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 June 30, 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. 33,985,742 shares of Common
Stock as of July 31, 1994.
FORM 10-Q
CONTENTS
PART I - FINANCIAL INFORMATION (Unaudited)
Condensed Consolidated Balance Sheets at June 30, 1994
and September 30, 1993
Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended June 30, 1994 and 1993
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended June 30, 1994 and 1993
Notes to Condensed Consolidated Financial Statements
Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 1: Legal Proceedings
Item 2: Changes in Securities
Item 3: Defaults upon Senior Securities
Item 4: Submission of Matters to a Vote of Security Holders
Item 5: Other Information
Item 6: Exhibits and Reports on Form 8-K
Signature
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1994 1993
------------ -------------
(Unaudited) (Note 1)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,193,000 $ 26,466,000
Marketable securities 21,096,000 11,095,000
Accounts receivable, less allowance
for doubtful accounts 48,838,000 51,885,000
Contract costs and recognized
income not yet billed 30,166,000 35,453,000
Inventories (Note 2) 61,543,000 55,985,000
Investment in affiliate, sold in
October 1993 (Note 4) --- 11,615,000
Prepaid expenses and other current
assets 6,273,000 7,094,000
------------ ------------
Total current assets 193,109,000 199,593,000
PROPERTY, PLANT AND EQUIPMENT
at cost, less accumulated depreciation
and amortization of $47,634,000 at
June 30, 1994 and $40,939,000 at
September 30, 1993 50,563,000 49,807,000
OTHER ASSETS 20,889,000 20,870,000
------------ ------------
$264,561,000 $270,270,000
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, September 30,
1994 1993
------------ -------------
(Unaudited) (Note 1)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 27,654,000 $ 30,896,000
Other current liabilities 47,722,000 51,914,000
------------ ------------
Total current liabilities 75,376,000 82,810,000
------------ ------------
LONG-TERM DEBT 19,917,000 23,298,000
------------ ------------
EMPLOYEE STOCK OWNERSHIP PLAN AND
OTHER OBLIGATIONS 1,922,000 2,849,000
------------ ------------
SHAREHOLDERS' EQUITY (Note 5):
Preferred stock, par value $.25 per share,
authorized 3,000,000 shares --
Second Preferred Stock, Series I,
authorized 1,950,000 shares, issued
1,677,729 shares at June 30, 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
35,968,644 shares at June 30, 1994
and 35,803,344 shares at September 30,
1993, and 1,850,600 shares and 202,900
shares in treasury at June 30, 1994
and September 30, 1993, respectively 8,992,000 8,951,000
Other shareholders' equity 157,935,000 151,942,000
------------ ------------
Total shareholders' equity 167,346,000 161,313,000
------------ ------------
$264,561,000 $270,270,000
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED JUNE 30,
-----------------------------
1994 1993
---- ----
Net sales $125,287,000 $108,164,000
Cost of sales 88,666,000 76,681,000
------------ ------------
Gross profit 36,621,000 31,483,000
Selling, general and administrative
expenses 24,129,000 20,215,000
------------ ------------
Income from operations 12,492,000 11,268,000
------------ ------------
Other income (expense):
Interest expense (428,000) (447,000)
Interest income 448,000 213,000
Other, net (19,000) 93,000
------------ ------------
1,000 (141,000)
------------ ------------
Income from continuing operations
before income taxes 12,493,000 11,127,000
------------ ------------
Provision for income taxes:
Federal 4,223,000 3,423,000
State and other 899,000 945,000
------------ ------------
5,122,000 4,368,000
------------ ------------
Income from continuing operations 7,371,000 6,759,000
------------ ------------
Discontinued operations, net of income
tax effect:
Operating loss --- (903,000)
Provision for loss on disposal --- (7,113,000)
------------ ------------
--- (8,016,000)
------------ ------------
Net income (loss) $ 7,371,000 $ (1,257,000)
============ ============
Income (loss) per share of common stock
(Note 3):
Continuing operations $ .20 $ .18
Discontinued operations -- (.21)
------------ ------------
Net income (loss) $ .20 $ (.03)
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
NINE MONTHS ENDED JUNE 30,
-----------------------------
1994 1993
---- ----
Net sales $347,299,000 $306,480,000
Cost of sales 245,012,000 217,359,000
------------ ------------
Gross profit 102,287,000 89,121,000
Selling, general and administrative
expenses 69,993,000 61,121,000
------------ ------------
Income from operations 32,294,000 28,000,000
------------ ------------
Other income (expense):
Interest expense (1,319,000) (1,450,000)
Interest income 1,294,000 661,000
Other, net 107,000 842,000
------------ ------------
82,000 53,000
------------ ------------
Income from continuing operations
before income taxes 32,376,000 28,053,000
------------ ------------
Provision for income taxes:
Federal 10,923,000 8,599,000
State and other 2,351,000 2,454,000
------------ ------------
13,274,000 11,053,000
------------ ------------
Income from continuing operations 19,102,000 17,000,000
------------ ------------
Discontinued operations, net of income
tax effect:
Operating loss --- (537,000)
Provision for loss on disposal --- (7,113,000)
------------ ------------
--- (7,650,000)
------------ ------------
Net income $ 19,102,000 $ 9,350,000
============ ============
Income per share of common stock (Note 3):
Continuing operations $ .51 $ .45
Discontinued operations -- (.20)
------------ ------------
Net income $ .51 $ .25
============ ============
See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED JUNE 30,
---------------------------
1994 1993
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,102,000 $ 9,350,000
------------ -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,241,000 7,027,000
Provision for losses on accounts receivable 588,000 499,000
Decrease in deferred income taxes --- (1,540,000)
Loss from discontinued operations --- 9,431,000
Change in assets and liabilities:
(Increase) decrease in accounts receivable and
contract costs and recognized income not yet
billed 8,104,000 (4,828,000)
Increase in inventories (5,036,000) (7,607,000)
(Increase) decrease in prepaid expenses and other
assets (51,000) 427,000
Decrease in accounts payable, accrued liabilities
and Federal income taxes (8,064,000) (360,000)
Other changes, net (33,000) (12,000)
------------ -----------
Total adjustments 2,749,000 3,037,000
------------ -----------
Net cash provided by operating activities 21,851,000 12,387,000
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in marketable securities (10,001,000) (2,983,000)
Acquisition of property, plant and equipment (7,369,000) (6,036,000)
Proceeds from sale of investment in affiliate 11,615,000 ---
Acquired businesses (1,877,000) ---
Decrease in equipment lease deposits and other 1,202,000 2,521,000
------------ -----------
Net cash used in investing activities (6,430,000) (6,498,000)
------------ -----------
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(Unaudited)
NINE MONTHS ENDED JUNE 30,
---------------------------
1994 1993
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (13,361,000) (550,000)
Proceeds from issuance of long-term debt 5,100,000 2,500,000
Payment of long-term debt (8,304,000) (2,489,000)
Other, net (129,000) (70,000)
------------ -----------
Net cash used by financing activities (16,694,000) (609,000)
------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,273,000) 5,280,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,466,000 18,007,000
------------ -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 25,193,000 $23,287,000
============ ===========
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 nine-month periods ended June 30, 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:
June 30, September 30,
1994 1993
----------- -------------
Finished goods . . . . . . . . . . $14,900,000 $13,136,000
Work in process . . . . . . . . . 26,406,000 22,383,000
Raw materials and supplies . . . . 20,237,000 20,466,000
----------- -----------
$61,543,000 $55,985,000
=========== ===========
(3) Income (Loss) Per Share -
Earnings 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 36,814,000
and 38,051,000 for the three months ended June 30, 1994 and 1993 and 37,408,000
and 37,994,000 for the nine months ended June 30, 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 nine months ended June 30, 1993
reflect Oneita as a discontinued operation.
(5) Treasury Stock Purchases -
In connection with a plan to purchase up to 4,000,000 shares of its Common
and Preferred Stock, the Company expended $13,361,000 during the nine-month
period ended June 30, 1994 for treasury shares. Approximately 2,000,000 Common
shares have been purchased pursuant to the plan.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net sales were $125.3 million for the three-month period ended June 30,
1994, an increase of $17.1 million or 15.8% over last year's comparable quarter.
Net sales of the building products business were $63.4 million, an increase of
$15.1 million or 31.3% over last year. The increase was primarily due to
increased unit sales of garage doors. Net sales of the specialty plastic films
business were $29.0 million, an increase of $1.8 million or 6.4% over last year,
principally resulting from an increase in unit sales. Net sales of the
electronic information and communication systems business were $23.4 million, a
decrease of $.4 million compared to last year.
Income from operations for the three-month period ended June 30, 1994 was
$12.5 million, an increase of $1.2 million or 10.9% over last year's comparable
quarter. Operating income of the building products business increased by $1.0
million compared to last year. The effect of higher sales was partly offset by
increased distribution costs and start-up expenses for a new garage door product
line. Operating income for the specialty plastic films business increased $.9
million compared to last year due to increased sales and production
efficiencies. Operating income of the electronic information and communication
systems business decreased $.4 million principally due to increased bid and
proposal expenses.
Net sales were $347.3 million for the nine-month period ended June 30,
1994, an increase of $40.8 million or 13.3% over last year's comparable period.
Net sales of the building products business were $167.2 million, an increase of
$32.4 million or 24.0% over last year, principally attributable to increased
unit sales. Net sales of the specialty plastic films business were $85.6
million, an increase of $3.0 million or 3.6% over last year, due primarily to an
increase in unit sales. Net sales of the electronic information and
communication systems business were $66.3 million, an increase of $3.6 million
or 5.8% over last year, principally due to new contract awards.
Income from operations for the nine-month period ended June 30, 1994 was
$32.3 million, an increase of $4.3 million or 15.3% over last year's comparable
period. Operating income of the building products business increased $2.4
million over last year's comparable period primarily due to the increased sales,
offset in part by increased distribution costs and by start-up expenses relating
to a new garage door product line. Operating income of the specialty plastic
films business increased $2.6 million due to increased sales and production
efficiencies. Operating income of the electronic information and communication
systems business was down slightly compared to last year.
As previously reported, a major customer of the specialty plastic films
segment informed the Company in May 1994 of its intention to make a design
change which, over the balance of the year and into fiscal 1995, 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,
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.
Net interest expense decreased by $.3 million and $.8 million for the
three and nine-month periods ended June 30, 1994, respectively, due to higher
investable balances and reductions of long-term debt.
Liquidity and Capital Resources
Cash flow generated from operations for the nine-month period ended
June 30, 1994 was $21.9 million after income tax payments of $16.0 million.
Cash and marketable securities increased by $8.7 million to $46.3 million.
Working capital was $117.7 million, approximately the same as at September 30,
1993.
Cash flows from investing activities included $11.6 million of proceeds
received from the sale of the Company's ownership interest in Oneita Industries,
Inc., as well as capital expenditures of $7.4 million and acquisitions of $1.9
million by the building products business.
Cash flows used by financing activities included debt reduction of $3.2
million. Also, in July 1994, the Company authorized the purchase of up to
4,000,000 shares of its Common and Preferred Stock, an increase of 1,000,000
shares over its previously announced plan. Approximately 2,000,000 shares of
Common Stock have been purchased by the Company; during the nine-month period
ended June 30, 1994, $13.4 million was expended 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: July 26, 1994
