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 December 31, 1993
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. 35,234,043 shares of Common
Stock as of January 31, 1994.
FORM 10-Q
CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 1993
and September 30, 1993 ........................................... 1
Condensed Consolidated Statements of Income for the Three
Months Ended December 31, 1993 and 1992 .......................... 3
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended December 31, 1993 and 1992 .......................... 4
Notes to Condensed Consolidated Financial Statements ............. 5
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................ 7
PART II - OTHER INFORMATION
Item 1: Legal Proceedings ....................................... 8
Item 2: Changes in Securities ................................... 8
Item 3: Defaults upon Senior Securities ......................... 8
Item 4: Submission of Matters to a Vote of Security Holders ..... 8
Item 5: Other Information ....................................... 9
Item 6: Exhibits and Reports on Form 8-K ........................ 9
Signature ........................................................ 10
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1993 1993
------------ -------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 27,550,000 $ 26,466,000
Marketable securities 24,170,000 11,095,000
Accounts receivable, less allowance
for doubtful accounts 44,968,000 51,885,000
Contract costs and recognized
income not yet billed 28,278,000 35,453,000
Inventories (Note 2) 59,097,000 55,985,000
Investment in affiliate, sold in
October 1993 (Note 4) --- 11,615,000
Prepaid expenses and other current
assets 6,669,000 7,094,000
------------ -----------
Total current assets 190,732,000 199,593,000
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation
and amortization of $43,105,000 at
December 31, 1993 and $40,939,000 at
September 30, 1993 48,394,000 49,807,000
OTHER ASSETS 20,111,000 20,870,000
------------ ------------
$259,237,000 $270,270,000
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1993 1993
------------ -------------
(Unaudited) (Note 1)
LIABILITIES AND SHARHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 23,985,000 $ 30,896,000
Other current liabilities 50,895,000 51,914,000
------------ ------------
Total current liabilities 74,880,000 82,810,000
------------ ------------
LONG-TERM DEBT 17,070,000 23,298,000
------------ ------------
EMPLOYEE STOCK OWNERSHIP PLAN AND
OTHER OBLIGATIONS 2,203,000 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
1,678,791 shares at December 31, 1993
and 1,680,491 shares at September 30,
1993 (liquidation value $16,788,000
and $16,805,000, respectively). 420,000 420,000
Common Stock, par value $.25 per share,
authorized 85,000,000 shares, issued
35,877,822 shares at December 31, 1993
and 35,803,344 shares at September 30,
1993, and 590,300 shares and 202,900
shares in treasury at December 31, 1993
and September 30, 1993, respectively 8,969,000 8,951,000
Other shareholders' equity 155,695,000 151,942,000
------------ ------------
Total shareholders' equity 165,084,000 161,313,000
------------ ------------
$259,237,000 $270,270,000
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1993 1992
---- ----
Net sales $116,155,000 $103,582,000
Cost of sales 81,788,000 73,065,000
------------ ------------
Gross profit 34,367,000 30,517,000
Selling, general and administrative
expenses 22,917,000 21,077,000
------------ ------------
Income from operations 11,450,000 9,440,000
------------ ------------
Other income (expense):
Interest expense (461,000) (502,000)
Interest income 452,000 234,000
Other, net 92,000 206,000
------------ ------------
83,000 (62,000)
------------ ------------
Income from continuing operations
before income taxes 11,533,000 9,378,000
------------ ------------
Provision for income taxes:
Federal 3,892,000 2,907,000
State and other 836,000 859,000
------------ ------------
4,728,000 3,766,000
------------ ------------
Income from continuing operations 6,805,000 5,612,000
Discontinued operations, net of income
tax effect --- 173,000
------------ ------------
Net income $ 6,805,000 $ 5,785,000
============ ============
Net income per share of common stock (Note 3) $ .18 $ .15
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1993 1992
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,805,000 $ 5,785,000
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,359,000 2,335,000
Provision for losses on accounts receivable 191,000 185,000
Income from discontinued operations --- (263,000)
Change in assets and liabilities:
Decrease in accounts receivable and contract
costs and recognized income not yet billed 13,901,000 7,430,000
Increase in inventories (3,112,000) (1,140,000)
Increase in prepaid expenses and other assets (541,000) (540,000)
Decrease in accounts payable, accrued liabilities
and Federal income taxes (11,043,000) (5,069,000)
Other changes, net (8,000) 62,000
------------ ------------
Total adjustments 1,747,000 3,000,000
------------ ------------
Net cash provided by operating activities 8,552,000 8,785,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in marketable securities (13,075,000) (2,456,000)
Acquisition of property, plant and equipment (804,000) (1,637,000)
Proceeds from sale of investment in affiliate 11,615,000 ---
(Increase) decrease in equipment lease deposits
and other 1,219,000 (625,000)
------------ ------------
Net cash used in investing activities (1,045,000) (4,718,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (3,338,000) (391,000)
Payment of long-term debt (3,249,000) (104,000)
Other, net 164,000 182,000
------------ ------------
Net cash used by financing activities (6,423,000) (313,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,084,000 3,754,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,466,000 18,007,000
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,550,000 $ 21,761,000
============ ============
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 period ended December 31, 1993 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:
December 31, September 30,
1993 1993
------------ -------------
Finished goods . . . . . . . . . . $14,071,000 $13,136,000
Work in process . . . . . . . . . 24,379,000 22,383,000
Raw materials and supplies . . . . 20,647,000 20,466,000
----------- -----------
$59,097,000 $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 37,928,000
and 37,902,000 for the three months ended December 31, 1993 and 1992,
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 ended December 31, 1992 have been
reclassified to reflect Oneita as a discontinued operation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales were $116.2 million in the three-month period ended December 31,
1993, an increase of $12.6 million or 12.1% over last year. Net sales of the
building products business were $61.1 million, an increase of $10.8 million or
21.4% over last year. The increase was principally due to increased unit sales
of garage doors. Net sales of the specialty plastic films business were $26.9
million, approximately the same as last year. Net sales of the electronic
information and communication systems business were $19.2 million, up $1.5
million or 8.8% over last year. The higher sales were principally due to new
program awards.
Income from operations for the three-month period ended December 31, 1993
was $11.5 million, an increase of $2.0 million or 21.3% over last year.
Operating income of the building products business increased $1.8 million over
last year primarily due to the increased sales. Operating income of the
specialty plastic films business increased by $.7 million compared to last year
primarily due to production efficiencies and lower raw material costs.
Operating income of the electronic information and communication systems
business decreased by $.5 million principally due to a higher proportion of
development contracts compared to the prior year and slightly increased G&A
expenses.
Interest expense of $.5 million was approximately the same as in the prior
year. Interest income of $.5 million was $.3 million higher than last year
principally due to the investment of the proceeds from the October 1993 sale of
the 25% ownership interest in Oneita Industries, Inc.
Liquidity and Capital Resources
Cash flow generated from operations was $8.5 million after income tax
payments of $4.1 million. Cash and marketable securities increased by $14.2
million to $51.7 million. Working capital was $115.9 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.
Cash flows used by financing activities included debt reduction of $3.2
million and expenditures of approximately $3.3 million for the purchase of
387,400 shares of Common Stock in connection with the Company's previously
announced stock buyback program. In January 1994, approximately $1.5 million
was expended to acquire additional treasury shares.
Anticipated cash flows from operations, together with existing cash 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
Instrument Systems Corporation -- Sinclair Refinery Superfund Site
-- Wellsville, New York. As previously reported, the Atlantic
Richfield Company ("ARCO") initially notified the Company in 1991
that based upon ARCO's investigation of the groundwater at the
Sinclair Refinery Superfund Site in Wellsville, New York, a portion
of which ("Operable Unit II") allegedly is owned currently by an
indirect wholly-owned subsidiary of the Company, ISC Development
Corp., the shallow acquifer underlying the Site was found to be
contaminated with various hazardous substances. It is ARCO's
contention that manufacturing operations conducted at ISC
Development Corp.'s premises (which were leased to a third party)
may have contributed to this contamination and that as an owner
and/or operator, the Company would be jointly and severally liable
as a responsible party for the costs of remediation under Section
107 of CERCLA.
On or about October 26, 1992, a demand notice was served on the
Company requesting essentially that the Company contribute equitably
to the response costs being incurred by ARCO.
On or about January 26, 1994, ARCO served the Company with a summons
and complaint in an action pending in the United States District
Court for the Western District of New York. The Company has been
named as one of several defendants whom the plaintiff claims should
be held jointly and severally liable for the costs incurred and to
be incurred by ARCO in the remediation and clean up of portions of
the Sinclair Refinery Superfund Site.
Item 2 Changes in Securities
None
Item 3 Defaults upon Senior Securities
None
Item 4 Submission of Matters to a Vote of Security Holders
(a) The Registrant held its Annual Meeting of Stockholders on
February 8, 1994.
(b) Not applicable.
(c) (i) A proposal to adopt an Outside Director Stock Award Plan
was approved at the Annual Meeting. Votes cast at this
meeting were 25,748,514 shares for, 2,118,509 shares against
and 349,649 shares abstaining.
(ii) Four directors were elected at the Annual Meeting of
Stockholders to serve until the Annual Meeting of Stockholders
in 1997 or until their successors are chosen and qualified.
The names of these Directors and votes cast in favor of their
election and shares withheld are as follows:
NAME VOTES FOR VOTES WITHHELD
---- --------- --------------
Robert Balemian 27,577,661 673,252
Harvey R. Blau 27,589,031 661,882
Ronald J. Kramer 27,412,409 838,504
Lieutenant General 27,563,279 687,634
James W. Stansberry
(Ret.)
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
Report on Form 8-K dated October 6, 1993 covering Item 2 --
Disposition of Assets and Item 7 -- Financial Statements and
Exhibits.
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 February 9, 1994
