UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
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 Number: 1-6620
INSTRUMENT SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 11-1893410
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 JERICHO QUADRANGLE, JERICHO, NEW YORK 11753
(Address of principal executive offices) (Zip Code)
(516) 938-5544
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 35,026,849 shares of Common
Stock as of April 30, 1994.
FORM 10-Q
CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 1994
and September 30, 1993 ........................................... 1
Condensed Consolidated Statements of Income for the Three
Months and Six Months Ended March 31, 1994 and 1993 .............. 3
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 1994 and 1993 ............................. 5
Notes to Condensed Consolidated Financial Statements ............. 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................ 8
PART II - OTHER INFORMATION
Item 1: Legal Proceedings ....................................... 10
Item 2: Changes in Securities ................................... 10
Item 3: Defaults upon Senior Securities ......................... 10
Item 4: Submission of Matters to a Vote of Security Holders ..... 10
Item 5: Other Information ....................................... 10
Item 6: Exhibits and Reports on Form 8-K ........................ 10
Signature ........................................................ 11
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1994 1993
----------- -------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,832,000 $ 26,466,000
Marketable securities 26,070,000 11,095,000
Accounts receivable, less allowance
for doubtful accounts 49,696,000 51,885,000
Contract costs and recognized
income not yet billed 28,567,000 35,453,000
Inventories (Note 2) 59,059,000 55,985,000
Investment in affiliate, sold in
October 1993 (Note 4) --- 11,615,000
Prepaid expenses and other current
assets 6,676,000 7,094,000
------------ ------------
Total current assets 188,900,000 199,593,000
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation
and amortization of $45,303,000 at
March 31, 1994 and $40,939,000 at
September 30, 1993 47,745,000 49,807,000
OTHER ASSETS 20,851,000 20,870,000
------------ ------------
$257,496,000 $270,270,000
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1994 1993
----------- -------------
(Unaudited) (Note 1)
LIABILITIES AND SHARHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 25,608,000 $ 30,896,000
Other current liabilities 45,278,000 51,914,000
------------ ------------
Total current liabilities 70,886,000 82,810,000
------------ ------------
LONG-TERM DEBT 16,998,000 23,298,000
------------ ------------
EMPLOYEE STOCK OWNERSHIP PLAN AND
OTHER OBLIGATIONS 2,057,000 2,849,000
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.25 per share,
authorized 3,000,000 shares --
Second Preferred Stock, Series I,
authorized 1,950,000 shares, issued
1,677,727 shares at March 31, 1994
and 1,680,491 shares at September 30,
1993 (liquidation value $16,777,000
and $16,805,000, respectively). 419,000 420,000
Common Stock, par value $.25 per share,
authorized 85,000,000 shares, issued
35,964,650 shares at March 31, 1994
and 35,803,344 shares at September 30,
1993, and 885,300 shares and 202,900
shares in treasury at March 31, 1994
and September 30, 1993, respectively 8,991,000 8,951,000
Other shareholders' equity 158,145,000 151,942,000
------------ ------------
Total shareholders' equity 167,555,000 161,313,000
------------ ------------
$257,496,000 $270,270,000
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED MARCH 31,
1994 1993
---- ----
Net sales $105,857,000 $94,734,000
Cost of sales 74,558,000 67,613,000
------------ -----------
Gross profit 31,299,000 27,121,000
Selling, general and administrative
expenses 22,947,000 19,829,000
------------ -----------
Income from operations 8,352,000 7,292,000
------------ -----------
Other income (expense):
Interest expense (430,000) (501,000)
Interest income 394,000 214,000
Other, net 34,000 543,000
------------ -----------
(2,000) 256,000
------------ -----------
Income from continuing operations
before income taxes 8,350,000 7,548,000
------------ -----------
Provision for income taxes:
Federal 2,808,000 2,269,000
State and other 616,000 650,000
------------ -----------
3,424,000 2,919,000
------------ -----------
Income from continuing operations 4,926,000 4,629,000
Discontinued operations, net of income
tax effect --- 193,000
------------ -----------
Net income $ 4,926,000 $ 4,822,000
============ ===========
Income per share of common stock (Note 3):
Continuing operations $ .13 $ .12
Discontinued operations -- .01
------------ -----------
Net income $ .13 $ .13
============ ===========
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
SIX MONTHS ENDED MARCH 31,
1994 1993
---- ----
Net sales $222,012,000 $198,316,000
Cost of sales 156,346,000 140,678,000
------------ ------------
Gross profit 65,666,000 57,638,000
Selling, general and administrative
expenses 45,864,000 40,906,000
------------ ------------
Income from operations 19,802,000 16,732,000
------------ ------------
Other income (expense):
Interest expense (891,000) (1,003,000)
Interest income 846,000 448,000
Other, net 126,000 749,000
------------ ------------
81,000 194,000
------------ ------------
Income from continuing operations
before income taxes 19,883,000 16,926,000
------------ ------------
Provision for income taxes:
Federal 6,700,000 5,176,000
State and other 1,452,000 1,509,000
------------ ------------
8,152,000 6,685,000
------------ ------------
Income from continuing operations 11,731,000 10,241,000
Discontinued operations, net of income
tax effect --- 366,000
------------ ------------
Net income $ 11,731,000 $ 10,607,000
============ ============
Income per share of common stock (Note 3):
Continuing operations $ .31 $ .27
Discontinued operations -- .01
------------ ------------
Net income $ .31 $ .28
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SIX MONTHS ENDED MARCH 31,
1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,731,000 $10,607,000
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,730,000 4,677,000
Provision for losses on accounts receivable 379,000 332,000
Income from discontinued operations --- (555,000)
Change in assets and liabilities:
Decrease in accounts receivable and contract
costs and recognized income not yet billed 8,696,000 4,066,000
Increase in inventories (2,995,000) (5,181,000)
(Increase) decrease in prepaid expenses and other
assets (434,000) 281,000
Decrease in accounts payable, accrued liabilities
and Federal income taxes (14,542,000) (9,318,000)
Other changes, net (23,000) 25,000
------------ -----------
Total adjustments (4,189,000) (5,673,000)
------------ -----------
Net cash provided by operating activities 7,542,000 4,934,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in marketable securities (14,975,000) 259,000
Acquisition of property, plant and equipment (2,337,000) (3,836,000)
Proceeds from sale of investment in affiliate 11,615,000 ---
Acquired businesses (1,557,000) ---
Decrease in equipment lease deposits and other 1,665,000 2,733,000
------------ -----------
Net cash used in investing activities (5,589,000) (844,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (6,037,000) (550,000)
Proceeds from issuance of long-term debt 1,900,000 1,000,000
Payment of long-term debt (5,716,000) (1,403,000)
Other, net 266,000 297,000
------------ -----------
Net cash used by financing activities (9,587,000) (656,000)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,634,000) 3,434,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,466,000 18,007,000
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,832,000 $21,441,000
============ ===========
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation -
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. The balance sheet at September 30, 1993 has been derived
from the audited financial statements at that date. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three-month and six-month periods ended March 31, 1994 are not
necessarily indicative of the results that may be expected for the year ended
September 30, 1994. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report to shareholders for the year ended September 30, 1993. The Company
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," during the quarter ended December 31, 1993. Adoption of this
standard did not have a material effect on the Company's financial position or
results of operations. Prior periods have not been restated to reflect this
standard.
(2) Inventories -
Inventories, stated at the lower of cost (first-in, first-out or average)
or market, are comprised of the following:
March 31, September 30,
1994 1993
----------- -------------
Finished goods . . . . . . . . . . $13,854,000 $13,136,000
Work in process . . . . . . . . . 26,450,000 22,383,000
Raw materials and supplies . . . . 18,755,000 20,466,000
----------- -----------
$59,059,000 $55,985,000
=========== ===========
(3) Net Income Per Share -
Net income per share is calculated using the weighted average number of
shares of common stock, and where dilutive, common stock equivalents outstanding
during each period. Shares used in computing per share results were 37,481,000
and 38,030,000 for the three months ended March 31, 1994 and 1993 and 37,704,000
and 37,966,000 for the six months ended March 31, 1994 and 1993, respectively.
(4) Discontinued Operations -
The sale of the Company's 25% interest in Oneita Industries, Inc. was
completed in October 1993 for approximately $11,500,000. As a result, the
operating results for the three months and six months ended March 31, 1993 have
been reclassified to reflect Oneita as a discontinued operation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Recent Developments
In May 1994, a major customer of the specialty plastic films segment
informed the Company of its intention to make a design change which, over the
next six months, will substantially reduce and could eliminate the segment's
thin laminate program. This change is based upon the lower cost of an
alternative material.
During fiscal 1993, sales of the thin laminate were approximately $28
million. The loss of the thin laminate program will adversely impact earnings
in the latter part of fiscal 1994 and thereafter, subject to the ability of the
Company to replace the business, expand other areas of the specialty plastic
films business and reduce operating costs.
The Company has recently been approved as a supplier of other moisture
barrier films to this customer and expects to sell approximately $10 - $15
million per year of such films. The Company has a number of ongoing development
projects with this and other customers and will direct its efforts to find
alternative business for the utilization of the plastic films segment's
production capacity.
Results of Operations
Net sales were $105.9 million for the three-month period ended March 31,
1994, an increase of $11.1 million or 11.7% over last year's comparable quarter.
Net sales of the building products business were $42.7 million, an increase of
$6.5 million or 17.8% over last year. The increase was primarily due to
increased unit sales of garage doors. Net sales of the specialty plastic films
business were $29.7 million, an increase of $1.6 million or 5.6% over last year,
principally resulting from an increase in unit sales. Net sales of the
electronic information and communication systems business were $23.8 million, an
increase of $2.5 million or 11.8% over last year. The higher sales were
principally due to new contract awards.
Income from operations for the three-month period ended March 31, 1994 was
$8.4 million, an increase of $1.1 million or 14.5% over last year's comparable
quarter. Operating income of the building products business decreased by $.4
million compared to last year. The effect of higher sales was offset by
increased production and distribution costs resulting from severe weather
conditions experienced in January and February 1994, and start-up expenses for a
new garage door product line. Operating income for the specialty plastic films
business increased $1.0 million compared to last year due to production
efficiencies and lower raw material costs. Operating income of the electronic
information and communication systems business increased $.6 million principally
due to the higher sales, offset in part by increased bid and proposal
expenditures ($.6 million).
Net sales were $222.0 million in the six-month period ended March 31, 1994,
an increase of $23.7 million or 11.9% over last year's comparable period. Net
sales of the building products business were $103.8 million, an increase of
$17.2 million or 19.9% over last year, principally attributable to increased
unit sales. Net sales of the specialty plastic films business were $56.6
million, an increase of $1.2 million or 2.2% over last year, due primarily to an
increase in unit sales. Net sales of the electronic information and
communication systems business were $43.0 million, an increase of $4.1 million
or 10.4% over last year, for the reasons discussed above.
Income from operations for the six-month period ended March 31, 1994 was
$19.8 million, an increase of $3.1 million or 18.3% over last year's comparable
period. Operating income of the building products business increased $1.4
million over last year's comparable period primarily due to the increased sales
offset by start-up expenses relating to a new garage door product line.
Operating income of the specialty plastic films business and the electronic
information and communication systems business increased $1.7 million and $.1
million, respectively, for the reasons discussed above.
Net interest expense decreased by $.3 million and $.5 million for the three
and six-month periods ended March 31, 1994, respectively, due to higher
investable balances and reductions of long-term debt.
Liquidity and Capital Resources
Cash flow generated from operations was $7.5 million after income tax
payments of $13.4 million. Cash and marketable securities increased by $7.3
million to $44.9 million. Working capital was $118.0 million, approximately the
same as at September 30, 1993.
Cash flows from investing activities were principally due to $11.6 million
of proceeds received from the sale of the Company's ownership interest in Oneita
Industries, Inc. and the investment of those proceeds, as well as capital
expenditures of $2.3 million and acquisitions of $1.6 million by the building
products business.
Cash flows used by financing activities included debt reduction of $3.8
million. Also, in April 1994, the Company authorized the purchase of up to
3,000,000 shares of its Common Stock, an increase of 1,000,000 shares over its
previously announced plan. During the six-month period ended March 31, 1994,
approximately 700,000 shares of Common Stock were purchased for $6.0 million in
connection with the stock buyback program.
Anticipated cash flows from operations, together with existing cash and
marketable securities and lease line availability, should be adequate to finance
presently anticipated short and long-term liquidity needs.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
There are no material changes in the information previously reported
under this item.
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INSTRUMENT SYSTEMS CORPORATION
By Robert Balemian
------------------------------
Robert Balemian
President
(Principal Financial Officer)
Date: May 11, 1994
