options
----------- ------------ -----------
Balance,
June 30,
1993 $1.50-$4.25 1,370,000 377,000
Authorized - - 250,000
Granted $2.38-$4.70 440,000 (440,000)
Canceled $4.50 (60,000) 60,000
Exercised $2.25-$2.63 (25,000) -
----------- ---------- ----------
Balance,
June 30,
1994 $1.50-$4.70 1,725,000 247,000
Authorized - - 1,500,000
Granted $3.88-$4.18 1,160,000 (1,160,000)
Canceled $2.63-$3.88 (209,000) 100,000
Exercised $2.25-$3.63 (84,000) -
----------- ---------- ----------
Balance,
June 30,
1995 $1.50-$4.70 2,592,000 687,000
=========== ========= ==========
* The number of shares under options granted as of July 1, 1992 included
395,000 shares at $2.25 which were granted in February 1992 subject to
shareholder approval of a 900,000 share increase in the number of authorized
shares under the Non-Qualified Stock Option Plan. The shareholders approved
the increase in November 1992 and, accordingly, the 900,000 shares are
included in the number of shares authorized during 1993.
At June 30, 1995 options to purchase approximately 1,764,000 shares were
exercisable at prices ranging from $1.50 to $4.70.
(b) Stock Warrants
In March 1985, the Company issued 40,000 common stock purchase warrants
each, to two officers of the Company, which expired on September 30, 1994.
(c) Shareholders' Rights Plan
In August 1988, the Company's Board of Directors approved a Shareholders'
Rights Plan which provided for a dividend distribution of one right for each
share to holders of record of the Company's common shares on August 31,
1988. The rights will become exercisable only in the event a person or group
accumulates 20 percent or more of the Company's common shares, or if any
person or group announces an offer which would result in it owning 20
percent or more of the common shares. The rights will expire August 30,
1998. Each right will entitle the holder to buy one one-hundredth of a share
of a new series of Series A Junior Participating Preferred Stock of the
Company at the price of $25. In addition, upon the occurrence of a merger or
other business combination, or the acquisition by a person or group
("Acquiring Person") of 25 percent or more of the common shares, holders of
the rights, other than the Acquiring Person, will be entitled to purchase
either common shares of the Company or common shares of the Acquiring Person
at half their market value.
The Company will be entitled to redeem the rights for $0.01 per right at any
time until the tenth day following a public announcement of the acquisition
of a 20 percent position in its common shares.
12. Income Taxes:
The provision (benefit) for income taxes consists of the following:
Year Ended June 30,
1995 1994 1993
Current:
Federal $ 307,000 $ 229,000 $ 704,000
State and local 454,000 379,000 276,000
U.S. Territory 102,000 36,000 74,000
---------- ---------- -----------
863,000 644,000 1,054,000
---------- ---------- -----------
Deferred:
Federal 43,000 (1,238,000) (79,000)
State and local (54,000) (275,000) (4,000)
U.S. Territory (2,000) 63,000 (160,000)
------------ ----------- -----------
(13,000) (1,450,000) (243,000)
----------- ----------- -----------
$ 850,000 $ (806,000) $ 811,000
=========== =========== ===========
The provision (benefit) 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:
Year Ended June 30,
1995 1994 1993
---- ---- ----
Tax at statutory rate $ 2,529,000 $ 1,715,000 $ 866,000
Utilization of net
operating loss
carryforwards (1,702,000) (1,105,000) (429,000)
Reassessment of valuation
allowance - (1,716,000) -
State, local and U.S.
Territory income taxes 392,000 318,000 241,000
Exemption of Puerto Rican
subsidiary's earnings from
U.S. Federal income
taxes (Note 2) (17,000) (540,000) (414,000)
IRS settlement - - 150,000
Withholding tax on
repatriation of
Puerto Rican source
earnings 33,000 209,000 144,000
Alternative minimum
tax 97,000 156,000 28,000
Amortization of goodwill 104,000 104,000 104,000
Officers' life insurance
premiums and (proceeds) (658,000) 46,000 48,000
Other 72,000 7,000 73,000
---------- ---------- ----------
$ 850,000 $ (806,000) $ 811,000
========== ========== ==========
At June 30, 1995 and 1994 the deferred tax assets and liabilities consisted
of:
June 30,
1995 1994
---- ----
Accounts receivable $ 154,000 $ 155,000
Inventories 2,239,000 1,878,000
Accrued expenses 169,000 432,000
Less valuation allowance (1,371,000) (1,825,000)
------------ ------------
Current assets 1,191,000 640,000
Tollgate taxes (724,000) -
------------ ------------
Net current assets 467,000 640,000
------------ ------------
Other long-term liabilities 358,000 683,000
Unrealized capital loss 1,598,000 3,204,000
Tax loss carryforwards 5,319,000 7,421,000
Tax credit carryforwards 1,530,000 1,730,000
Capital loss carryforwards 2,768,000 1,291,000
Less valuation allowance (9,588,000) (11,890,000)
------------ ------------
Non-current assets 1,985,000 2,439,000
------------ ------------
Property, plant and equipment (1,169,000) (920,000)
Patents (215,000) (237,000)
Other (12,000) (30,000)
Tollgate taxes - (849,000)
------------ ------------
Long-term liabilities (1,396,000) (2,036,000)
------------ ------------
Net non-current assets 589,000 403,000
------------ ------------
Total $ 1,056,000 $ 1,043,000
============ ============
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 asset will not be realized. The valuation allowance
decreased by $2,756,000 during fiscal 1995 primarily as a result of the
utilization of net operating loss carryforwards. The income tax benefit for
the year ended June 30, 1994 includes $1,716,000 related to a decrease in
the valuation allowance against unrealized tax loss carryforwards, since it
was considered more likely than not that such assets would be realized. At
June 30, 1995, the Company had net operating loss carryforwards of
approximately $14,000,000 for Federal income tax purposes which expire
through 2006.
For fiscal 1995 and prior years, the earnings of Aeroflex International,
Inc. (the Company's Puerto Rican subsidiary) were substantially exempt from
United States income taxes. These earnings currently were also partially
exempt from Puerto Rican income taxes. As a result of the consolidation of
the Company's Puerto Rican operations into its domestic facilities (Note 2)
the Company will no longer have this partial exemption from income taxes.
The Company is undergoing routine audits by various taxing authorities of
several of its state and local income tax returns covering different periods
from 1991 to 1993. Management believes that the probable outcome of these
various audits should not materially affect the consolidated financial
statements of the Company. The income tax provision for the year ended June
30, 1993 included a $150,000 charge in excess of previously recorded
provisions for an agreed settlement of open U.S. Federal income tax for
years 1986 through 1990.
The Company made income tax payments of $1,004,000, $1,432,000 and $311,000
and received refunds of $16,000, $9,000 and $30,000 during the years ended
June 30, 1995, 1994 and 1993, respectively.
13. Employment Contracts and Life Insurance Proceeds:
In September 1991, the former Chairman of the Company retired for reasons of
ill health. Pursuant to his employment contract, the Company was obligated
for disability benefits through 1997. Upon his death in 1995, the Company is
required to pay a portion of these benefits to his widow. The net present
value of these amounts, totalling $146,000 and $643,000 as of June 30, 1995
and 1994, respectively, are included in other long-term liabilities and
accrued expenses.
During fiscal 1995, the Company received $2,000,000 of insurance proceeds on
the death of the former Chairman.
In July 1994, the Company entered into employment agreements with certain of
its officers for the period July 1, 1994 through June 30, 1999 with annual
remuneration ranging from $200,000 to $250,000, plus additional compensation
based upon earnings of the Company. Future minimum payments under these
contracts are $700,000 per year. In addition, these officers have the option
to terminate their employment agreements upon change in the present control
of the Company, as defined, and receive lump sum payments equal to three
times annual compensation, as defined.
14. Employee Benefit Plans:
The Company has established an Employee Stock Ownership Plan ("the Plan")
which covers substantially all employees not covered by collective
bargaining agreements and who meet certain service requirements. The annual
contribution to the Plan is determined by the Company's Board of Directors.
For the plan years ended December 31, 1994, 1993 and 1992 the Board of
Directors did not elect to make a contribution to the Plan. During 1995, the
Company received a favorable determination letter from the Internal Revenue
Service for the termination of the Plan and intends to complete the formal
termination of the Plan prior to December 31, 1995.
The Aeroflex Incorporated Employees' 401(k) Plan was established pursuant to
Section 401(k) of the Internal Revenue Code ("the Retirement Plan"). All
employees of the Company and certain subsidiaries who are not members of a
collective bargaining agreement may participate in the Retirement Plan. Each
participant has the option to contribute a portion of his or her
compensation. For the 1995, 1994 and 1993 calendar years, the Board of
Directors has elected to provide an employer contribution, which vests
immediately, equal to 30%, 30% and 25%, respectively, of employee
contributions subject to certain limitations. The Retirement Plan expense
for the fiscal years ended June 30, 1995, 1994 and 1993 was $219,000,
$160,000 and $55,000, respectively.
Effective January 1, 1994, the Company established a Supplemental Executive
Retirement Plan ("the SERP") which covers certain of its officers. The SERP
expense for the fiscal year ended June 30, 1995 was $347,000. As of June 30,
1995, the Company has contributed $159,000 to a trust established to fund
its SERP liability.
15. Commitments:
a. Operating Leases
Several of the Company's operating facilities and certain machinery and
equipment are leased under agreements expiring through 1999. The leases for
machinery and equipment generally contain options to purchase at the then
fair market value of the related leased assets.
Future minimum payments under operating leases as of June 30, 1995 are as
follows for the fiscal years:
1996...............$ 628,000 1999............... 58,000
1997............... 424,000 2000............... 3,000
1998............... 295,000 Thereafter......... -
-----------
$ 1,408,000
===========
Rental expense was $837,000, $647,000 and $481,000 during the fiscal years
1995, 1994 and 1993, respectively.
b. Legal Matter
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 may 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. 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.
16. Business Segments:
The Company's business segments of continuing operations and major products
included in each segment, are as follows:
Electronics: Isolator Products:
a)Microelectronics a)Commercial spring and rubber isolators(VMC)
(Circuit Technology) b)Industrial spring and rubber isolators
b)Instrument products (Korfund)
(Comstron and Lintek) c)Military wire-rope isolators
c)Electro-optics (Aeroflex International)
- Scanning devices
- Stabilization and tracking
devices
- Magnetic motors
The Company is a manufacturer of advanced technology systems and components
primarily for government and defense contractors. Approximately 74%, 72% and
75% of the Company's sales for the fiscal years 1995, 1994 and 1993,
respectively, were to agencies of the United States government or to prime
defense contractors or subcontractors of the United States government.
Year Ended June 30,
1995 1994 1993
---- ---- ----
Net sales:
Electronics $ 55,607,000 $ 51,585,000 $ 39,145,000
Isolator Products 15,506,000 14,017,000 12,886,000
------------ ------------ ------------
Net sales $ 71,113,000 $ 65,602,000 $ 52,031,000
============ ============ ============
Operating profit:
Electronics $ 8,103,000 $ 6,315,000 $ 4,070,000
Isolator Products 2,377,000 2,157,000 1,662,000
------------ ------------ ------------
10,480,000 8,472,000 5,732,000
Restructuring costs (1,669,000)* - -
General corporate expenses (2,661,000) (2,252,000) (1,716,000)
Interest expense (1,464,000) (1,440,000) (1,828,000)
Interest and other income 2,751,000 264,000 359,000
------------ ------------ ------------
Income from continuing
operations before income taxes $ 7,437,000 $ 5,044,000 $ 2,547,000
============ ============ ============
Identifiable assets:
Electronics $ 48,055,000 $ 45,068,000 $ 34,178,000
Isolator Products 10,159,000 11,244,000 12,062,000
Corporate 13,722,000 14,704,000 13,945,000
------------ ------------ ------------
Total assets $ 71,936,000 $ 71,016,000 $ 60,185,000
============ ============ ============
Capital expenditures:
Electronics $ 2,348,000 $ 1,914,000 $ 1,004,000
Isolator Products 554,000 289,000 984,000
Corporate 17,000 2,000 7,000
------------ ------------ ------------
Total capital expenditures $ 2,919,000 $ 2,205,000 $ 1,995,000
============ ============ ============
Depreciation and amortization
expense:
Electronics $ 2,181,000 $ 1,857,000 $ 1,617,000
Isolator Products 717,000 840,000 937,000
Corporate 235,000 234,000 281,000
------------ ------------ ------------
Total depreciation and
amortization $ 3,133,000 $ 2,931,000 $ 2,835,000
============ ============ ============
* Approximately 35% and 65% of the restructuring charge is allocable to the
electronics and isolator products segments, respectively.
Independent Auditors' Report
To the Board of Directors and Stockholders of Aeroflex Incorporated
Plainview, New York
We have audited the accompanying consolidated balance sheet of Aeroflex
Incorporated and subsidiaries as of June 30, 1995 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company'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 statements referred to above
present fairly, in all material respects, the financial position of Aeroflex
Incorporated and subsidiaries as of June 30, 1995 and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
August 11, 1995
Jericho, New York
Independent Auditors' Report
The Board of Directors and Stockholders
Aeroflex Incorporated:
Under date of August 11, 1995, we reported on the consolidated balance
sheet of Aeroflex Incorporated and subsidiaries as of June 30, 1995, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for the year then ended, as contained in the fiscal 1995 annual report to
stockholders. These consolidated financial statements and our report thereon
are included in the annual report on Form 10-K for the year 1995. In connection
with our audit of the aforementioned consolidated financial statements, we also
have audited the related financial statement schedule as listed in item 14(a)2.
The financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statement schedule based on our audit.
In our opinion, the 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.
/s/ KPMG PEAT MARWICK LLP
Jericho, New York
August 11, 1995
Independent Auditors' Report
To the Board of Directors and Stockholders of
Aeroflex Incorporated
Plainview, New York
We have audited the accompanying consolidated balance sheet of Aeroflex
Incorporated (formerly ARX, Inc.) and subsidiaries as of June 30, 1994, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the two years in the period ended June 30, 1994. Our audits
also included the financial statement schedule listed in the Index AT item
14(a)2. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the financial statement
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, such consolidated financial statements present fairly, in
all material respects, the financial position of Aeroflex Incorporated and
subsidiaries as of June 30, 1994, and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 1994 in
conformity with generally accepted accounting principles.
Also, in our opinion, such 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.
/s/DELOITTE & TOUCHE LLP
Jericho, New York
August 12, 1994
ITEM NINE - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
The information required by Part III is incorporated by reference to the
Company's definitive proxy statement in connection with its Annual Meeting of
Stockholders scheduled to be held in November 1995, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
Company's fiscal year ended June 30, 1995.
PART IV
ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Item Eight
Filed Herewith
on Page Number (2)
------------------
2. Schedules
II Valuation and Qualifying Accounts S-1
Schedules other than those listed are omitted because they are
not applicable or are not required.
(b) Reports on Form 8-K:
None.
(c) Exhibits
3.1 Certificate of Incorporation, as amended (Exhibit 3.1 of Annual Report
on Form 10-K for the year ended June 30, 1987)
3.2 By-Laws, as amended (Exhibit 3.2 of Annual Report on Form 10-K for the
year ended June 30, 1987)
4.1 Second Amended and Restated Loan and Security Agreement dated as of
April 11, 1994 among the Registrant, certain of its subsidiaries, Chemical Bank
and National Westminster Bank, USA, together with a first amendment thereto
(Exhibit 4.1 of Annual Report on Form 10-K for the year ended June 30, 1994)
4.2 Indenture Agreement between Registrant and American Stock Transfer &
Trust Company dated as of June 23, 1994 (Exhibit 4.2 of Annual Report on Form
10-K for the year ended June 30, 1994)
10.1 1989 Non-Qualified Stock Option Plan, as amended (Exhibit 10.8 of
Annual Report on Form 10-K for the year ended June 30, 1990).
10.2 1994 Non-Qualified Stock Option Plan (Exhibit 10.2 of Annual Report on
Form 10-K for the year ended June 30, 1994)
10.3 1994 Outside Directors Stock Option Plan (Exhibit 10.3 of Annual
Report on Form 10-K for the year ended June 30, 1994)
10.4 Asset Purchase Agreement dated as of January 14, 1994 between Aeroflex
Laboratories Incorporated and Marconi Circuit Technology Corporation (Exhibit 2
of Report on Form 8-K dated January 14, 1994) .
11 Computation of Earnings Per Common Share
22 The following is a list of the Company's subsidiaries:
State of
Name Incorporation
---- --------------
Aeroflex International Inc. Delaware
Aeroflex Laboratories Incorporated Delaware
Aeroflex Lintek Corp. Ohio
Aeroflex Systems Corp. Delaware
Vibration Mountings and Controls, Inc. New York
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
The following undertakings are incorporated by reference into the Company's
Registration Statements on Form S-8 (Registration Nos. 33-75496, 33-88868 and
33-88878).
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan or distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(f) (1) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus to each employee to whom the
prospectus is sent or given a copy of the registrant's annual report to
stockholders for its last fiscal year, unless such employee otherwise has
received a copy of such report, in which case the registrant shall state in the
prospectus that it will promptly furnish, without charge, a copy of such
report on written request of the employee. If the last fiscal year of the
registrant has ended within 120 days prior to the use of the prospectus, the
annual report of the registrant for the preceding fiscal year may be so
delivered, but within such 120 day period the annual report for the last
fiscal year will be furnished to each such employee.
(2) The undersigned registrant hereby undertakes to transmit or
cause to be transmitted to all employees participating in the plan who do
not otherwise receive such material as stockholders of the registrant, at the
time and in the manner such material is sent to its stockholders, copies of
all reports, proxy statements and other communications distributed to its
stockholders generally.
(3) Where interests in a plan are registered herewith, the
undersigned registrant and plan hereby undertake to transmit or cause to
be transmitted without charge, to any participant in the plan who makes a
written request, a copy of the then latest annual report of the plan who
makes a written request, a copy of the then latest annual report of the plan
filed pursuant to Section 15(d) of the Securities Exchange Act of 1934
(Form 11-K). If such report is filed separately on Form 11-K, such form shall
be delivered upon written request. If such report is filed as a part of the
registrant's annual report on Form 10-K, that entire report (excluding
exhibits) shall be delivered upon written request. If such report is filed
as a part of the registrant's annual report to stockholders delivered
pursuant to paragraph (1) or (2) of this undertaking, additional delivery
shall not be required.
(4) If the registrant is a foreign private issuer, eligible to use
Form 20-F, then the registrant shall undertake to deliver or cause to be
delivered with the prospectus to each employee to whom the prospectus is sent
or given, a copy of the registrant's latest filing on Form 20-F in lieu of the
annual report to stockholders.
(i) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized on
the 20th day of September 1995.
Aeroflex Incorporated
By: /s/ Harvey R. Blau
Harvey R. Blau, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on September 20, 1995 by the following persons in
the capacities indicated:
/s/ Harvey R. Blau Chairman of the Board
- ----------------------- (Chief Executive Officer)
Harvey R. Blau
/s/ Michael Gorin President and Director
- ----------------------- (Chief Financial Officer)
Michael Gorin
/s/ Leonard Borow Executive Vice President, Secretary
- ----------------------- and Director (Chief Operating Officer)
Leonard Borow
/s/ Robert Bradley, Sr. Director
- -----------------------
Robert Bradley, Sr.
/s/ Milton Brenner Director
- -----------------------
Milton Brenner
/s/ Ernest E. Courchene, Jr. Director
- -----------------------
Ernest E. Courchene, Jr.
/s/ Jerome Fox Director
- -----------------------
Jerome Fox
Director
- -----------------------
Donald S. Jones
/s/ Eugene Novikoff Director
- -----------------------
Eugene Novikoff
/s/ John S. Patton Director
- -----------------------
John S. Patton
S-1
AEROFLEX INCORPORATED
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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, 1995:
Allowance for
doubtful
accounts $ 434,000 $ 10,000 $ - $ 7,000(A)$ 437,000
========== ========== ========= ========== ==========
Reserve for
inventory
obsolescence $3,478,000 $ 968,000 $ - $ 66,000(B)$4,380,000
========== ========== ========= ========== ==========
YEAR ENDED
JUNE 30, 1994:
Allowance for
doubtful
accounts $ 283,000 $ 173,000 $ - $ 22,000(A)$ 434,000
========== ========== ========== ========== ==========
Reserve for
inventory
obsolescence $2,467,000 $1,069,000 $ - $ 58,000(B)$3,478,000
========== ========== ========== ========== ==========
YEAR ENDED JUNE 30, 1993:
Allowance for
doubtful
accounts $ 312,000 $ 79,000 $ - $ 108,000(A)$ 283,000
========== ========== ========== =========== ==========
Reserve for
inventory
obsolescence $2,023,000 $ 703,000 $ - $ 259,000(B)$2,467,000
========== ========== ========== =========== ==========
Note: (A) - Net write-offs of uncollectible amounts.
(B) - Write-off of inventory.
Quarterly Financial Data (Unaudited):
(In thousands except per share data and footnotes)
Quarter Year Ended
1995 First Second Third Fourth June 30
- ---- ----- ------ ----- ------- ----------
Net Sales $14,027 $15,821 $19,750 $21,515 $71,113
Gross Profit 4,385 5,052 6,762 7,372 23,571
Income From
Continuing Operations $ 715 $ 3,084(1)$ 683(2)$ 2,105(2) $ 6,587(1)(2)
Income From Discontinued
Operations - - - 462 462
------- ------- ------- ------- -------
Net Income $ 715 $ 3,084 $ 683 $ 2,567 $ 7,049
======= ======= ======= ======= =======
Income Per Share:
Primary:
Continuing Operations $ .06 $ .25(1) $ .06(2) $ .17(2) $ .53(1)(2)
Discontinued Operations - - - .04 .04
----- ----- ----- ----- -----
Net Income $ .06 $ .25 $ .06 $ .21 $ .57
===== ===== ===== ===== =====
Fully Diluted:
Continuing Operations $ .06 $ .23(1) $ .06(2) $ .16(2) $ .52(1)(2)
Discontinued Operations - - - .03 .03
------ ----- ----- ----- -----
Net Income $ .06 $ .23 $ .06 $ .19 $ .55
====== ===== ===== ===== =====
(1) Includes $2,000,000 ($.14 per share fully diluted and $.16 primary) for the
quarter ended December 31, 1994 and year ended June 30, 1995 of insurance
proceeds received on the death of the former chairman.
(2) Includes a $1,494,000 net of tax restructuring charge ($.10 per share fully
diluted and $.12 primary) for the year ended June 30, 1995 for the
consolidation of the Company's Puerto Rican operation into its domestic
facilities. The net of tax charge was $1,035,000 ($.07 per share fully
diluted and $.08 primary) and $459,000 ($.03 per share fully diluted and
$.04 primary) for the quarters ended March 31, 1995 and June 30, 1995,
respectively.
Quarter Year Ended
1994 First Second Third Fourth June 30
- ---- ----- ------ ----- ------ ----------
Net Sales $11,701 $13,371 $19,187 $21,343 $65,602
Gross Profit 3,709 4,125 5,534 7,066 20,434
Income From
Continuing Operations $ 352 $ 749 $ 1,171 $ 3,578 (3) $ 5,850 (3)
Income (Loss) From
Discontinued Operations 2,273 (2,086) - - 187
------- ------- ------- ------- -------
Net Income (Loss) $ 2,625 $(1,337) $ 1,171 $ 3,578 $ 6,037
======= ======= ======= ======= =======
Income (Loss) Per Share:
Primary:
Continuing Operations $ .04 $ .08 $ .11 $ .29 (3) $ .55 (3)
Discontinued Operations .25 (.22) - - .02
----- ----- ----- ----- -----
Net Income (Loss) $ .29 $(.14) $ .11 $ .29 $ .57
===== ===== ===== ===== =====
Fully Diluted:
Continuing Operations $ .04 $ .07 $ .10 $ .29 (3) $ .50 (3)
Discontinued Operations .19 (.17) - - .01
----- ----- ----- ----- -----
Net Income (Loss) $ .23 $(.10) $ .10 $ .29 $ .51
===== ===== ===== ===== =====
(3) Includes income tax benefit of $1,716,000, or $.14 per share ($.16 per share
primary for the year), relating to the recognition of a portion of the
Company's unrealized net operating loss carryforward in accordance with
Statement of Financial Accounting Standards No. 109.
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.