-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BpufujQgcv1q6Tr3k85WjmMOm3d2qzOVDYKywU2z9FAhksYT4xMj5gCz/GcwT023 x59Ix1aI8sjFTc+uB0o1HQ== /in/edgar/work/0000932214-00-000160/0000932214-00-000160.txt : 20000930 0000932214-00-000160.hdr.sgml : 20000930 ACCESSION NUMBER: 0000932214-00-000160 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEROFLEX INC CENTRAL INDEX KEY: 0000002601 STANDARD INDUSTRIAL CLASSIFICATION: [3674 ] IRS NUMBER: 111974412 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08037 FILM NUMBER: 731310 BUSINESS ADDRESS: STREET 1: 35 S SERVICE RD CITY: PLAINVIEW STATE: NY ZIP: 11803 BUSINESS PHONE: 5166946700 MAIL ADDRESS: STREET 1: 35 S SERVICE ROAD CITY: PLAINVIEW STATE: NY ZIP: 11803 FORMER COMPANY: FORMER CONFORMED NAME: ARX INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AEROFLEX LABORATORIES INC DATE OF NAME CHANGE: 19851119 10-K 1 0001.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2000 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. 000-02324 --------- 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 -------------- ------------------------ None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value ---------------------------- (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 18, 2000 - approximately $1,227,782,000. 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 18, 2000 - 28,159,174 (excluding 2,194 shares held in treasury). Documents incorporated by reference: Part III - Registrant's definitive proxy statement to be filed pursuant to Regulation 14A of the Securities Act of 1934. ITEM ONE - BUSINESS Overview We use our advanced design, engineering and manufacturing abilities to produce microelectronic, integrated circuit, interconnect and testing solutions. Our products are used in the fiber optic, broadband cable, wireless and satellite communications markets. We also design and manufacture motion control systems and shock and vibration isolation systems which are used for commercial, industrial and defense applications. Our operations are grouped into three segments: -- Microelectronics -- Test, Measurement and Other Electronics -- Isolator Products These segments, their products and the markets they serve are described below. Microelectronics The table below lists some of our products.
Market Substrates Assemblies/Modules Integrated Circuits ------ ---------- ------------------ -------------------- Fiber Optics Laser Diodes Application Specific (including PIN Pre-Amplifiers Carrier Assemblies Cable) Transimpedance APD Receiver Amplifiers Sub-Assemblies Pre-Amplifiers Clock Recovery Post-Amplifiers Synthesizers Lithium Niobate Laser Diode Assemblies Terminations Transmitter Assemblies Mach-Zender Modulators Modulator Assemblies Clock Recovery PIN Receivers APD Receivers 1 Ghz Pre- and Post- Amplifiers Trunk Amplifiers Line Extenders Power Doublers Wireless Receivers Memory Modules Application Specific (including Handset Diplexers Multiplexers Integrated Circuits Satellite) Handset Triplexers Data Communication Controllers S, L, Ka, Ku Band Modules Memories Transmit and Receive Micro Controllers LVDS Interconnects Modules DC to DC Converters Programmable Logic Amplifiers Voltages Regulators Filters IF Switches
-2- Thin Film Circuits and Interconnects We design, develop, manufacture and market advanced integrated fiber optic and wireless interconnect products based on thin film manufacturing technology. Primary product requirements for this advanced technology include the following attributes: - -- miniaturization; - -- ease of assembly; - -- improved thermal management; - -- reduced power consumption; and - -- critical component (laser) alignment. Due to the unique dimensional, thermal and electrical capabilities of our PIMIC interconnect technology, our products have become an essential component in: - -- fiber optic transmitters, receivers and amplifiers; - -- cable trunk amplifiers, line extenders, pre-amplifiers and power doublers; and - -- point-to-point and point-to-multipoint microwave radios. Thin film interconnect technology allows fiber optic module manufacturers, such as Nortel Networks, Lucent Technologies and JDS Uniphase, to achieve maximum performance with a low cost of ownership and a high level of quality. Exacting laser, optical lens and diode placement requirements, coupled with stringent thermal management needs, make our advanced optical interconnect technology a market leading choice among the major fiber optic module manufacturers. Continued migration from 2.5 gigabit, or Gbit, transmission rates to 10 Gbit and 40 Gbit transmission rates results in increased output power levels and operating frequencies, further driving the need for our advanced optical interconnect technology. Our products also play an increasingly important role in the development and expansion of the broadband cable and HFC architecture. Applications in trunk amplifiers, line extenders, pre- amplifiers, post-amplifiers and power doublers has enabled greater bandwidth, improved loss characteristics and increased channel capability at the systems level. Additionally, in the wireless marketplace, the advance of dual and tri-mode handsets has resulted in our design of a series of miniaturized diplexers and triplexers for these communications devices. Microelectronic Modules We design, develop and manufacture sub-assemblies and modules for fiber optic networks. These products primarily support the 10 to 40 Gbit fiber optic networks. Our manufacturing equipment, methods and processes are designed to maintain the critical tolerances required for fiber optic components and high Gigahertz RF and microwave signals. Our manufacturing methods are designed to use automatic placement equipment and batch processing for maximum cost efficiency and reliability. We are one of the world's leading manufacturers of space hybrid microcircuits. We hold several prime space contractor certifications. We offer numerous application specific multi-function modules and hybrid designs that are highly reliable, small and lightweight; attributes that are significant for space components. -3- Silicon Integrated Circuits We have been a designer and supplier of silicon integrated circuits for almost 20 years. Our products include both custom and standard integrated circuits such as databuses, transceivers, microcontrollers, microprocessors and memories. Many of these circuits are radiation tolerant for satellite and space applications. Our products are on over 100 aerospace platforms. Our standard and semicustom circuits are available in the latest 0.6 and 0.25 micron silicon wafer technologies. The standard circuits include the primary processor, memory and databus functionality, and the semi-custom gate arrays are available with up to three million usable gates. These gate arrays are available in both radiation tolerant and non-radiation tolerant technologies and have been used frequently to replace field programmable gate array implementations. We have pioneered the use of commercial foundries to product radiation tolerant components, known as Commercial RadHard, for the commercial space marketplace. Our subsidiary, Aeroflex UTMC has developed a Content Addressable Memory (CAM) Engine, the UTCAM-Engine , which is beneficial for network and internet address processing, image processing, pattern recognition, artificial intelligence learning systems and database applications. The UTCAM-Engine is based on 0.35 m technology, runs at 100 MHz and delivers association matches in as little as 70ns when using fast SRAM. The Aeroflex UTMC Circuit Card Assembly capability consists of full assembly, test and coat in a high mix/low-to-medium volume operation. UTMC's processes and test capabilities provide for state-of-the-art manufacturing. UTMC's SpaceCard combines best commercial practices of the circuit card assembly with UTMC's radiation-hardened integrated circuits to provide CCA solutions for the commercial space industry. UTMC's CCA operation also assembles the UT131 Embedded Controller Card, a UTMC Standard Product Card. The UT131 ECC is ideal for space applications. Test, Measurement and Other Electronics Instrumentation Our high-speed test equipment provides product enhancements to communications systems manufacturers. Our line of frequency synthesizers offers the best combination of high-speed and low phase noise available, covering all communications frequencies. Our FS1000 is a microwave frequency synthesizer that has been developed to support the requirements of mixed signal test systems used in the semiconductor market. Our test systems are designed to dramatically reduce test time for radio frequency semiconductors which allows end users to increase throughput without increasing costs. These benefits are derived from a design architecture that yields superior phase noise and switching speed performance - technology for which we believe we are well-known in the industry. Our test system products allow communication manufacturers to test communication satellite payloads and transmit/receive modules faster and more economically than ever before. Our digital signal processing equipment and proprietary software algorithms allow users to simultaneously measure multiple functions, eliminating the need for individual instruments. These testers are based on our proprietary software, firmware, frequency conversion and high- speed data acquisition technologies and allow for higher throughputs and increased flexibility. -4- Motion Control Systems Motion control systems includes three divisions: stabilization and tracking devices, magnetic motors and scanning devices. We design, develop and produce stabilization tracking devices and systems. These products 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. Magnetic motors are utilized in our stabilization and tracking systems and in other applications where precise movement is required, such as for positioning antennae, optical systems, mechanical vanes and valves. We make electro-optical scanning devices that are low cost, lightweight thermal imaging devices that detect targets based on thermal radiation contrasts with the background. These sights are intended for use on standard issue United States Army assault rifles and crew served weapons. Isolator Products We design, develop, manufacture and sell shock and vibration isolation systems. These devices include rubber, spring and steel wire rope shock and vibration and noise control devices. Purchasers of 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 their equipment. There are multiple markets for isolation systems including commercial, industrial and defense. Customers We have hundreds of customers in the communications, satellite, aerospace/defense, transportation and construction industries. Except for Teradyne (11.0%) and Lockheed Martin (10.5%) in fiscal 2000, Lockheed Martin (12.2%) and Lucent Technologies (11.4%) in fiscal 1999 and Lucent Technologies (15.5%) in fiscal 1998, no one customer accounted for more than 10% of our net sales. Marketing and Distribution We use a team-based sales approach to assist our personnel to closely manage relationships at multiple levels of the customer's organization, including management, engineering and purchasing personnel. Our integrated sales approach involves a team consisting of a senior executive, a business development specialist and members of our engineering department. Our use of experienced engineering personnel as part of the sales effort enables close technical collaboration with our customers during the design and qualification phase of new communications equipment. We believe that this is critical to the integration of our product into our customers' equipment. Some of our executive officers are also involved in all aspects of our relationships with our major customers and work closely with their senior management. We also use manufacturers' representatives and independent sales representatives as needed. Research and Development Our research and development efforts primarily involve engineering and design relating to: -- developing new products -- improving existing products -5- -- adapting such products to new applications -- developing prototype components to bid on specific programs Certain product development and similar costs are recoverable under contractual arrangements and those that are not recoverable are expensed in the year incurred. The costs of our self-funded research activities were approximately $11.0 million for fiscal 2000, $9.6 million for fiscal 1999 and $5.2 million for fiscal 1998. The increases are primarily attributable to our development of a low-cost, high-speed, high-performance frequency synthesizer intended for commercial communication test systems as well as, for fiscal 2000 and 1999, the addition of the expenses of Aeroflex UTMC Microelectronic Systems. Also, in connection with our acquisition of UTMC Microelectronic Systems in February 1999, we allocated $3.5 million of the purchase price to incomplete research and development projects. Since the research and development projects had not reached technological feasibility, $3.5 million was charged to expense in fiscal 1999 in addition to the $9.6 million, in accordance with generally accepted accounting principles. Backlog We include in backlog firm purchase orders or contracts providing for delivery of products and services. At June 30, 2000, our order backlog was approximately $119.3 million, approximately 89% of which was scheduled to be delivered on or before June 30, 2001. Approximately 76% of this backlog represents commercial contracts and approximately 24% of this backlog represents defense contracts. Generally, government contracts are cancelable with payment to us of amounts which we have spent under the contract together with a reasonable profit, if any, while commercial contracts are not cancelable. At June 30, 1999, our backlog of orders was approximately $93.8 million. Approximately 85% of this backlog was scheduled to be delivered before June 30, 2000. Approximately 42% of this backlog represented orders for military or national defense purposes. Competition In all phases of our operations, we compete in both performance and price. In the manufacture of microelectronics, we believe our primary competitors are NTK, Texas Instruments, ILC/Data Devices Corp., Lockheed Martin, Honeywell International and Kyocera International. In the manufacture of instrument products, we believe our primary competitors are Agilent Technolgies and Rhode & Schwartz. In the manufacture of isolators, we believe our primary competitor is Barry Controls, Inc. We also experience significant competition from the in-house capabilities of our current and potential customers. We believe that in all of our operations we compete favorably in the principal competitive areas of: -- technology -- performance -- reliability -- quality -- customer service -- price We believe that to remain competitive in the future, we will need to invest significant financial resources in research and development. -6- To the extent that we are engaged in government contracts, our success or failure, to a large measure, is based upon our ability to compete successfully for contracts and to complete them at a profit. 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 32% of our sales for fiscal 2000 and 41% of our sales for fiscal 1999 were to agencies of the United States Government or to prime defense contractors or subcontractors of the United States Government. Our overall dependence on the military has been declining due to a focusing of resources towards developing standard products for commercial markets. Our defense contracts have been awarded either on a bid basis or after negotiation. The contracts are primarily fixed price contracts, though we also have or had defense contracts providing for cost plus fixed fee. Our defense contracts contain customary provisions for termination at the convenience of the government without cause. In the event of such termination, we are generally entitled to reimbursement for our 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. In certain product areas, we have suffered reductions in sales volume due to cutbacks in the military budget. In other product areas, we have 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 us. Manufacturing We assemble, test, package and ship products at our manufacturing facilities located in: -- Colorado Springs, Colorado, -- Boca Raton, Florida, -- Bloomingdale, New Jersey, -- Farmingdale, New York, -- Pearl River, New York, -- Plainview, New York, -- Powell, Ohio, -- Richardson, Texas and -- Elancourt, France We have been manufacturing products for defense programs for many years in compliance with stringent military specifications. Our microelectronic module manufacturing is certified to the status of Class "K," which means qualified for space. We believe we have brought to the commercial market the manufacturing quality and discipline we have demonstrated in the defense market. For example, our Plainview and Farmingdale manufacturing plants are ISO- 9001 certified, as well as certified to the more stringent Boeing D1-9000 standard, and our Colorado Springs plant is ISO-9000 certified and is a QML (Qualified Manufacturers List) supplier at V, Q and T levels. -7- Historically, our volume production requirements for the defense market did not justify our widespread implementation of highly automated manufacturing processes. Over the last several years, we have expanded our use of high-volume manufacturing techniques for product assembly and testing. We believe that we have the manufacturing capacity required to meet the growing demand for our products. The principal materials we use to manufacture and assemble our products are: -- ceramic, -- magnetic materials, -- gold, -- steel, -- aluminum, -- rubber, -- iron and -- copper. Many of the component parts we use in our products are also purchased, including: -- semiconductors, -- transformers and -- amplifiers. Although we have several sole source arrangements, all the materials and components we use, including those purchased from a sole source, are readily available and are or can be purchased from time to time in the open market. We have no long-term commitments for their purchase. No supplier provides more than 10% of our raw materials. Patents and Trademarks We own several patents, patent licenses and trademarks. In order to protect our intellectual property rights, we rely on a combination of trade secret, copyright, patent and trademark laws and employee and third-party nondisclosure agreements. We also limit access to and distribution of our proprietary information. While we believe that in the aggregate our patents and trademarks are important to our operations, we do not believe that one or any group of them is so important that its termination could materially affect us. Employees As of June 30, 2000, we had approximately 1,180 employees, of whom 630 were employed in a manufacturing capacity, and 550 were employed in engineering, sales, administrative or clerical positions. Approximately 240 of our employees are covered by two collective bargaining agreements. We believe that our employee relations are satisfactory. Regulation Our operations are subject to various environmental, health and employee safety laws. We have spent money and management has spent time complying with environmental, health and worker safety laws which apply to our operations and facilities and we expect that we will continue to do so. Our principal products or services do not require any governmental approval. Compliance with -8- environmental laws has not historically materially affected our capital expenditures, earnings or competitive position. We do not expect compliance with environmental laws to have a material effect on us in the future. Because we participate in the defense industry, we are subject to audit from time to time for our compliance with government regulations by various agencies, including (1) the Defense Contract Audit Agency, (2) the Defense Investigative Service and (3) the Defense Logistics Agency. These and other governmental agencies may also, from time to time, conduct inquiries or investigations regarding a broad range of our activities. Responding to any audits, inquiries or investigations may involve significant expense and divert management attention. Also, an adverse finding in any audit, inquiry or investigation could involve penalties that may have a material adverse effect on our business, results of operation or financial condition. We believe that we generally comply with all applicable environmental, health and worker safety laws and governmental regulations. Nevertheless, we cannot guarantee that in the future we will not incur additional costs for compliance or that those costs will not be material. 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, 2000 are set forth in Note 15 of Notes to Consolidated Financial Statements. ITEM TWO - PROPERTIES Our executive offices and the manufacturing facilities of Aeroflex Laboratories Incorporated, one of our subsidiaries, are an aggregate of approximately 69,000 square feet and are located in premises which we own in Plainview, Long Island, New York. Aeroflex Laboratories Incorporated also leases manufacturing facilities in Farmingdale, Long Island, New York of approximately 20,000 square feet and Boca Raton, Florida of approximately 11,000 square feet. The annual rental of these properties is approximately $151,000 for Farmingdale and $147,000 for Boca Raton. Our subsidiary, Aeroflex MIC Technology Corporation, owns its manufacturing facility in Pearl River, New York consisting of approximately 63,000 square feet. MIC leases a manufacturing facility of approximately 29,000 square feet in Richardson, Texas with an annual rent of approximately $182,000. Our subsidiary, Vibration Mountings and Controls, Inc., conducts manufacturing operations at a plant located in Bloomingdale, New Jersey. The plant, which we own, is approximately 72,000 square feet. Our subsidiary, Aeroflex Lintek Corp., occupies approximately 20,000 square feet of space in Powell, Ohio, with an annual rental of approximately $214,000. Our subsidiary, Aeroflex UTMC Microelectronic Systems, Inc., conducts manufacturing operations at a plant located in Colorado Springs, Colorado. The plant, which we own, is approximately 102,000 square feet. We believe that our facilities are adequate for our current and presently foreseeable needs. -9- Legal Proceedings Our former subsidiary Filtron Co. Inc.,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. Filtron's operations were discontinued in October 1991. The plaintiffs in the action are current or former employees of a company to whom Filtron sold RFI filters/capacitors. According to the allegations of the amended verified complaint, the plaintiffs and their dependents 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. This action is in the discovery stage. We intend to defend against this action vigorously. We believe that, considering our various defenses and that we have product liability insurance, the outcome of this action will not have a material adverse effect on us, however we cannot guarantee that will be the case. We are involved in various other routine legal matters. We believe the outcome of these matters will not have a material adverse effect on us. ITEM FOUR - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. -10- PART II ITEM FIVE-MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ------------------------------------------------ (a) Our common stock trades on the Nasdaq National Market under the symbol "ARXX". Prior to March 21, 2000, our common stock was traded on the New York Stock Exchange under the symbol "ARX". The following table sets forth, for the calendar periods indicated, the high and low closing sales prices of our common stock as reported by the Nasdaq National Market since March 21, 2000 and, prior to March 21, 2000, the high and low closing sales prices of our common stock as reported by the New York Stock Exchange. The prices have been adjusted to reflect a five-for-four stock split that was payable July 7, 2000.
Common Stock ------------ High Low ---- --- 1998 - ---- First Quarter................................ $ 11.70 $ 6.30 Second Quarter............................... 11.45 6.80 Third Quarter................................ 9.25 5.35 Fourth Quarter............................... 12.10 6.00 1999 - ---- First Quarter................................ 14.70 9.65 Second Quarter............................... 15.80 10.40 Third Quarter................................ 17.25 9.75 Fourth Quarter............................... 10.85 4.45 2000 - ---- First Quarter................................ 56.00 7.75 Second Quarter............................... 39.75 20.80 Third Quarter (through September 18, 2000)... 45.00 25.69
(b) As of September 18, 2000, there were approximately 750 record holders of our common stock. (c) We have never declared or paid any cash dividends on our common stock. There have been no stock dividends declared or paid on our common stock during the past three years except for a five-for-four stock split, which was payable on July 7, 2000 to record holders as of June 26, 2000. We currently intend to retain any future earnings for use in the operation and development of our business as well as for acquisitions and, therefore, do not intend to declare or pay any cash dividends on our common stock in the foreseeable future. In addition, our revolving credit, term loan and mortgage agreement, as amended, prohibits us from paying cash dividends. -11- ITEM SIX - SELECTED FINANCIAL DATA (Unaudited) (In thousands, except percentages, footnotes and per share data)
Years ended June 30, ---------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------------------------- Earnings Statement Data - ----------------------- Net Sales...................... $185,924 $157,104 $118,861 $ 94,299 $ 74,367 Net Income (Loss).............. 14,400 9,757(1) 8,406 4,420 (17,420)(2)(3) Net Income (Loss) Per Common Share Basic...................... .60 .44(1) .45 .28 (1.16)(2)(3) Diluted.................... .57 .41(1) .41 .27 (4) Weighted Average Number of Common Shares Outstanding Basic...................... 23,819 22,230 18,503 15,557 14,963 Diluted.................... 25,462 23,910 20,658 18,275 (4) June 30, ---------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------------------------- Balance Sheet Data - ------------------ Working Capital................ $133,904 $ 50,366 $ 53,965 $ 25,872 $ 25,300 Total Assets................... 248,707 165,216 124,101 81,047 81,169 Long-term Debt (including current portion).. 14,549 31,117 11,481 28,916 34,577 Stockholders' Equity........... 201,932 102,093 87,036 35,040 30,472 Other Statistics After Tax Profit Margin (Loss).. 7.7% 6.2%(1) 7.1% 4.7% (23.4)%(2)(3) Return on Average Stockholders' Equity....................... 9.5% 10.3%(1) 13.8% 13.5% (45.4)%(2)(3) Stockholders' Equity Per Share (5) $ 7.26 $ 4.43 $ 4.01 $ 2.24 $ 1.99 (1) Includes $3.5 million ($.14 per diluted share and $.16 basic) for the write-off of in-process research and development acquired in connection with the purchase of UTMC Microelectronic Systems, Inc. in February 1999. (2) Includes $23.2 million ($1.55 per share) for the write-off of in-process research and development acquired in connection with the purchase of MIC Technology Corporation in March 1996. (3) Includes a $437,000, net of tax, gain ($.03 per share) on the sale of securities. (4) As a result of the loss, all options, warrants and convertible debentures are anti-dilutive. (5) Calculated by dividing stockholders' equity, at the end of the year, by the number of shares outstanding at the end of the year. Note:All share and per share amounts have been restated to reflect a five-for-four stock split.
-12- ITEM SEVEN - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Overview We use our advanced design, engineering and manufacturing abilities to produce microelectronic, integrated circuit, interconnect and testing solutions. Our products are used in the fiber optic, broadband cable, wireless and satellite communications markets. We also design and manufacture motion control systems and shock and vibration isolation systems which are used for commercial, industrial and defense applications. Our operations are grouped into three segments: -- microelectronics -- test, measurement and other electronics -- isolator products Our consolidated financial statements include the accounts of Aeroflex Incorporated and all of our subsidiaries. All of our subsidiaries are wholly-owned except for Europtest, S.A., of which we own 93.4%. Our microelectronics segment has been designing, manufacturing and selling state-of-the-art microelectronics for the electronics industry since 1974. In January 1994, we 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. In March 1996, we acquired MIC Technology Corporation which designs, develops, manufactures and markets microelectronics products in the form of passive thin film circuits and interconnects. Effective July 1, 1997, MIC Technology acquired certain equipment, inventory, licenses for technology and patents of two of Lucent Technologies' telecommunications component units - multi-chip modules and film integrated circuits. These units manufacture microelectronic modules and interconnect products. In February 1999, we acquired all of the outstanding stock of UTMC Microelectronic Systems, Inc., consisting of UTMC's integrated circuit business. Our test, measurement and other electronics segment consists of two divisions: (1) instruments and (2) motion control products, including the following product lines: -- Comstron, a leader in radio frequency and microwave technology used in the manufacture of fast switching frequency signal generators and components, which we acquired in November 1989. Comstron is currently an operating division of Aeroflex Laboratories Incorporated, one of our wholly-owned subsidiaries. -- Lintek, a leader in high speed instrumentation antenna measurement systems, radar systems and satellite test systems, which we acquired in January 1995. -- Europtest, S.A. (France), of which we acquired 90% effective September 1, 1998, under a purchase agreement which requires us to purchase the remaining 10% of Europtest pro rata over a three-year period at prices determined based upon net sales of Europtest products. In October 1999, we purchased an additional 3.4%. Europtest develops and sells specialized software-driven test equipment used primarily in cellular, satellite and other communications applications. -13- -- Our motion control products division has been engaged in the development and manufacture of electro-optical scanning devices used in infra-red night vision systems since 1975. Additionally, it is engaged in the design, development and production of stabilization tracking devices and systems and magnetic motors used in satellites and other high reliability applications. Our isolator products segment has been designing, developing, manufacturing and selling severe service shock and vibration isolation systems since 1961. These devices are primarily used in defense applications. In October 1983, we acquired Vibration Mountings & Controls, Inc., which manufactures a line of off-the-shelf rubber and spring shock, vibration and structure borne noise control devices used in commercial and industrial applications. In December 1986, we acquired the operating assets of Korfund Dynamics Corporation, a manufacturer of an industrial line of heavy duty spring and rubber shock mounts. Our revenue is based upon shipments or billings. We record costs on our long-term contracts using percentage-of-completion accounting. Under percentage-of-completion accounting, costs are recognized on revenues in the same relation that total estimated manufacturing costs bear to total contract value. Estimated costs at completion are based upon engineering and production estimates. Provisions for estimated losses or revisions in estimated profits on contracts-in-process are recorded in the period in which such losses or revisions are first determined. Approximately 32% of our sales for fiscal 2000, 41% of our sales for fiscal 1999 and 42% of our sales for fiscal 1998 were to agencies of the United States Government or to prime defense contractors or subcontractors of the United States Government. Our overall dependence on the military has been declining due to a focusing of resources towards developing standard products for the commercial markets. Our government contracts have been awarded either on a bid basis or after negotiation. Our government contracts are primarily fixed price contracts, although we also have or had government contracts providing for cost plus fixed fee. Our defense contracts have customary provisions for termination at the convenience of the government without cause. In the event of such termination, we are entitled to reimbursement for our costs and to receive a reasonable profit, if any, on the work done prior to termination. We believe that potential reductions in defense spending will not materially affect our operations. In certain product areas, we have suffered reductions in sales volume due to cutbacks in the military budget. In other product areas, we have 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 our operations. Our product development efforts primarily involve engineering and design relating to: -- developing new products -- improving existing products -- adapting existing products to new applications -- developing prototype components to bid on specific programs Some of our development efforts are reimbursed under contractual arrangements. Product development and similar costs which we cannot recover under contractual arrangements are expensed in the period incurred. -14- Statement of Operations The following table sets forth our net sales and operating income by business segment for the periods indicated. The special charge represents a $3.5 million charge for the write-off of in-process research and development acquired in connection with the purchase of UTMC Microelectronic Systems in February 1999.
Years Ended June 30, --------------------------------- 2000 1999 1998 ---- ---- ---- (In thousands) Net Sales: Microelectronics $110,253 $ 96,846 $ 74,263 Test, Measurement and Other Electronics 55,918 41,515 25,685 Isolator Products 19,753 18,743 18,913 -------- -------- -------- Net Sales $185,924 $157,104 $118,861 ======== ======== ======== Operating Income: Microelectronics $ 22,734 $ 20,104 $ 14,147 Test, Measurement and Other Electronics 2,333 3,134 996 Isolator Products 2,692 2,108 3,063 General Corporate Expenses (5,397) (4,262) (3,348) -------- -------- -------- 22,362 21,084 14,858 Special Charge - (3,500) - -------- -------- -------- Operating Income $ 22,362 $ 17,584 $ 14,858 ======== ======== ========
The following table sets forth certain items from our statement of earnings as a percentage of net sales for the periods indicated. The special charge represents a $3.5 million charge for the write-off of in- process research and development acquired in connection with the purchase of UTMC Microelectronic Systems in February 1999.
Years Ended June 30, ---------------------------- 2000 1999 1998 ---- ---- ---- Net Sales 100.0% 100.0% 100.0% Cost of Sales 63.8 62.8 65.0 ------ ------ ------ Gross Profit 36.2 37.2 35.0 ------ ------ ------ Operating Expenses: Selling, General and Administrative Costs 18.3 17.7 18.1 Research and Development Costs 5.9 6.1 4.4 Special Charge - 2.2 - ------ ------ ------ Total Operating Expenses 24.2 26.0 22.5 ------ ------ ------ Operating Income 12.0 11.2 12.5 Other Expense, Net 0.9 0.4 1.4 ------ ------ ------ Income Before Income Taxes 11.1 10.8 11.1 Provision For Income Taxes 3.4 4.6 4.0 ------ ------ ------ Net Income 7.7% 6.2% 7.1% ====== ====== ======
-15- Fiscal Year Ended June 30, 2000 Compared to Fiscal Year Ended June 30, 1999 Net Sales. Net sales increased 18.3% to $185.9 million in fiscal 2000 from $157.1 million in fiscal 1999. Net sales in our microelectronics segment increased 13.8% to $110.3 million in fiscal 2000 from $96.8 million in fiscal 1999 due to the acquisition of UTMC Microelectronic Systems in 1999 partially offset by reductions in sales in microelectronic modules due to temporary slowdowns in the satellite market. Net sales in our test, measurement and other electronics segment increased 34.7% to $55.9 million in fiscal 2000 from $41.5 million in fiscal 1999 primarily due to increased sales volume in frequency synthesizers (primarily shipments of the FS-1000 for use in commercial communications test systems). Net sales in our isolator products segment increased 5.4% to $19.8 million in fiscal 2000 from $18.7 million in fiscal 1999. Gross Profit. Cost of sales includes materials, direct labor and overhead expenses such as engineering labor, fringe benefits, allocable occupancy costs, depreciation and manufacturing supplies. Gross profit increased 15.3% to $67.4 million in fiscal 2000 from $58.5 million in fiscal 1999. Gross margin decreased to 36.2% in fiscal 2000 from 37.2% in fiscal 1999. This increase in gross profit was primarily as a result of increased sales. The decrease in gross margin was due primarily to low margins in both the satellite test system development program and the start up of the FS-1000, a low-cost, high speed, high performance frequency synthesizer. Selling, General and Administrative Costs. Selling, general and administrative costs include office and management salaries, fringe benefits and commissions. Selling, general and administrative costs increased 22.6% to $34.0 million (18.3% of net sales) in fiscal 2000 from $27.8 million (17.7% of net sales) in fiscal 1999. The increase was primarily due to labor related expenses, including salaries for additional personnel, in connection with our growth and the addition of the expenses of UTMC Microelectronic Systems. Research and Development Costs. Research and development costs include material, engineering labor and allocated overhead. Our self-funded research and development costs increased 14.2% to $11.0 million (5.9% of net sales) in fiscal 2000 from $9.6 million (6.1% of net sales) in fiscal 1999. This increase was primarily attributable to the additional costs of UTMC Microelectronic Systems, partially offset by reduced costs, relative to the prior year, related to the development of the FS- 1000, a low-cost, high speed, high performance frequency synthesizer intended for commercial communication test systems, which was completed in early fiscal 2000. Other Expense (Income). Interest expense increased to $2.3 million in fiscal 2000 from $1.5 million in fiscal 1999, primarily due to higher average levels of borrowings throughout most of the current year. Other income of $554,000 for the year ended June 30, 2000 consists primarily of $650,000 of interest income, $193,000 gain on the sale of securities and a $300,000 expense for the settlement of a lawsuit. Other income of $777,000 for the year ended June 30, 1999 consists primarily of interest income. Interest income decreased due to lower average levels of cash and cash equivalents throughout most of the current year. The increased average levels of borrowings and the decreased average levels of cash and cash equivalents resulted from the acquisition of UTMC Microelectronic Systems in February 1999. In connection with this acquisition, we used most of our cash and cash equivalents and increased our borrowings by $20.0 million. Provision for Income Taxes. Income taxes were $7.2 million (an effective income tax rate of 35.0%), excluding a $1.0 million benefit from the utilization of a capital loss carryforward, in fiscal 2000, and $7.2 million (an effective income tax rate of 35.0%, exclusive of the special charge) in fiscal 1999. The income tax provisions for the years ended June 30, 2000 and 1999 were different -16- from the amounts computed by applying the U.S. Federal income tax rate to income before income taxes primarily due to state and local income taxes and research and development credits, and for the year ended June 30, 2000, the $1.0 million benefit from the utilization of a capital loss carryforward and for the year ended June 30, 1999, due to the non-deductibility of the $3.5 million special charge. Fiscal Year Ended June 30, 1999 Compared to Fiscal Year Ended June 30, 1998 Net Sales. Net sales increased 32.2% to $157.1 million in fiscal 1999 from $118.9 million in fiscal 1998. Net sales in our microelectronics segment increased 30.4% to $96.8 million in fiscal 1999 from $74.3 million in fiscal 1998 due to increased sales volume in both thin film interconnects and microelectronic modules and due to the acquisition of UTMC Microelectronic Systems at the end of February 1999. Net sales in our test, measurement and other electronics segment increased 61.6% to $41.5 million in fiscal 1999 from $25.7 million in fiscal 1998 primarily due to increased sales volume in both frequency synthesizers (including shipments under the new Navy CASS program) and high speed automatic test systems (primarily satellite payload test equipment for Hughes Space and Communications) and due to the acquisition of Europtest in September 1998 offset in part by decreased sales volume of stabilization and tracking devices. Net sales in our isolator products segment were $18.7 million in fiscal 1999 and $18.9 million in fiscal 1998. Gross Profit. Gross profit increased 40.6% to $58.5 million in fiscal 1999 from $41.6 million in fiscal 1998. Gross margin increased to 37.2% in fiscal 1999 from 35.0% in fiscal 1998. This increase was primarily as a result of increased margins in our microelectronics segment and Comstron product line, reflecting the greater efficiency of higher volume, as well as a favorable sales mix in our microelectronics segment. Selling, General and Administrative Costs. Selling, general and administrative costs increased 28.9% to $27.8 million (17.7% of net sales) in fiscal 1999 from $21.5 million (18.1% of net sales) in fiscal 1998. The increase was primarily due to labor related costs, including salaries for additional personnel, in connection with our growth and the addition of the expenses of UTMC Microelectronic Systems. Research and Development Costs. Our self-funded research and development costs increased 85.8% to $9.6 million (6.1% of net sales) in fiscal 1999 from $5.2 million (4.4% of net sales) in fiscal 1998. This increase was primarily attributable to the addition of the expenses of UTMC Microelectronic Systems and the costs for continued development of a low-cost, high speed, high performance frequency synthesizer intended for commercial communication test systems. Acquired In-Process Research and Development. In connection with the acquisition of UTMC Microelectronic Systems, we allocated $3.5 million of the purchase price to incomplete research and development projects. This allocation represents the estimated fair value based on future cash flows that have been adjusted by the projects' completion percentage. At the acquisition date, the development of these projects had not yet reached technological feasibility and the research and development in progress had no alternative future uses. Accordingly, we expensed these costs as of the acquisition date. We used an independent third-party appraiser to assess and value the in-process research and development. The value assigned to this asset was determined by identifying significant research projects for which technological feasibility had not been established. In the case of UTMC Microelectronic Systems, this included the design, development, and testing activities associated with its commercial products, data bus products, radiation hardened -17- products and application specific integrated circuits. The research and development projects are associated with the introduction of several new products as well as specific significant enhancements to existing products. Valuation of development efforts in the future has been excluded from the research and development appraisal. The nature of the efforts to develop the acquired in-process technology into a commercially viable product relate to the completion of all planning, designing, prototyping and testing activities that are necessary to establish that the proposed technologies meet their design specifications including functional, technical and economic performance requirements. The value assigned to purchased in-process technology was determined by estimating the contribution of the purchased in-process technology in developing a commercially viable product, estimating the resulting net cash flows from the expected sales of such a product, and discounting the net cash flows to their present value using an appropriate discount rate. Revenue growth rates for UTMC Microelectronic Systems were estimated by the third party appraiser based on a detailed forecast we prepared, as well as the appraiser's discussions with our finance, marketing and engineering personnel and those of UTMC Microelectronic Systems. Allocation of total UTMC Microelectronic Systems' projected revenues to in-process research and development was based on the appraiser's discussions with UTMC Microelectronic Systems' management and us. A significant portion of UTMC Microelectronic Systems' future revenues was expected to originate from the sale of products that were not yet completed at acquisition. However, UTMC Microelectronic Systems' existing products and technologies are expected to generate sales through 2008. Selling, general and administrative expenses and profitability estimates were determined based on our forecasts as well as an analysis of comparable companies' margin expectations. The projections utilized in the transaction pricing and purchase price allocation exclude the potential synergetic benefits related specifically to our ownership. Due to the relatively early stage of the development and reliance on future, unproven products and technologies, the cost of capital (discount rate) for UTMC Microelectronic Systems was estimated using venture capital rates of return. Due to the nature of the forecast and the risks associated with the projected growth and profitability of the development projects, a discount rate of 45 percent was used to discount cash flows from the in-process products. This discount rate was commensurate with UTMC Microelectronic Systems' market position, the uncertainties in the economic estimates described above, the inherent uncertainty surrounding the successful development of the purchased in-process technology, the useful life of such technology, the profitability levels of such technology, and the uncertainty related to technological advances that could render even UTMC Microelectronic Systems' development stage technologies obsolete. We believe that the foregoing assumptions used in the forecasts were reasonable at the time of the acquisition. No assurance can be given, however, that the underlying assumptions used to estimate sales, development costs or profitability, or the events associated with such projects will transpire as estimated. For these reasons, actual results may vary from projected results. Remaining development efforts for UTMC Microelectronic Systems' research and development include various phases of design, development and testing. Funding for such projects is expected to come from internally generated sources. -18- As evidenced by the continued support of the development of its projects, we believe we have a reasonable chance of successfully completing the research and development programs. However, as with all of our technology development, there is risk associated with the completion of the UTMC Microelectronic Systems' research and development projects, and there is no assurance that technological or commercial success will be achieved. If the development of UTMC Microelectronic Systems' in-process research and development project is unsuccessful, our sales and profitability may be adversely affected in future periods. Commercial results are also subject to certain market events and risks, which are beyond our control, such as trends in technology, changes in government regulation, market size and growth, and product introduction or other actions by competitors. Other Expense (Income). Interest expense decreased to $1.5 million in fiscal 1999 from $2.0 million in fiscal 1998, primarily due to reduced levels of borrowings throughout most of the current period. Other income of $777,000 in fiscal 1999 and $309,000 in fiscal 1998 consisted primarily of interest income. Interest income increased due to increased levels of cash and cash equivalents throughout most of fiscal 1999. The reduced levels of borrowings and the increased levels of cash and cash equivalents resulted from the net proceeds of $31.3 million from stock issued in our public offering completed in March 1998. In connection with our acquisition of UTMC Microelectronic Systems at the end of February 1999, we used most of our cash and cash equivalents and increased our borrowings by $20.0 million. Provision for Income Taxes. Income taxes increased 50.5% to $7.2 million (an effective income tax rate of 35.0%, exclusive of the special charge) in fiscal 1999, from $4.8 million (an effective income tax rate of 36.1%) in fiscal 1998. The income tax provisions for the years ended June 30, 1999 and 1998 were different from the amounts computed by applying the U.S. Federal income tax rate to income before income taxes primarily due to state and local income taxes and research and development credits, and for the year ended June 30, 1999, due to the non-deductibility of the $3.5 million special charge. Market Risk We are exposed to market risk related to changes in interest rates and, to an immaterial extent, to foreign currency exchange rates. Most of our debt is at fixed rates of interest or at a variable rate with an interest rate swap agreement which effectively converts the variable rate debt into fixed rate debt. Therefore, if market interest rates increase by 10 percent from levels at June 30, 2000, the effect on our net income would not be material. Most of our invested cash and marketable securities are at variable rates of interest. If market interest rates decrease by 10 percent from levels at June 30, 2000, the effect on our net income would be approximately $270,000. Seasonality Although our business is not affected by seasonality, historically our revenues and earnings increase sequentially from quarter to quarter within a fiscal year, but the first quarter is less than the previous year's fourth quarter. -19- Recent Accounting Pronouncements Effective July 1, 2000, the Company will adopt SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. This statement requires companies to record derivatives on the balance sheet as assets or liabilities at their fair value. In certain circumstances changes in the value of such derivatives may be required to be recorded as gains or losses. The impact of this statement is not expected to have a material effect on the Company's consolidated financial statements. Liquidity and Capital Resources As of June 30, 2000, we had $133.9 million in working capital. Our current ratio was 5.6 to 1 at June 30, 2000. As of February 25, 1999, we replaced a previous agreement with a revised revolving credit, term loan and mortgage agreement with two banks which is secured by substantially all of our assets not otherwise encumbered. The agreement provided for a revolving credit line of $23.0 million, a term loan of $20.0 million and a mortgage on our Plainview property for $4.5 million. The revolving credit loan facility expires in December 2002. The term loan was fully paid in May 2000 with the proceeds from the sale of our Common Stock. The interest rate on borrowings under this agreement is at various rates depending upon certain financial ratios, with the current rate substantially equivalent to 30- day LIBOR (approximately 6.7% at June 30, 2000) plus 1.50% on the revolving credit borrowings. The mortgage is payable in monthly installments of approximately $26,000 through March 2008 and a balloon payment of $1.6 million in April 2008. We have entered into an interest rate swap agreement for the outstanding amount under the mortgage agreement at approximately 7.6% in order to reduce the interest rate risk associated with these borrowings. The terms of the agreement require compliance with certain covenants including minimum consolidated tangible net worth and pretax earnings, maintenance of certain financial ratios, limitations on capital expenditures and indebtedness and prohibition of the payment of cash dividends. In connection with the purchase of certain materials for use in manufacturing, we have a letter of credit of $2.0 million. In March 1998, we sold 3.2 million shares (adjusted for a five-for-four stock split) of our Common Stock in a public offering for $31.3 million, net of an underwriting discount of $2.0 million and issuance costs of $496,000. Of these net proceeds, $9.6 million was used to repay bank indebtedness. The balance of the net proceeds was used primarily for our purchase of UTMC Microelectronic Systems in February 1999. Effective September 1, 1998, we acquired 90% of the stock of Europtest, S.A. (France) for approximately $1.1 million. The purchase agreement also requires that we purchase the remaining 10% of Europtest pro rata over a three-year period at prices determined based upon net sales of Europtest products. In October, 1999, we purchased an additional 3.4% of Europtest's stock for approximately $54,000. Europtest develops and sells specialized software-driven test equipment used primarily in cellular, satellite and other communications applications. The acquired company's net sales were approximately $1.9 million for the year ended March 31, 1998. In December 1998, we financed the acquisition and renovation of the land and building of our Pearl River, NY facility and received proceeds amounting to $4.2 million. The debt requires a balloon payment of $4.0 million in 2019. -20- Effective February 25, 1999, we acquired all of the outstanding stock of UTMC Microelectronic Systems, Inc. for $42.5 million of cash. Prior to the acquisition, UTMC Microelectronic Systems distributed by dividend to its then-parent, United Technologies Corporation, the assets and United Technologies assumed the liabilities of the circuit card assembly portion of UTMC Microelectronic Systems business. The purchase price was paid with available cash of $22.5 million and borrowings under our bank loan agreement of $20.0 million. UTMC Microelectronic Systems is a leader in supplying radiation-tolerant integrated circuits for satellite communications. The acquired company's net sales, excluding the circuit card assembly business, were approximately $33.4 million for the year ended December 31, 1998. In May 2000, we sold 3.1 million shares (adjusted for a five-for-four stock split) of its Common Stock in a public offering for $68.5 million, net of an underwriting discount of $3.5 million and issuance costs of $500,000. Of these net proceeds, $13.0 million was used to repay the term loan. The balance of the net proceeds is invested in short-term marketable securities and is intended to ultimately be used for additional working capital, including research and development, and expansion of our facilities, and for general corporate purposes, including possible acquisitions of technologies, product lines or businesses. In fiscal 2000, our operations provided cash of $14.6 million from our continued profitability, partially offset by an increase in receivables due to our higher sales volume and timing of billings. In fiscal 2000, our investing activities used cash of $17.3 million primarily for the purchase of available- for-sale securities and for capital expenditures. In fiscal 2000, our financing activities provided cash of $54.7 million primarily from the sale of our Common Stock in a public offering for $69.0 million offset, in part, by debt payments of $19.1 million. We believe that existing cash, cash equivalents and marketable securities coupled with internally generated funds and available lines of credit will be sufficient for our working capital requirements, capital expenditure needs and the servicing of our debt for at least the next twelve months. At June 30, 2000, our available unused line of credit was $21.0 million after consideration of the letter of credit. One of our subsidiaries 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 our subsidiary to one of its customers. This action is in the discovery stage. Based upon available information and considering our various defenses, together with our product liability insurance, in our opinion, the outcome of the action against our subsidiary will not have a materially adverse effect on our consolidated financial statements. We are involved in various other routine legal matters. We believe the outcome of these matters will not have a materially adverse effect on our consolidated financial statements. We are undergoing routine audits by various taxing authorities of our state and local income tax returns covering periods from 1994 to 1996. We believe that the probable outcome of these various audits should not materially affect our consolidated financial statements. Our backlog of orders was $119.3 million at June 30, 2000 and $93.8 million at June 30, 1999. -21- Forward-Looking Statements All statements other than statements of historical fact included in this Annual Report, including without limitation statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our financial position, business strategy and plans and objectives of our management for future operations, are forward-looking statements. When used in this Annual Report, words such as "anticipate," "believe," "estimate," "expect," "intend" and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to, competitive factors and pricing pressures, changes in legal and regulatory requirements, technological change or difficulties, product development risks, commercialization difficulties and general economic conditions. Such statements reflect our current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. ITEM EIGHT - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The financial statements and supplementary data listed in the accompanying Index to Financial Statements and Schedules are attached as part of this report. ITEM NINE - DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - ----------------------------------------------------- None. PART III -------- The information required by Part III is incorporated by reference to our definitive proxy statement in connection with our Annual Meeting of Stockholders scheduled to be held in November 2000. The proxy statement is to be filed with the Securities and Exchange Commission within 120 days following the end of our fiscal year ended June 30, 2000. -22- PART IV ------- ITEM FOURTEEN - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) See Index to Financial Statements at beginning of attached financial statements. (b) Reports on Form 8-K: None (c) Exhibits 3.1 Certificate of Incorporation, as amended. (Exhibit 3.1 to Form 10-K for the year ended June 30, 1998). 3.2 By-Laws, as amended (Exhibit 3 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). 4.1 Fourth Amended and Restated Loan and Security Agreement dated as of February 25, 1999 among the Registrant, certain of its subsidiaries, The Chase Manhattan Bank (as successor to Chemical Bank) and Fleet Bank, N.A. (as successor to NatWest Bank, N.A.) (Exhibit 10.5 to Form 8-K dated February 25, 1999). 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 Employment Agreement between Aeroflex Incorporated and Harvey R. Blau (Exhibit 10.1 to Report on Form 10-Q for the quarter ended March 31, 1999). 10.5 Employment Agreement between Aeroflex Incorporated and Michael Gorin (Exhibit 10.2 to Report on Form 10-Q for the quarter ended March 31, 1999). 10.6 Employment Agreement between Aeroflex Incorporated and Leonard Borow (Exhibit 10.3 to Report on Form 10-Q for the quarter ended March 31, 1999). 10.7 Deferred Compensation Agreement between Aeroflex Incorporated and Harvey R. Blau (Exhibit 10.4 to Report on Form 8-K dated May 17, 1997). 10.8 Employment Agreement between Aeroflex Incorporated and Carl Caruso (Exhibit 10.5 to Report on Form 8-K dated May 17, 1997). 10.9 1996 Stock Option Plan (Exhibit A to Definitive Schedule 14A filed September 30, 1996). -23- 10.10 1998 Stock Option Plan (Exhibit 10 to Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). 10.11 Common Stock Purchase Agreement made as of February 25, 1999 between the Registrant and UTC acting through its Hamilton Standard Division as the owner of all of the issued and outstanding capital stock of UTMC. (Exhibit 10.1 to Form 8-K dated February 25, 1999). 10.12 Long Term Agreement made as of February 25, 1999 between UTC and UTMC. (Exhibit 10.2 to Form 8-K dated February 25, 1999). 10.13 Facilities Lease and Services Agreement made as of February 25, 1999 between UTMC, UTC and HSE. (Exhibit 10.3 to Form 8-K dated February 25, 1999). 10.14 Assignment and License-Back Agreement made as of February 25, 1999 between UTMC and UTC. (Exhibit 10.4 to Form 8-K dated February 25, 1999). 10.15 1999 Stock Option Plan (Exhibit A to Definitive Schedule 14A filed December 3, 1999). 10.16 2000 Stock Option Plan 10.17 Amendment No. 1 to Employment Agreement between Aeroflex Incorporated and Harvey R. Blau, effective September 1, 1999. 10.18 Amendment No. 1 to Employment Agreement between Aeroflex Incorporated and Michael Gorin, effective September 1, 1999. 10.19 Amendment No. 1 to Employment Agreement between Aeroflex Incorporated and Leonard Borow, effective September 1, 1999. 22 The following is a list of the Company's subsidiaries:
State of Name Incorporation ---- ------------- Aeroflex Amplicomm, Inc. Delaware Aeroflex Laboratories Incorporated Delaware Aeroflex Lintek Corp. Ohio Aeroflex MIC Technology Corporation Texas Aeroflex Systems Corp. Delaware Aeroflex UTMC Microelectronic Systems, Inc. Delaware Europtest, S.A. France Information Systems and Research, Inc. Virginia Vibration Mountings and Controls, Inc. New York
23 Consent of Independent Auditors 27 Financial Data Schedule 99 Undertakings -24- 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 28th day of September 2000. 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 28th, 2000 by the following persons in the capacities indicated: /s/ Harvey R. Blau Chairman of the Board Harvey R. Blau (Chief Executive Officer) /s/ Michael Gorin President and Director Michael Gorin (Chief Financial Officer and Principal Accounting Officer) /s/ Leonard Borow Executive Vice President, Secretary and Director Leonard Borow (Chief Operating Officer) - ------------------------- Director Paul Abecassis /s/ Milton Brenner Director Milton Brenner /s/ Ernest E. Courchene, Jr. Director Ernest E. Courchene, Jr. /s/ Donald S. Jones Director Donald S. Jones /s/ Eugene Novikoff Director Eugene Novikoff /s/ John S. Patton Director John S. Patton -25- AEROFLEX INCORPORATED AND SUBSIDIARIES FINANCIAL STATEMENTS AND SCHEDULES COMPRISING ITEM 8 OF ANNUAL REPORT ON FORM 10-K TO SECURITIES AND EXCHANGE COMMISSION AS OF JUNE 30, 2000 AND 1999 AND FOR THE YEARS ENDED JUNE 30, 2000, 1999 AND 1998 FINANCIAL STATEMENTS AND SCHEDULES ---------------------------------- I N D E X PAGE ------------- ---- ITEM FOURTEEN (a) ----------------- 1. FINANCIAL STATEMENTS: Independent auditors' report S-1 Consolidated financial statements: Balance sheets - June 30, 2000 and 1999 S-2-3 Statements of earnings - each of the three years in the period ended June 30, 2000 S-4 Statements of stockholders' equity and comprehensive income - each of the three years in the period ended June 30, 2000 S-5 Statements of cash flows - each of the three years in the period ended June 30, 2000 S-6 Notes (1-15) S-7-20 Quarterly financial data (unaudited) S-21 2. FINANCIAL STATEMENT SCHEDULES: II - Valuation and qualifying accounts S-22 All other schedules have been omitted because they are inapplicable, not required, or the information is included elsewhere in the financial statements or notes thereto. Independent Auditors' Report The Board of Directors and Stockholders Aeroflex Incorporated We have audited the accompanying consolidated balance sheets of Aeroflex Incorporated and subsidiaries as of June 30, 2000 and 1999 and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended June 30, 2000. Our audits also included the financial statement schedule listed in the Index at item 14(a)2. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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, 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, 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 LLP KPMG LLP Melville, New York August 15, 2000 S-1 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, --------------------- ASSETS 2000 1999 ---- ---- Current assets: Cash and cash equivalents................... $ 54,710 $ 2,714 Marketable securities....................... 11,512 - Accounts receivable, less allowance for doubtful accounts of $509 and $381 at June 30, 2000 and 1999, respectively... 51,086 39,967 Inventories, net............................ 37,367 32,637 Deferred income taxes....................... 5,317 5,291 Prepaid expenses and other current assets... 2,814 2,314 -------- -------- Total current assets................... 162,806 82,923 Property, plant and equipment, net............ 52,222 50,802 Intangible assets acquired in connection with the purchase of businesses, net of accumulated amortization of $4,689 and $3,084 at June 30, 2000 and 1999, respectively..... 12,839 13,777 Cost in excess of fair value of net assets of businesses acquired, net of accumulated amortization of $3,800 and $3,161 at June 30, 2000 and 1999, respectively................. 13,380 14,019 Deferred income taxes......................... 3,093 - Other assets.................................. 4,367 3,695 -------- -------- Total assets................................ $248,707 $165,216 ======== ======== See notes to consolidated financial statements.
S-2 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (In thousands, except per share amounts)
June 30, -------- -------- LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 -------- -------- Current liabilities: Current portion of long-term debt.............. $ 1,566 $ 6,509 Accounts payable............................... 9,489 8,070 Accrued expenses and other current liabilities.................................. 17,847 16,923 Income taxes payable........................... - 1,055 -------- -------- Total current liabilities................. 28,902 32,557 Long-term debt................................... 12,983 24,608 Deferred income taxes............................ - 3,582 Other long-term liabilities...................... 4,890 2,376 -------- -------- Total liabilities................................ 46,775 63,123 -------- -------- Commitments and contingencies Stockholders' equity: Preferred Stock, par value $.10 per share; authorized 1,000 shares: Series A Junior Participating Preferred Stock, par value $.10 per share; authorized 40 shares; none issued....................... - - Common Stock, par value $.10 per share; authorized 40,000 shares; issued 27,835 and 18,429 at June 30, 2000 and 1999, respectively................................. 2,783 1,843 Additional paid-in capital..................... 190,250 105,720 Retained earnings (accumulated deficit)........ 8,979 (5,421) -------- -------- 202,012 102,142 Less: Treasury stock, at cost (13 and 6 shares at June 30, 2000 and 1999, respectively)................................. 80 49 -------- -------- Total stockholders' equity....................... 201,932 102,093 -------- -------- Total liabilities and stockholders' equity....... $248,707 $165,216 ======== ======== See notes to consolidated financial statements.
S-3 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share amounts)
Years Ended June 30, -------------------------------- 2000 1999 1998 ---- ---- ---- Net sales..................... $185,924 $157,104 $118,861 Cost of sales................. 118,548 98,645 77,286 -------- -------- -------- Gross profit................ 67,376 58,459 41,575 -------- -------- -------- Operating costs: Selling, general and administrative costs...... 34,034 27,763 21,545 Research and development costs..................... 10,980 9,612 5,172 Acquired in-process research and development (note 2).. - 3,500 - Total operating costs... 45,014 40,875 26,717 -------- -------- -------- Operating income ............. 22,362 17,584 14,858 -------- -------- -------- Other expense (income): Interest expense............ 2,316 1,454 2,011 Other expense (income) (including interest income and dividends of $650, $781 and $389)............ (554) (777) (309) -------- -------- -------- Total other expense (income).............. 1,762 677 1,702 -------- -------- -------- Income before income taxes.... 20,600 16,907 13,156 Provision for income taxes.... 6,200 7,150 4,750 -------- -------- -------- Net income ................... $ 14,400 $ 9,757 $ 8,406 ======== ======== ======== Net income per common share: Basic...................... $0.60 $0.44 $0.45 ===== ===== ===== Diluted.................... $0.57 $0.41 $0.41 ===== ===== ===== Weighted average number of common shares outstanding: Basic...................... 23,819 22,230 18,503 Diluted.................... 25,462 23,910 20,658 See notes to consolidated financial statements.
S-4 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME Years Ended June 30, 2000, 1999 and 1998 (In thousands)
Retained Additional Earnings Common Stock Paid-in (Accumulated Treasury Stock Comprehensive Total Shares Par Value Capital Deficit) Shares Cost Income --------- ------ --------- ---------- ----------- ------ ---- ------------- Balance, July 1, 1997................ $ 35,040 12,658 $ 1,266 $ 58,110 $ (23,584) 169 $ (752) Stock issued in public offering...... 31,285 2,597 260 31,025 - - - Stock issued upon exercise of stock options and warrants...... 2,923 349 35 2,141 - (168) 747 Stock issued upon conversion of debentures...................... 9,382 1,774 177 9,205 - - - Net income........................... 8,406 - - - 8,406 - - $ 8,406 --------- ------ ------- --------- --------- ---- ------- --------- Balance, June 30, 1998............... 87,036 17,378 1,738 100,481 (15,178) 1 (5) $ 8,406 Stock issued upon exercise ========= of stock options and warrants...... 4,967 1,051 105 4,563 - (34) 299 Purchase of treasury stock........... (343) - - - - 39 (343) Deferred compensation................ 676 - - 676 - - - Net income........................... 9,757 - - - 9,757 - - $ 9,757 --------- ------ ------- --------- --------- ---- ------- --------- Balance, June 30, 1999............... 102,093 18,429 1,843 105,720 (5,421) 6 (49) $ 9,757 ========= Stock issued in public offering...... 68,500 2,500 250 68,250 - - - Stock issued upon exercise of stock options and warrants......... 18,457 1,339 133 16,365 - (296) 1,959 Purchase of treasury stock........... (1,990) - - - - 300 (1,990) Deferred compensation................ 401 - - 401 - - - Five-for-four stock split............ (11) 5,567 557 (568) - 3 - Unrealized gain on marketable securities......................... 82 - - 82 - - - $ 82 Net income........................... 14,400 - - - 14,400 - - 14,400 --------- ------ ------- --------- --------- ---- ------- --------- Balance, June 30, 2000............... $ 201,932 27,835 $ 2,783 $ 190,250 $ 8,979 13 $ (80) $ 14,482 ========= ====== ======== ========= ========= ==== ======= ========= See notes to consolidated financial statements.
S-5 AEROFLEX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended June 30, -------------------------------- 2000 1999 1998 ---- ---- ---- Cash flows from operating activities: Net income .............................. $ 14,400 $ 9,757 $ 8,406 Adjustments to reconcile net income to net cash provided by operating activities: Acquired in-process research and development.................... - 3,500 - Depreciation and amortization........ 8,983 6,554 4,884 Amortization of deferred gain........ (596) (588) (588) Deferred income taxes................ 1,086 1,812 1,004 Other................................ 390 292 (10) Change in operating assets and liabilities, net of effects from purchase of businesses: Decrease (increase) in accounts receivable.......................... (11,133) (16,365) 1,975 Decrease (increase) in inventories.... (4,232) 3,825 (8,397) Decrease (increase) in prepaid expenses and other assets........... (1,067) (2,238) (633) Increase (decrease) in accounts payable, accrued expenses and other long-term liabilities......... 2,393 2,739 5,384 Increase (decrease) in income taxes payable....................... 4,416 2,090 1,648 -------- --------- -------- Net cash provided by operating activities................................ 14,640 11,378 13,673 -------- --------- -------- Cash flows from investing activities: Payment for purchase of businesses, net of cash acquired.................... (566) (43,656) (249) Purchase of equipment, inventory and technology rights from Lucent Technologies............................ - - (4,435) Capital expenditures...................... (7,213) (9,104) (10,613) Proceeds from sale of property, plant and equipment..................... 1,686 967 209 Purchase of marketable securities......... (11,430) - - Proceeds from sale of marketable securities.............................. 193 198 110 -------- --------- -------- Net cash used in investing activities....... (17,330) (51,595) (14,978) -------- --------- -------- Cash flows from financing activities: Proceeds from issuance of common shares in public offering................................. 69,000 - 31,781 Costs in connection with public offering.......................... (500) - (496) Borrowings under debt agreements........... 2,090 24,191 6,231 Debt repayments............................ (19,081) (4,663) (13,685) Bank debt financing costs.................. - (438) - Purchase of treasury stock................. (1,990) (343) - Proceeds from the exercise of stock options and warrants..................... 5,170 2,539 1,292 Amounts paid for withholding taxes on stock option exercises................... (11,169) (5,434) (1,512) Withholding taxes collected for stock option exercises......................... 11,166 2,671 1,502 -------- --------- -------- Net cash provided by financing activities.... 54,686 18,523 25,113 -------- --------- -------- Net increase (decrease) in cash and cash equivalents........................... 51,996 (21,694) 23,808 Cash and cash equivalents at beginning of period..................................... 2,714 24,408 600 -------- --------- -------- Cash and cash equivalents at end of period... $ 54,710 $ 2,714 $ 24,408 ======== ======== ======== See notes to consolidated financial statements.
S-6 AEROFLEX INCORPORATED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Principles and Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of Aeroflex Incorporated and its subsidiaries (the "Company"), all of which are wholly-owned with the exception of Europtest which is 93.4% owned as of June 30, 2000 (see Note 2). All intercompany balances and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires that management of the Company make a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities. Among the more significant estimates included in the consolidated financial statements are the estimated costs to complete contracts in process. Actual results could differ from those estimates. 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. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories related to long-term contracts are recorded at cost less amounts expensed under percentage-of-completion accounting. Financial Instruments The fair values of all on-balance sheet financial instruments, other than long-term debt (see Note 8), approximate book values because of the short maturity of these instruments. Amounts receivable or payable under interest rate swap agreements are accounted for as adjustments to interest expense. Revenue and Cost Recognition on Contracts Revenue is recognized based upon shipments or billings. The Company records gross profit on its long-term contracts using percentage-of-completion accounting under which costs are recognized on revenues in the same relation that total estimated manufacturing costs bear to total contract value. Estimated costs at completion are based upon engineering and production estimates. Provisions for estimated losses or revisions in estimated profits on contracts-in-process are recorded in the period in which such losses or revisions are first determined. Property, Plant and Equipment Property, plant and equipment are 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. See Note 2 for a discussion of acquired in-process research and development. Intangible Assets Intangible assets are recorded at cost less accumulated amortization. The excess of purchase price over the fair value of tangible assets acquired is being amortized on a straight-line basis over periods ranging from 15 to 40 years except for certain costs allocated to identifiable intangible assets including existing technology, assembled workforce, customer relationships and patents which are amortized over 6 to 15 years, the estimated remaining lives of the intangibles at the time they were acquired by the Company. The S-7 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. Income Per Common Share In accordance with Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings Per Share," income per common share ("Basic EPS") is computed by dividing net income by the weighted average common shares outstanding. Income per common share assuming dilution ("Diluted EPS") is computed by dividing net income plus a pro forma addback of debenture interest by weighted average common shares outstanding plus potential dilution from the conversion of debentures and the exercise of stock options and warrants. Accounting for Stock-Based Compensation The Company records compensation expense for employee and director stock options only if the current market price of the underlying stock exceeds the exercise price on the date of the grant. Effective July 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has elected not to implement the fair value based accounting method for employee and director stock options, but instead has elected to disclose the pro forma net income and pro forma net income per share for employee and director stock option grants made beginning in fiscal 1996 as if such method had been used to account for stock-based compensation cost as described in SFAS No. 123. Income Taxes In accordance with SFAS No. 109, "Accounting for Income Taxes," the Company measures deferred tax assets and liabilities based upon the differences between the financial accounting and tax bases of assets and liabilities. Comprehensive Income On July 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." Comprehensive income consists of net income and equity adjustments from foreign currency translation and available for-sale securities and is presented in the Consolidated Statements of Stockholders' Equity and Comprehensive Income. The statement requires only additional disclosures in the consolidated financial statements; it does not effect the Company's financial position or results of operations. Reclassifications Reclassifications have been made to the 1998 and 1999 consolidated financial statements to conform to the 2000 presentation. Recent Accounting Pronouncements Effective July 1, 2000, the Company will adopt SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. This statement requires companies to record derivatives on the balance sheet as assets or liabilities at their fair value. In certain circumstances changes in the value of such derivatives may be required to be recorded as gains or losses. The impact of this statement is not expected to have a material effect on the Company's consolidated financial statements. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," an interpretation of Accounting Principles Board Opinion No.25. This interpretation clarifies the application of Option No. 25 for certain issues. This interpretation is effective July 1, 2000. The effects of applying this interpretation would be recognized on a prospective basis from July 1, 2000. The impact of this interpretation is not expected to be material. S-8 2. Acquisition of Businesses UTMC Effective February 25, 1999, the Company acquired all of the outstanding stock of UTMC Microelectronic Systems, Inc. ("UTMC") for $42.5 million of cash. The purchase price was paid with available cash of $22.5 million and borrowings under the Company's bank loan agreement of $20.0 million. UTMC is a supplier of radiation-tolerant integrated circuits for satellite communications. The acquired company's net sales were approximately $33.4 million for the year ended December 31, 1998. The Company commissioned an independent asset valuation study of acquired tangible and identifiable intangible assets to serve as a basis for allocation of the purchase price. Based on this study, the Company allocated the purchase price, including acquisition costs of approximately $500,000, as follows:
(In thousands) Net tangible assets $28,771 Identifiable intangible assets 6,300 Costs in excess of fair value of net assets acquired 4,429 In-process research and development 3,500 ------- $43,000 =======
The identifiable intangible assets include existing technology, customer relationships and assembled work force. The identifiable intangibles and costs in excess of fair value of net assets are being amortized on a straight-line basis over 6 to 15 years based on the study described above. The acquired in-process research and development was not considered to have reached technological feasibility and, in accordance with generally accepted accounting principles, the value of such was expensed in the third quarter of fiscal 1999. Summarized below are the unaudited pro forma results of operations of the Company as if UTMC had been acquired at the beginning of the fiscal periods presented. The $3.5 million write-off has been included in the June 30, 1999 pro forma income but not the June 30, 1998 pro forma income in order to provide comparability to the respective actual results.
Pro Forma Years Ended June 30, ----------------------------------- 1999 1998 ---- ---- (In thousands, except per share data) Net sales $ 177,149 $ 155,371 Net income 9,469 11,267 Net income per share Basic $ 0.43 $ 0.61 Diluted 0.40 0.55
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. Europtest Effective September 1, 1998, the Company acquired 90% of the stock of Europtest, S.A. (France) for approximately $1.1 million. The purchase agreement also requires that the Company purchase the remaining 10% of Europtest pro rata over a three-year period at prices determined based upon net sales of Europtest products. In October 1999, the Company purchased an additional 3.4% of Europtest's stock for approximately $54,000. Europtest develops and sells specialized software-driven test equipment used S-9 primarily in cellular, satellite and other communications applications. The acquired company's net sales were approximately $1.9 million for the year ended March 31, 1998. On a pro forma basis, had the Europtest acquisition taken place as of the beginning of the periods presented, results of operations for those periods would not have been materially affected. The purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values. 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 UTMC and Europtest are included in the consolidated statements of earnings from the respective acquisition dates. 3. Acquisition of Assets From Lucent Technologies Effective July 1, 1997, the Company's subsidiary, MIC Technology ("MIC"), acquired certain equipment, inventory, licenses for technology and patents of two of Lucent Technologies' microelectronics components units - multi-chip modules and film integrated circuits - for $4.4 million in cash. These units manufacture microelectronic modules and interconnect products. The purchase price has been allocated to the assets acquired, based on their fair values, and certain obligations assumed relating to the agreements. 4. Marketable Securities All of the Company's marketable securities are deemed by management to be available-for-sale and are reported at fair value with net unrealized gains or losses reported within stockholders' equity. Realized gains and losses are recorded based on the specific identification method. For fiscal years 2000, 1999 and 1998, gross realized gains and losses were $193,000, $0 and $0, respectively. The carrying amount of the Company's investments is shown in the table below:
June 30, 2000 ------------- (In thousands) Amortized cost $11,430 Gross unrealized gains 85 Gross unrealized losses (3) ------- Estimated fair value $11,512 =======
The marketable securities at June 30, 2000 were virtually all U.S. corporate debt securities with scheduled maturities within one year. 5. Inventories Inventories consist of the following:
June 30, ----------------------- 2000 1999 -------- -------- (In thousands) Raw materials......... $ 20,392 $ 18,441 Work-in-process....... 12,783 11,148 Finished goods........ 4,192 3,048 -------- -------- $ 37,367 $ 32,637 ======== ========
Inventories include contracts-in-process of $9.3 million and $9.6 million at June 30, 2000 and 1999, respectively, which consist substantially of unbilled material, labor and overhead costs that are or were expected to be billed during the succeeding fiscal year. S-10 6. Property, Plant and Equipment Property, plant and equipment consists of the following:
June 30, Estimated -------------------------- ----------- 2000 1999 Useful Life (In thousands) In Years ----------- Land............................ $ 4,725 $ 4,725 Building and leasehold improvements.................. 33,058 32,353 2 to 40 Machinery, equipment, tools and dies................... 38,268 37,727 3 to 10 Furniture and fixtures.......... 8,258 7,521 5 to 10 Assets recorded under capital leases................ 6,769 2,334 5 to 10 ---------- ---------- 91,078 84,660 Less accumulated depreciation and amortization.............. 38,856 33,858 ---------- ---------- $ 52,222 $ 50,802 ========== ==========
In July 1998, the Company purchased a previously leased operating facility in Pearl River, New York for $2.5 million in cash. Repairs and maintenance expense on property, plant and equipment was $2.5 million, $2.3 million and $1.4 million for the years ended June 30, 2000, 1999 and 1998, respectively. 7. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities include accrued salaries, wages and other compensation of $6.6 million and $7.1 million at June 30, 2000 and 1999, respectively. 8. Long-Term Debt and Credit Arrangements Long-term debt consists of the following:
June 30, ------------------------- 2000 1999 ---- ---- (In thousands) Revolving credit, term loan and mortgage agreement (a).. $ 4,038 $ 21,853 Building mortgage (b)......... 3,965 4,165 Equipment loans (c)........... - 4,877 Capitalized lease obligations (c)............. 6,026 124 Other......................... 520 98 -------- -------- 14,549 31,117 Less current maturities....... 1,566 6,509 -------- -------- $ 12,983 $ 24,608 ======== ========
Aggregate long-term debt as of June 30, 2000 matures in each fiscal year as follows:
(In thousands) 2001............... $ 1,566 2002............... 1,603 2003............... 1,338 2004............... 1,545 2005............... 1,646 Thereafter......... 6,851 -------- $ 14,549 ========
Interest paid was $2.4 million, $1.6 million and $2.1 million during the years ended June 30, 2000, 1999 and 1998, respectively. S-11 (a) As of February 25, 1999, the Company replaced a previous agreement with a revised revolving credit, term loan and mortgage agreement with two banks which is secured by substantially all of the Company's assets not otherwise encumbered. The agreement provided for a revolving credit line of $23.0 million, a term loan of $20.0 million and a mortgage on the Company's Plainview property for $4.5 million. The revolving credit loan facility expires in December 2002. As of June 30, 1999, the outstanding term loan was $17.5 million. The term loan was fully paid with the proceeds from the Company's sale of its Common Stock in May 2000. The interest rate on borrowings under this agreement is at various rates depending upon certain financial ratios, with the current rate substantially equivalent to 30-day LIBOR (approximately 6.7% at June 30, 2000) plus 1.50% on the revolving credit borrowings. The Company paid a facility fee of $100,000 and is required to pay a commitment fee of .25% per annum of the average unused portion of the credit line. The mortgage is payable in monthly installments of approximately $26,000 through March 2008 and a balloon payment of $1.6 million in April 2008. The Company has entered into an interest rate swap agreement for the outstanding amount under the mortgage agreement at approximately 7.6% in order to reduce the interest rate risk associated with these borrowings. The fair market value of the interest rate swap agreement was $154,000 as of June 30, 2000 in favor of the Company. The terms of the agreement require compliance with certain covenants including minimum consolidated tangible net worth and pretax earnings, maintenance of certain financial ratios, limitations on capital expenditures and indebtedness and prohibition of the payment of cash dividends. In connection with the purchase of certain materials for use in manufacturing, the Company has a letter of credit of $2.0 million. At June 30, 2000, the Company's available unused line of credit was $21.0 million after consideration of the letter of credit. (b) In December 1998, the Company financed the acquisition and renovation of the land and building of its Pearl River, NY facility and received proceeds amounting to $4.2 million. This debt requires a balloon payment of $4.0 million in 2019. (c) During the year ended June 30, 1998, the Company entered into equipment loans with two banks totaling $6.2 million. In June 2000, the remaining balance of these loans of $4.1 million was refinanced under two sale and capital leaseback agreements for approximately $6.0 million. For purposes of the Consolidated Statements of Cash Flows, the $4.1 million refinancing was considered a non-cash transaction. These agreements expire through June 2006 and bear interest at approximately 7.9%. 9. Senior Subordinated Convertible Debentures On September 8, 1997, the Company called for the redemption of all of its outstanding 7-1/2% Senior Subordinated Convertible Debentures at 104.5% of the principal amount of $10.0 million. All of the principal amount of the debentures was converted into the Company's Common Stock at a price of $4.50 per share. In connection with the conversions, $599,000 of deferred bond issuance costs were charged to additional paid-in capital. 10. Stockholders' Equity Common Stock Offerings In March 1998, the Company sold 3.2 million shares (adjusted for the stock split) of its Common Stock in a public offering for $31.3 million, net of an underwriting discount of $2.0 million and issuance costs of $496,000. Of these net proceeds, $9.6 million was used to repay bank indebtedness. The balance of the net proceeds was used primarily for the purchase of UTMC. In May 2000, the Company sold 3.1 million shares (adjusted for the stock split) of its Common Stock in a public offering for $68.5 million, net of an underwriting discount of $3.5 million and issuance costs of $500,000. Of these net proceeds, $13.0 million was used to repay the term loan. The balance of the net proceeds is invested in short-term marketable securities S-12 and is intended to ultimately be used for additional working capital, including research and development, and expansion of our facilities, and for general corporate purposes, including possible acquisitions of technologies, product lines or businesses. Common Stock Split On June 12, 2000, the Company's Board of Directors authorized a five-for-four stock split on its Common Stock, effective June 26, 2000. The share and per share amounts in the consolidated financial statements give effect to the stock split. Stock Options and Warrants Under the Company's stock option plans, 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. During 1990, the Company's shareholders approved the Non- Qualified Stock Option Plan (the "NQSOP"). In December 1993, the Board of Directors adopted the Outside Director Stock Option Plan (the "Directors' Plan") which provides for options to non-employee directors, which become exercisable in three installments and expire ten years from the date of grant. The Directors' Plan, as amended, covers 625,000 shares of the Company's Common Stock. In November 1994, the shareholders approved the Directors' Plan and the 1994 Non-Qualified Stock Option Plan (the "1994 Plan"). In November 1996, the shareholders approved the 1996 Stock Option Plan (the "1996 Plan"). In April 1998, the Board of Directors adopted the 1998 Stock Option Plan (the "1998 Plan"). In January 2000, the shareholders approved the 1999 Stock Option Plan (the "1999 Plan"). In March 2000, the Board of Directors adopted the 2000 Stock Option Plan ("the 2000 Plan"). The NQSOP, the 1994 Plan, the 1996 Plan, the 1998 Plan, the 1999 Plan and the 2000 Plan provide for options which become exercisable in one or more installments and each covers 1.9 million shares of the Company's Common Stock except for the 1999 Plan which covers 1.1 million shares and the 2000 Plan which covers 938,000 shares. Options under the NQSOP and the 1994 Plan expire five years from the date of grant. Options under the 1996 Plan, the 1998 Plan, the 1999 Plan and the 2000 Plan shall expire not later than ten years from the date of grant. The Company has also issued to employees, who are not executive officers, options to purchase 685,000 shares of Common Stock exercisable between $3.20 and $10.90 per share. Such grants were not covered by one of the above plans. Additional information with respect to the Company's stock options is as follows:
Weighted Shares Average Under Exercise Outstanding Prices Options ------------- ----------- (In thousands) Balance, July 1, 1997......... $ 3.06 4,150 Granted....... 7.95 1,304 Forfeited..... 2.92 (44) Exercised..... 2.54 (545) Balance, June 30, ----- 1998......... 4.43 4,865 Granted....... 9.46 1,444 Forfeited..... 3.60 (4) Exercised..... 2.99 (1,825) Balance, June 30, ----- 1999......... 6.64 4,480 Granted....... 28.02 2,197 Forfeited..... 9.64 (28) Exercised..... 4.45 (1,866) Balance, June 30, ----- 2000......... 17.30 4,783 =====
S-13 The Company's stock option plans allow employees to use shares received from the exercise of the option to satisfy the tax withholding requirements. During fiscal years 2000, 1999 and 1998, payroll tax on stock option exercises were withheld from employees in shares of the Company's Common Stock amounting to $0, $2.6 million and $10,000, respectively. Options to purchase 1.7 million, 1.9 million and 2.9 million shares were exercisable at weighted average exercise prices of $13.62, $4.06 and $3.12 as of June 30, 2000, 1999 and 1998, respectively. The options outstanding as of June 30, 2000 are summarized in ranges as follows:
Options Outstanding ---------------------------------- Weighted Weighted Range of Average Average Exercise Exercise Options Remaining Prices Price Outstanding Life -------- -------- ----------- --------- (In thousands) $ 3.00-$ 4.30 $ 3.60 321 5.8 years $ 6.50-$ 9.70 7.86 1,789 7.8 $10.75-$14.05 12.67 1,386 8.7 $32.82-$39.20 38.83 1,287 9.7 ----- 4,783 =====
Options Exercisable -------------------------- Weighted Range of Average Exercise Exercise Options Prices Price Exercisable -------- -------- ----------- (In thousands) $ 3.00-$ 4.30 $ 3.60 321 $ 6.50-$ 9.70 7.67 813 $10.75-$14.05 11.46 194 $32.82-$39.20 38.73 338 ----- 1,666 =====
As of June 30, 2000, the Company has outstanding warrants to purchase 66,000 shares of its Common Stock exercisable between $5.40 and $6.00 per share through June 2004. These warrants were issued primarily in connection with the acquisition of MIC in fiscal 1996. Accounting for Stock-Based Compensation In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation." The Company has chosen not to implement the fair value based accounting method for employee and director stock options, but has elected to disclose the pro forma net income and net income per share as if such method had been used to account for stock-based compensation cost as described in SFAS No. 123. The per share weighted average fair value of stock options granted during fiscal 2000, 1999 and 1998 was $21.20, $6.00 and $5.91, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions: 2000 - expected dividend yield of 0%, risk free interest rate of 6.0%, expected stock volatility of 94%, and an expected option life of 5.3 years; 1999 - expected dividend yield of 0%, risk free interest rate of 5.3%, expected stock volatility of 77%, and an expected option life of 5.1 years; 1998 - expected dividend yield of 0%, risk free interest rate of 5.8%, expected stock volatility of 80%, and an expected option life of 7.4 years. The pro forma compensation cost before income taxes was $14.0 million , $4.8 million and $2.0 million for the S-14 years ended June 30, 2000, 1999 and 1998, respectively, based on the aforementioned fair value at the grant date only for options granted after fiscal year 1995. The Company's net income and net income per share using this pro forma compensation cost would have been:
Years Ended June 30, ----------------------- (In thousands, except per share data) 2000 -------------------------- As Reported Pro Forma ----------- --------- Net income............... $ 14,400 $ 5,305 Net income per share - Basic................. $ 0.60 $ 0.22 - Diluted............... 0.57 0.21 1999 -------------------------- As Reported Pro Forma ----------- --------- Net income.............. $ 9,757 $ 6,608 Net income per share -Basic......... $ 0.44 $ 0.30 -Diluted....... 0.41 0.28 1998 -------------------------- As Reported Pro Forma ----------- --------- Net income.............. $ 8,406 $ 7,112 Net income per share -Basic............. $ 0.45 $ 0.38 -Diluted........... 0.41 0.36
Since the pro forma compensation cost reflects only options granted after fiscal year 1995, the full impact of calculating stock-based compensation costs under SFAS No. 123 is not reflected in the pro forma net income because compensation cost is recognized over the respective vesting period and compensation cost for options granted prior to fiscal year 1996 was not reflected. Shareholders' Rights Plan On August 13, 1998, the Company's Board of Directors approved a Shareholders' Rights Plan which provides for a dividend distribution of one right for each share to holders of record of the Company's Common Stock on August 31, 1998 and the issuance of one right for each share of Common Stock that shall be subsequently issued. The rights become exercisable only in the event a person or group ("Acquiring Person") accumulates 15% or more of the Company's Common Stock, or if an Acquiring Person announces an offer which would result in it owning 15% or more of the Common Stock. The rights expire on August 31, 2008. Each right will entitle the holder to buy 1/1250 of a share of Series A Junior Participating Preferred Stock, as amended, of the Company at a price of $65. In addition, upon the occurrence of a merger or other business combination, or the acquisition by an Acquiring Person of 50% or more of the Common Stock, holders of the rights, other than the Acquiring Person, will be entitled to purchase either Common Stock of the Company or common stock of the Acquiring Person at half their respective market values. The Company will be entitled to redeem the rights for $.01 per right at any time prior to a person becoming an Acquiring Person. S-15 Net Income Per Share A reconciliation of the numerators and denominators of the Basic EPS and Diluted EPS calculations is as follows:
Years Ended June 30, ----------------------------------- 2000 1999 1998 ---- ---- ---- (In thousands, except per share data) Computation of Adjusted Net Income: Net income for basic earnings per common share...... $ 14,400 $ 9,757 $ 8,406 Add: Debenture interest and amortization expense, net of income taxes................ - - 103 Adjusted net income for diluted -------- -------- -------- earnings per common share...... $ 14,400 $ 9,757 $ 8,509 Computation of Adjusted ======== ======== ======== Weighted Average Shares Outstanding: Weighted average shares outstanding.................... 23,819 22,230 18,503 Add: Shares assumed to be issued upon conversion of debentures..................... - - 489 Add: Effect of dilutive options and warrants outstanding.................... 1,643 1,680 1,666 Weighted average shares and ------- ------- ------- common share equivalents used for computation of diluted earnings per common share...... 25,462 23,910 20,658 Net Income Per Common Share: ======= ======= ======= Basic.......................... $0.60 $0.44 $0.45 ======= ======= ======= Diluted........................ $0.57 $0.41 $0.41 ======= ======= =======
Options to purchase 1.3 million shares at exercise prices ranging between $32.82 and $39.20 per share were outstanding as of June 30, 2000 but were not included in the computation of Diluted EPS because the exercise prices of these options were greater than the average market price of the common shares. 11. Income Taxes The provision (benefit) for income taxes consists of the following:
Years Ended June 30, ------------------------------------ 2000 1999 1998 --------- ---------- -------- (In thousands) Current: Federal............... $ 4,656 $ 4,465 $ 3,178 State and local....... 458 873 568 --------- --------- --------- 5,114 5,338 3,746 --------- --------- --------- Deferred: Federal............... 990 1,989 932 State and local....... 96 (177) 72 --------- --------- --------- 1,086 1,812 1,004 --------- --------- --------- $ 6,200 $ 7,150 $ 4,750 ========= ========= =========
S-16 The provision for income taxes varies from the amount computed by applying the U.S. Federal income tax rate to income before income taxes as a result of the following:
Years Ended June 30, 2000 1999 1998 --------- ---------- ---------- (In thousands) Tax at statutory rate.... $ 7,210 $ 5,917 $ 4,505 Utilization of capital loss carryforward....... (1,017) - - Non-deductible acquired in-process research and development charge.. - 1,225 - State and local income tax.............. 360 452 416 Research and development credit.................. (300) (500) (250) Other, net............... (53) 56 79 --------- --------- ---------- $ 6,200 $ 7,150 $ 4,750 ========= ========= ==========
Deferred tax assets and liabilities consist of:
June 30, ---------------------------- 2000 1999 --------- ---------- (In thousands) Accounts receivable....................... $ 210 $ 160 Inventories............................... 4,891 5,025 Accrued expenses and other current liabilities............................. 216 106 --------- ---------- Current assets.......................... 5,317 5,291 --------- ---------- Capital lease obligation.................. 1,955 - Other long-term liabilities............... 1,793 801 Capital loss carryforwards................ 1,262 2,543 Tax loss carryforwards.................... 6,189 1,434 Tax credit carryforwards.................. 4,164 3,864 Less: valuation allowance................. (2,165) (3,426) --------- ---------- Non-current assets...................... 13,198 5,216 --------- ---------- Property, plant and equipment............. (5,698) (3,572) Intangibles............................... (4,407) (5,205) Other..................................... - (21) --------- ---------- Long-term liabilities................... (10,105) (8,798) --------- ---------- Net non-current assets (liabilities).... 3,093 (3,582) --------- ---------- Total................................. $ 8,410 $ 1,709 ========= ==========
The Company recorded credits of $13.3 million, $5.2 million and $1.6 million to additional paid-in capital during the years ended June 30, 2000, 1999 and 1998, respectively, in connection with the tax benefit related to compensation deductions on the exercise of stock options and warrants. The deduction in fiscal 2000, is expected to create a net operating loss carryforward for tax purposes which has resulted in an increase in the Company's deferred tax assets. 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 assets will not be realized. The reduction of the valuation allowance in fiscal 2000, was primarily due to the utilization of capital loss carryforwards. The Company is undergoing routine audits by various taxing authorities of its state and local income tax returns covering periods from 1994 to 1996. Management believes that the probable outcome of these various audits should not materially affect the consolidated financial statements of the Company. S-17 The Company made income tax payments of $2.0 million, $3.3 million and $2.1 million and received refunds of $940,000, $75,000 and $26,000 during the years ended June 30, 2000, 1999 and 1998, respectively. 12. Employment Contracts As of June 30, 2000, the Company has employment agreements with certain of its officers for periods through June 30, 2004 with annual remuneration ranging from $206,000 to $368,000, plus cost of living adjustments and, in some cases, additional compensation based upon earnings of the Company. Future aggregate minimum payments under these contracts are $1.2 million per year. Certain of the contracts provide for a three-year consulting period at the expiration of the employment term at two-thirds of salary. In addition, these officers have the option to terminate their employment agreements upon change in control of the Company, as defined, and receive lump sum payments equal to the salary and bonus, if any, for the remainder of the term. 13. Employee Benefit Plans All employees of the Company and certain subsidiaries who are not members of a collective bargaining agreement are eligible to participate in one of two company sponsored 401(k) plans. Each participant has the option to contribute a portion of his or her compensation and receive a discretionary employer matching contribution. Furthermore, employees of certain subsidiaries are eligible to participate in qualified profit sharing plans and receive an allocation of a discretionary share of their respective subsidiary's profits. For fiscal years ended June 30, 2000, 1999 and 1998, these 401(k) and profit sharing plans had an aggregate expense of $1.7 million, $1.0 million and $810,000, respectively. Effective January 1, 1994, the Company established a Supplemental Executive Retirement Plan (the "SERP") which provides retirement, death and disability benefits to certain of its officers. The SERP expense for the fiscal years ended June 30, 2000, 1999 and 1998 was $454,000, $384,000 and $324,000, respectively. The assets of the SERP are held in a Rabbi Trust and amounted to $1.8 million and $1.2 million at June 30, 2000 and 1999, respectively. The accumulated benefit obligation was $2.6 million and $2.0 million at June 30, 2000 and 1999, respectively. The projected benefit obligation was $3.3 million and $2.9 million at June 30, 2000 and 1999, respectively. The intangible asset related to the SERP was $586,000 and $462,000 at June 30, 2000 and 1999, respectively. A discount rate of 7.5% and a rate of compensation increase of 3.0% are assumed in the above calculations for both years. No participants are currently receiving benefits. 14. Commitments and Contingencies Operating Leases Several of the Company's operating facilities and certain machinery and equipment are leased under agreements expiring through 2006. 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, 2000 are as follows for the fiscal years:
(In thousands) ------------ 2001............... $ 2,507 2002............... 2,174 2003............... 2,113 2004............... 1,216 2005............... 699 Thereafter......... 191 --------- $ 8,900 =========
S-18 Rental expense was $2.6 million, $2.3 million and $1.9 million during the fiscal years 2000, 1999 and 1998, respectively. Legal Matters 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 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. This action is in the discovery stage. Based upon available information and 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. The Company is involved in various other routine legal matters. Management believes the outcome of these matters will not have a materially adverse effect on the Company's consolidated financial statements. 15. Business Segments The Company's business segments and major products included in each segment, are as follows: Microelectronics: a)Microelectronic Modules b)Thin Film Interconnects c)Integrated Circuits Test, Measurement and Other Electronics: a)Instrument Products b)Motion Control Systems Isolator Products: a)Commercial Spring and Rubber Isolators b)Industrial Spring and Rubber Isolators c)Military Wire-rope Isolators The Company is a manufacturer of advanced technology systems and components for commercial industry, government and defense contractors. Approximately 32%, 41% and 42% of the Company's sales for the fiscal years 2000, 1999 and 1998, respectively, were to agencies of the United States government or to prime defense contractors or subcontractors of the United States government. The only customers which constituted more than 10% of the Company's sales during any year in the period presented were Teradyne and Lockheed Martin which comprised 11.0% and 10.5% of sales in fiscal year 2000, respectively, Lockheed Martin and Lucent Technologies which comprised 12.2% and 11.4% of sales in fiscal year 1999, respectively, and Lucent Technologies which comprised 15.5% of sales in fiscal year 1998. The Company's customers are located primarily in the United States, but export sales accounted for 11.8%, 7.7% and 5.5% in fiscal years 2000, 1999 and 1998, respectively. S-19
Years Ended June 30, ----------------------------- 2000 1999 1998 ------ ------ ------ Business Segment Data: (In thousands) Net sales: Microelectronics............ $110,253 $ 96,846 $ 74,263 Test, Measurement and Other Electronics......... 55,918 41,515 25,685 Isolator Products........... 19,753 18,743 18,913 -------- -------- -------- Net sales................. $185,924 $157,104 $118,861 ======== ======== ======== Operating income: Microelectronics............ $ 22,734 $ 20,104 $ 14,147 Test, Measurement and Other Electronics......... 2,333 3,134 996 Isolator Products........... 2,692 2,108 3,063 General corporate expenses.. (5,397) (4,262) (3,348) -------- -------- -------- 22,362 21,084 14,858 Acquired in-process research and development(1)........ - (3,500) - Interest expense............ (2,316) (1,454) (2,011) Other income (expense), net. 554 777 309 -------- -------- -------- Income before income taxes..................... $ 20,600 $ 16,907 $ 13,156 ======== ======== ======== Total assets: Microelectronics............ $112,183 $104,222 $ 58,053 Test, Measurement and Other Electronics......... 52,401 43,958 27,522 Isolator Products........... 9,567 10,020 10,163 Corporate................... 74,556 7,016 28,363 -------- -------- -------- Total assets.............. $248,707 $165,216 $124,101 ======== ======== ======== Capital expenditures: Microelectronics............ $ 4,777 $ 6,955 $ 8,792 Test, Measurement and Other Electronics......... 2,284 1,559 848 Isolator Products........... 152 586 970 Corporate................... - 4 3 -------- -------- -------- Total capital expenditures.............. $ 7,213 $ 9,104 $ 10,613 ======== ======== ======== Depreciation and amortization expense: Microelectronics............ $ 6,657 $ 4,112 $ 2,802 Test, Measurement and Other Electronics......... 1,744 1,849 1,553 Isolator Products........... 554 563 500 Corporate................... 28 30 29 -------- -------- -------- Total depreciation and amortization expense..... $ 8,983 $ 6,554 $ 4,884 ======== ======== ======== (1) The special charge for the write-off of in-process research and development acquired in the purchase of UTMC is allocable fully to the Microelectronics segment.
S-20 Quarterly Financial Data (Unaudited): (In thousands, except per share data and footnotes)
Quarter Year Ended 2000 First Second Third Fourth June 30, - ---------------------------------------------------------------------------------- Net Sales $ 42,072 $ 41,531 $ 46,275 $ 56,046 $185,924 Gross Profit 15,139 13,559 16,721 21,957 67,376 Net Income $ 2,930 $ 1,341 $ 3,032 $ 7,097 $ 14,400 ======== ======== ======== ======== ======== Net income per share: Basic $ 0.13 $ 0.06 $ 0.13 $ 0.28 $ 0.60 ======== ======== ======== ======== ======== Diluted $ 0.12 $ 0.06 $ 0.12 $ 0.26 $ 0.57 ======== ======== ======== ======== ======== Quarter Year Ended 1999 First Second Third Fourth June 30, - ---------------------------------------------------------------------------------- Net Sales $ 31,629 $ 36,197 $ 40,604 $ 48,674 $157,104 Gross Profit 11,125 12,402 15,399 19,533 58,459 Net Income (1) $ 2,258 $ 2,810 $ 188 $ 4,501 $ 9,757 ======== ======== ======== ======== ======== Net income per share: Basic (1) $ 0.10 $ 0.13 $ 0.01 $ 0.20 $ 0.44 ======== ======== ======== ======== ======== Diluted (1) $ 0.10 $ 0.12 $ 0.01 $ 0.18 $ 0.41 ======== ======== ======== ======== ======== (1) Includes $3.5 million ($.14 per diluted share and $.16 basic) for the year ended June 30, 1999 and quarter ended March 31, 1999, for the write-off of the in- process research and development acquired in connection with the purchase of UTMC Microelectronic Systems, Inc.
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. All shares and per share amounts have been restated to reflect a five-for-four stock split. S-21 AEROFLEX INCORPORATED --------------------- AND SUBSIDIARIES ---------------- SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS ----------------------------------------------- (In thousands)
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, 2000: - ------------------------ Allowance for doubtful accounts $ 381 $ 183 $ - $ 55 (A) $ 509 ====== ====== ======== ====== ====== Reserve for inventory obsolescence $4,354 $ 170 $ - $ 574 (B) $3,950 ====== ====== ======== ====== ====== YEAR ENDED JUNE 30, 1999: - ------------------------ Allowance for doubtful accounts $ 317 $ 152 $ - $ 88 (A) $ 381 ====== ====== ======== ====== ====== Reserve for inventory obsolescence $3,592 $ 805 $ - $ 43 (B) $4,354 ====== ====== ======== ====== ====== YEAR ENDED JUNE 30, 1998: - ------------------------ Allowance for doubtful accounts $ 417 $ 15 $ - $ 115 (A) $ 317 ====== ====== ======== ====== ====== Reserve for inventory obsolescence $4,055 $ 150 $ - $ 613 (B) $3,592 ====== ====== ======== ====== ====== Note: (A) - Net write-offs of uncollectible amounts. (B) - Write-off of inventory.
S-22 EX-10.16 2 0002.txt Aeroflex Incorporated 2000 Stock Option Plan SECTION 1. GENERAL PROVISIONS 1.1 Name and General Purpose The name of this plan is the Aeroflex Incorporated 2000 Stock Option Plan (hereinafter called the "Plan"). The Plan is intended to be a broadly-based incentive plan which enables Aeroflex Incorporated (the "Company") and its subsidiaries and affiliates to foster and promote the interests of the Company by attracting and retaining directors, officers and employees of, and consultants to, the Company who contribute to the Company's success by their ability, ingenuity and industry, to enable such directors, officers, employees and consultants to participate in the long-term success and growth of the Company by giving them a proprietary interest in the Company and to provide incentive compensation opportunities competitive with those of competing corporations. 1.2 Definitions a. "Affiliate" means any person or entity controlled by or under common control with the Company, by virtue of the ownership of voting securities, by contract or otherwise. b. "Board" means the Board of Directors of the Company. c. "Change in Control" means a change of control of the Company, or in any person directly or indirectly controlling the Company, which shall mean: (a) a change in control as such term is presently defined in Regulation 240.12b- (2) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (b) if any "person" (as such term is used in Section 13(d) and 14(d) of the Exchange Act) other than the Company or any "person" who on the date of this Agreement is a director or officer of the Company, becomes the "beneficial owner" (as defined in Rule 13(d)-3 under the Exchange Act) directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the voting power of the Company's then outstanding securities; or (c) if during any period of two (2) consecutive years during the term of this Plan, individuals who at the beginning of such period constitute the Board of Directors, cease for any reason to constitute at least a majority thereof. d. "Committee" means the Committee referred to in Section 1.3 of the Plan. e. "Common Stock" means shares of the Common Stock, par value $.10 per share, of the Company. f. "Company" means Aeroflex Incorporated, a corporation organized under the laws of the State of Delaware (or any successor corporation). g. "Fair Market Value" means the market price of the Common Stock on the Nasdaq Stock Market on the on the date of the grant or on any other date on which the Common Stock is to be valued hereunder. If no sale shall have been reported on the Nasdaq Stock Market on such date, Fair Market Value shall be determined by the Committee. h. "Non-Employee Director" shall have the meaning set forth in Rule 16(b) promulgated by the Securities and Exchange Commission ("Commission"). i. "Option" means any option to purchase Common Stock under Section 2 of the Plan. j. "Option Agreement" means the option agreement described in Section 2.4 of the Plan. k. "Participant" means any director, officer, employee or consultant of the Company, a Subsidiary or an Affiliate who is selected by the Committee to participate in the Plan. l. "Subsidiary" means any corporation in which the Company possesses directly or indirectly 50% or more of the combined voting power of all classes of stock of such corporation. m. "Total Disability" means accidental bodily injury or sickness which wholly and continuously disabled an optionee. The Committee, whose decisions shall be final, shall make a determination of Total Disability. 1.3 Administration of the Plan The Plan shall be administered by the Board or by the Committee appointed by the Board consisting of two or more members of the Board all of whom shall be Non-Employee Directors. The Committee shall serve at the pleasure of the Board and shall have such powers as the Board may, from time to time, confer upon it. Subject to this Section 1.3, the Committee shall have sole and complete authority to adopt, alter, amend or revoke such administrative rules, guidelines and practices governing the operation of the Plan as it shall, from time to time, deem advisable, and to interpret the terms and provisions of the Plan. The Committee shall keep minutes of its meetings and of action taken by it without a meeting. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all of the members of the Committee without a meeting, shall constitute the acts of the Committee. 1.4 Eligibility Stock Options may be granted only to directors, officers, employees or consultants of the Company or a Subsidiary or Affiliate. All employees are eligible to receive Stock Options under the Plan. Any person who has been granted any Option may, if he is otherwise eligible, be granted an additional Option or Options. 1.5 Shares The aggregate number of shares reserved for issuance pursuant to the Plan shall be 750,000 shares of Common Stock, or the number and kind of shares of stock or other securities which shall be substituted for such shares or to which such shares shall be adjusted as provided in Section 1.6. Such number of shares may be set aside out of the authorized but unissued shares of Common Stock or out of issued shares of Common Stock acquired for and held in the Treasury of the Company, not reserved for any other purpose. Shares subject to, but not sold or issued under, any Option terminating or expiring for any reason prior to its exercise in full will again be available for Options thereafter granted during the balance of the term of the Plan. 1.6 Adjustments Due to Stock Splits, Mergers, Consolidation, Etc. If, at any time, the Company shall take any action, whether by stock dividend, stock split, combination of shares or otherwise, which results in a proportionate increase or decrease in the number of shares of Common Stock theretofore issued and outstanding, the number of shares which are reserved for issuance under the Plan and the number of shares which, at such time, are subject to Options shall, to the extent deemed appropriate by the Committee, be increased or decreased in the same proportion, provided, however, that the Company shall not be obligated to issue fractional shares. Likewise, in the event of any change in the outstanding shares of Common Stock by reason of any recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other corporate change, the Committee shall make such substitution or adjustments, if any, as it deems to be appropriate, as to the number or kind of shares of Common Stock or other securities which are reserved for issuance under the Plan and the number of shares or other securities which, at such time are subject to Options. In the event of a Change in Control, at the option of the Board or Committee, (a) all Options outstanding on the date of such Change in Control shall become immediately and fully exercisable, and (b) an optionee will be permitted to surrender for cancellation within sixty (60) days after such Change in Control any Option or portion of an Option which was granted more than six (6) months prior to the date of such surrender, to the extent not yet exercised, and to receive a cash payment in an amount equal to the excess, if any, of the Fair Market Value (on the date of surrender) of the shares of Common Stock subject to the Option or portion thereof surrendered, over the aggregate purchase price for such Shares under the Option. 1.7 Non-Alienation of Benefits Except as herein specifically provided, no right or unpaid benefit under the Plan shall be subject to alienation, assignment, pledge or charge and any attempt to alienate, assign, pledge or charge the same shall be void. If any Participant or other person entitled to benefits hereunder should attempt to alienate, assign, pledge or charge any benefit hereunder, then such benefit shall, in the discretion of the Committee, cease. 1.8 Withholding or Deduction for Taxes If, at any time, the Company or any Subsidiary or Affiliate is required, under applicable laws and regulations, to withhold, or to make any deduction for any taxes, or take any other action in connection with any Option exercise, the Participant shall be required to pay to the Company or such Subsidiary or Affiliate, the amount of any taxes required to be withheld, or, in lieu thereof, at the option of the Company, the Company or such Subsidiary or Affiliate may accept a sufficient number of shares of Common Stock to cover the amount required to be withheld. 1.9 Administrative Expenses The entire expense of administering the Plan shall be borne by the Company. 1.10 General Conditions a. The Board or the Committee may, from time to time, amend, suspend or terminate any or all of the provisions of the Plan, provided that, without the Participant's approval, no change may be made which would alter or impair any right theretofore granted to any Participant. b. With the consent of the Participant affected thereby, the Committee may amend or modify any outstanding Option in any manner not inconsistent with the terms of the Plan, including, without limitation, and irrespective of the provisions of Section 2.3(c) below, to accelerate the date or dates as of which an installment of an Option becomes exercisable; provided, that the Committee shall not have the right to reprice any outstanding Options. c. Nothing contained in the Plan shall prohibit the Company or any Subsidiary or Affiliate from establishing other additional incentive compensation arrangements for employees of the Company or such Subsidiary or Affiliate. d. Nothing in the Plan shall be deemed to limit, in any way, the right of the Company or any Subsidiary or Affiliate to terminate a Participant's employment or service with the Company (or such Subsidiary or Affiliate) at any time. e. Any decision or action taken by the Board or the Committee arising out of or in connection with the construction, administration, interpretation and effect of the Plan shall be conclusive and binding upon all Participants and any person claiming under or through any Participant. f. No member of the Board or of the Committee shall be liable for any act or action, whether of commission or omission, (i) by such member except in circumstances involving actual bad faith, nor (ii) by any other member or by any officer, agent or employee. 1.11 Compliance with Applicable Law Notwithstanding any other provision of the Plan, the Company shall not be obligated to issue any shares of Common Stock, or grant any Option with respect thereto, unless it is advised by counsel of its selection that it may do so without violation of the applicable Federal and State laws pertaining to the issuance of securities and the Company may require any stock certificate so issued to bear a legend, may give its transfer agent instructions limiting the transfer thereof, and may take such other steps, as in its judgment are reasonably required to prevent any such violation. 1.12 Effective Dates The Plan was adopted by the Board on March 22, 2000. The Plan shall terminate on March 21, 2010. Section 2. OPTION GRANTS 2.1 Authority of Committee Subject to the provisions of the Plan, the Committee shall have the sole and complete authority to determine (i) the Participants to whom Options shall be granted; (ii) the number of shares to be covered by each Option; and (iii) the conditions and limitations, if any, in addition to those set forth in Sections 2 and 3 hereof, applicable to the exercise of an Option, including without limitation, the nature and duration of the restrictions, if any, to be imposed upon the sale or other disposition of shares acquired upon exercise of an Option. Stock Options granted under the Plan shall be non-qualified stock options. The Committee shall have the authority to grant Options. 2.2 Option Exercise Price The exercise price set forth in the Option Agreement at the time of grant shall not be less than the Fair Market Value of the Common Stock at the time that the Option is granted. The purchase price is to be paid in full in cash, certified or bank cashier's check or, at the option of the Company, Common Stock valued at its Fair Market Value on the date of exercise, or a combination thereof, when the Option is exercised and stock certificates will be delivered only against such payment. 2.3 Option Grants Each Option will be subject to the following provisions: a. Term of Option An Option will be for a term of not more than ten years from the date of grant. b. Exercise (i) By an Employee: Unless otherwise provided by the Committee and except in the manner described below upon the death of the optionee, an Option may be exercised only in installments as follows: up to one-half of the subject shares on and after the first anniversary of the date of grant, up to all of the subject shares on and after the second such anniversary of the date of the grant of such Option but in no event later than the expiration of the term of the Option. An Option shall be exercisable during the optionee's lifetime only by the optionee and shall not be exercisable by the optionee unless, at all times since the date of grant and at the time of exercise, such optionee is an employee of or providing services to the Company, any parent corporation of the Company or any Subsidiary or Affiliate, except that, upon termination of all such employment or provision of services (other than by death, Total Disability, or by Total Disability followed by death in the circumstances provided below), the optionee may exercise an Option at any time within three months thereafter but only to the extent such Option is exercisable on the date of such termination. Upon termination of all such employment by Total Disability, the optionee may exercise such Options at any time within one year thereafter, but only to the extent such Option is exercisable on the date of such termination. In the event of the death of an optionee (i) while an employee of or providing services to the Company, any parent corporation of the Company or any Subsidiary or Affiliate, or (ii) within three months after termination of all such employment or provision of services (other than for Total Disability) or (iii) within one year after termination on account of Total Disability of all such employment or provision of services, such optionee's estate or any person who acquires the right to exercise such option by bequest or inheritance or by reason of the death of the optionee may exercise such optionee's Option at any time within the period of three years from the date of death. In the case of clauses (i) and (iii) above, such Option shall be exercisable in full for all the remaining shares covered thereby, but in the case of clause (ii) such Option shall be exercisable only to the extent it was exercisable on the date of such termination of employment or service. (ii) By Persons other than Employees: If the optionee is not an employee of the Company or the parent corporation of the Company or any Subsidiary or Affiliate, the vesting of such optionee's right to exercise his Options shall be established and determined by the Committee in the Option Agreement covering the Options granted to such optionee. Notwithstanding the foregoing provisions regarding the exercise of an Option in the event of death, Total Disability, other termination of employment or provision of services or otherwise, in no event shall an Option be exercisable in whole or in part after the termination date provided in the Option Agreement. c. Transferability An Option granted under the Plan shall not be transferable otherwise than by will or by the laws of descent and distribution, except as may be permitted by the Board or the Committee. 2.4 Agreements In consideration of any Options granted to a Participant under the Plan, each such Participant shall enter into an Option Agreement with the Company providing, consistent with the Plan, such terms as the Committee may deem advisable. EX-10.17 3 0003.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 (this "Amendment") to the Employment Agreement (the "Employment Agreement") dated as of March 1, 1999 by and between Harvey R. Blau (the "Executive") and Aeroflex Incorporated (the "Company"), hereby amends the Employment Agreement, effective as of September 1, 1999, as set forth below. 1. Requirement of Deferral. To the extent that any Bonus Amount would be nondeductible by the Company in the Relevant Tax Year solely by reason of Section 162(m), and if a Change in Control (as defined in the Employment Agreement) has not occurred on or before the last day of the Relevant Tax Year, then the Deferred Amount (if any) shall not be paid at the time provided for in Section 4 of the Employment Agreement, but instead shall be deferred and paid in accordance with this Amendment. 2. Credits to Account. The Company shall credit each Deferred Amount to a bookkeeping account in the name of the Executive (the "Account") on the date the Deferred Amount would (absent this Amendment) have been paid to the Executive. The Company shall also credit the Account monthly with interest on the balance therein at the prime rate as pub lished in the Wall Street Journal, as in effect from time to time, less one percentage point. The Account shall be reduced as and to the extent distributions are made from the Account pursuant to Sections 4, 6 and 7 of this Amendment. 3. Election Form for Time and Form of Payments and Beneficiaries. The Executive may elect, on an Election Form, or such other form as the Committee or its delegee may from time to time prescribe, the time or times at which the balance in the Account shall be paid to the Executive; provided, that except as provided in Sections 6 and 7 of this Amendment, in no event shall any portion of the balance of the Account be paid to the Executive before the 10th business day following the termination of the Executive's employment with the Company and its affiliates. The Election Form shall permit the Executive to elect a beneficiary or beneficiaries to receive the balance in his Account in the event of his death before payment of such balance in full. Any Election Form filed by the Executive within 30 days after the date of this Amendment shall be immediately effective and shall remain in effect until superseded as set forth in the next sentence. Any Election Form filed by the Executive more than 30 days after the date of this Amendment shall become effective on the first anniversary of its filing, at which time it shall supersede any election form previously filed by the Executive and shall remain in effect until superseded as set forth in this sentence. Notwithstanding the foregoing, no Election Form shall become effective after any payments from the Account have been made pursuant to Section 4 of this Amendment, other than payments pursuant to Sections 6 and 7. 4. Payments from Account. If at the time of the termination of the Execu tive's employment with the Company and its affiliates, there is no election form in effect for the Executive, the Company shall pay him (or his estate, if applicable) the balance in his Account in a single lump-sum cash payment, as promptly as practicable following the 10th business day after the termination of the Executive's employment with the Company and its affiliates for any reason. In all other cases, the Company shall pay the Executive (or his beneficiary or beneficia ries, if applicable) the balance in his Account in accordance with the election form that is in effect for the Executive. 5. Incompetence of the Executive. Notwithstanding the foregoing, if at the time any portion of the Account becomes payable to the Executive, the Executive has been determined to be legally incompetent, the Committee may cause the Company to make payment of such portion to the Executive's legal guardian or such other person or persons as the Commit tee considers appropriate on behalf of the Executive, and such payment shall fully discharge the Company's obligations with respect to the Account and all persons having or claiming to have an interest therein, including without limitation the Executive. 6. Hardship Withdrawals. Notwithstanding any other provision of this Amendment, the Executive or any of his beneficiaries may withdraw all or a portion of his Account in the event of unforeseeable emergency. For this purpose, unforeseeable emergency means that funds are necessary in light of the immediate and heavy unexpected financial needs of the Executive or beneficiary. Any such withdrawal shall be limited to the amount required (taking into account the net after-tax amount that will be available from such withdrawal) to meet any immediate financial need that is not reasonably available from other sources. All determina tions as to whether, and in what amounts, withdrawals are permitted pursuant to this Section 6 shall be made by the Committee in its sole discretion. Withdrawals shall be paid in cash as soon as practicable following approval of the withdrawal request by the Committee. 7. Automatic Withdrawals. Notwithstanding any other provision of this Amendment, if the Committee determines that it is possible for the Company to pay the Executive all or any portion of the amounts credited to his Account at a time when he is still employed with the Company or any of its affiliates, without the amount so paid being nondeduct ible by reason of Section 162(m), then such amount shall be paid to the Executive. 8. Unfunded Arrangement. The Account and the amounts credited thereto shall be unfunded obligations of the Company, and neither the Executive nor any of his benefi ciaries shall have any interest in the assets of the Company relating to or arising out of the Account, except as general creditor, of the Company. 9. Definitions. (a) The "Bonus Amount" for a Relevant Tax Year means the amount that would (absent this Amendment) become payable pursuant to Section 4 of the Employment Agreement and would (absent the application of Section 162(m)) be deductible by the Company in that Relevant Taxable Year. (b) The Deferred Amount for a Relevant Tax Year means all or a portion of the Bonus Amount for the Relevant Tax Year, equal to the lesser of the Bonus Amount and the Nondeductible Amount for the Relevant Tax Year. (c) The "Code" means the Internal Revenue Code of 1986, as amended. (d) The "Committee" means the Compensation/Stock Option Committee of the Board of Directors of the Company. (e) "Election Form" means a form substantially in the form attached hereto as Exhibit A, or such other form as the Committee or its delegee may from time to time prescribe, duly completed by the Executive and filed with the Committee or its delegee. (f) The "Nondeductible Amount" for a Relevant Tax Year means the excess of (i) the "applicable employee remuneration" under Section 162(m) with respect to the Execu tive for such Relevant Tax Year over (ii) the portion of such applicable employee remuneration that does not exceed the dollar limitation set forth in Section 162(m)(1) of the Code (without regard to Section 162(m)(4)(F) of the Code); provided, that if there is no such excess, then the "Nondeductible Amount" for that Relevant Tax Year is zero. (g) The "Relevant Tax Year" with respect to any Bonus Amount or Nonde ductible Amount means the taxable year of the Company in which the Company would (absent Section 162(m) of the Code) be entitled to deduct such amount for federal income tax purposes. (h) "Section 162(m)" means Section 162(m) of the Code and the Treasury Regulations thereunder. 10. Except as specifically provided in this Amendment, the Employment Agreement is in all other respects ratified and confirmed without amendment. 11. For purposes of this Amendment, any provisions of the Code other than Section 162(m) that might result in a denial of a tax deduction (as opposed to such provisions affecting the timing of such deduction) shall be ignored, including without limitation Section 280G of the Code. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date first above written. AEROFLEX INCORPORATED By:/s/ Michael Gorin Name: Michael Gorin Title: President /s/ Harvey R. Blau Harvey R. Blau EXHIBIT A ELECTION FORM To: Chairman, Compensation/Stock Option Committee Aeroflex Incorporated 35 South Service Road Plainview, New York 11803 cc: Charles Badlato From: Harvey R. Blau Date: 9/15/99 Pursuant to Amendment No. 1 dated as of September 1, 1999 (the "Amendment") to the Employment Agreement (the "Employment Agreement") dated as of March 1, 1999 by and between me and Aeroflex Incorporated (the "Company"), I hereby make the following elections with respect to the payment of the Account (as defined in the Amendment): 1. Time of payments (other than in the event of my death) The balance in my Account shall become payable (or begin to be payable) as promptly as practicable following the date indicated below (choose one): (x) the 10th business day after the termination of my employment with the Company and its affiliates ( ) the later of ________ (fill in a specific date) or the 10th business day after the termination of my employment with the Company and its affiliates 2. Form of payments (other than in the event of my death) The balance in my Account shall be payable to me in the form indicated below (choose one): (x) a single lump-sum payment ( ) monthly over a period of __ years (fill in number, not to exceed 15), with each monthly payment representing an approximately equal portion of the balance in my account on the date payments begins, plus an appropriate share of interest credited to the Account after that date 3. Beneficiary for payments in the event of my death Upon my death, any balance in my Account that has not already been paid to me shall be payable to the following individual(s) in the proportions indicated: Name Address Percentage (1) Arlene Blau 2 E. 70th St. 100% NY, NY 4. Form of payments in the event of my death The balance in my Account that becomes payable to the individual(s) indicated in Section 3 above upon my death shall be payable in the form indicated below (choose one): (x) a single lump-sum payment ( ) in continuing monthly installments in accordance with my election in Section 2 above ( ) monthly over a period of __ years (fill in number, not to exceed 15), with each monthly payment representing an approximately equal portion of the balance in my account on the date of my death, plus an appropriate share of interest credited to the Account after that date 5. Change in Control override: If there is a "Change in Control" (as defined in the Employment Agreement), then I elect as follows (choose one): (x) the balance in my Account shall be paid to me (or my beneficiary if I have previously died) in a single lump-sum payment as soon as practi cable after the Change in Control ( ) the balance in my Account shall continue to be payable in accordance with Sections 1-4 above, as applicable I recognize and acknowledge that: (i) if I fail to complete Section 3 above, any balance in my Account upon my death will be paid to my estate in a single lump sum; (ii) if I other wise fill out this form incorrectly or incompletely, the Committee reserves the right to declare it ineffective or to deem it to have been completed in such manner as it determines, in its sole discretion, to be consistent with my intent; and (iii) if this form is filed more than 30 days after [insert date of Amendment], it will become effective on the first anniversary of the date it is filed, except that if any payments from my Account have previously been made, it shall not become effective. /s/ Harvey R. Blau Harvey R. Blau Received by ___________________ on ____________ [Committee or its delegee to insert name and date] (1) The percentages must add up to 100% EX-10.18 4 0004.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 (this "Amendment") to the Employment Agreement (the "Employment Agreement") dated as of March 1, 1999 by and between Michael Gorin (the "Executive") and Aeroflex Incorporated (the "Company"), hereby amends the Employment Agreement, effective as of September 1, 1999, as set forth below. 1. Requirement of Deferral. To the extent that any Bonus Amount would be nondeductible by the Company in the Relevant Tax Year solely by reason of Section 162(m), and if a Change in Control (as defined in the Employment Agreement) has not occurred on or before the last day of the Relevant Tax Year, then the Deferred Amount (if any) shall not be paid at the time provided for in Section 4 of the Employment Agreement, but instead shall be deferred and paid in accordance with this Amendment. 2. Credits to Account. The Company shall credit each Deferred Amount to a bookkeeping account in the name of the Executive (the "Account") on the date the Deferred Amount would (absent this Amendment) have been paid to the Executive. The Company shall also credit the Account monthly with interest on the balance therein at the prime rate as pub lished in the Wall Street Journal, as in effect from time to time, less one percentage point. The Account shall be reduced as and to the extent distributions are made from the Account pursuant to Sections 4, 6 and 7 of this Amendment. 3. Election Form for Time and Form of Payments and Beneficiaries. The Executive may elect, on an Election Form, or such other form as the Committee or its delegee may from time to time prescribe, the time or times at which the balance in the Account shall be paid to the Executive; provided, that except as provided in Sections 6 and 7 of this Amendment, in no event shall any portion of the balance of the Account be paid to the Executive before the 10th business day following the termination of the Executive's employment with the Company and its affiliates. The Election Form shall permit the Executive to elect a beneficiary or beneficiaries to receive the balance in his Account in the event of his death before payment of such balance in full. Any Election Form filed by the Executive within 30 days after the date of this Amendment shall be immediately effective and shall remain in effect until superseded as set forth in the next sentence. Any Election Form filed by the Executive more than 30 days after the date of this Amendment shall become effective on the first anniversary of its filing, at which time it shall supersede any election form previously filed by the Executive and shall remain in effect until superseded as set forth in this sentence. Notwithstanding the foregoing, no Election Form shall become effective after any payments from the Account have been made pursuant to Section 4 of this Amendment, other than payments pursuant to Sections 6 and 7. 4. Payments from Account. If at the time of the termination of the Execu tive's employment with the Company and its affiliates, there is no election form in effect for the Executive, the Company shall pay him (or his estate, if applicable) the balance in his Account in a single lump-sum cash payment, as promptly as practicable following the 10th business day after the termination of the Executive's employment with the Company and its affiliates for any reason. In all other cases, the Company shall pay the Executive (or his beneficiary or beneficia ries, if applicable) the balance in his Account in accordance with the election form that is in effect for the Executive. 5. Incompetence of the Executive. Notwithstanding the foregoing, if at the time any portion of the Account becomes payable to the Executive, the Executive has been determined to be legally incompetent, the Committee may cause the Company to make payment of such portion to the Executive's legal guardian or such other person or persons as the Commit tee considers appropriate on behalf of the Executive, and such payment shall fully discharge the Company's obligations with respect to the Account and all persons having or claiming to have an interest therein, including without limitation the Executive. 6. Hardship Withdrawals. Notwithstanding any other provision of this Amendment, the Executive or any of his beneficiaries may withdraw all or a portion of his Account in the event of unforeseeable emergency. For this purpose, unforeseeable emergency means that funds are necessary in light of the immediate and heavy unexpected financial needs of the Executive or beneficiary. Any such withdrawal shall be limited to the amount required (taking into account the net after-tax amount that will be available from such withdrawal) to meet any immediate financial need that is not reasonably available from other sources. All determina tions as to whether, and in what amounts, withdrawals are permitted pursuant to this Section 6 shall be made by the Committee in its sole discretion. Withdrawals shall be paid in cash as soon as practicable following approval of the withdrawal request by the Committee. 7. Automatic Withdrawals. Notwithstanding any other provision of this Amendment, if the Committee determines that it is possible for the Company to pay the Executive all or any portion of the amounts credited to his Account at a time when he is still employed with the Company or any of its affiliates, without the amount so paid being nondeduct ible by reason of Section 162(m), then such amount shall be paid to the Executive. 8. Unfunded Arrangement. The Account and the amounts credited thereto shall be unfunded obligations of the Company, and neither the Executive nor any of his benefi ciaries shall have any interest in the assets of the Company relating to or arising out of the Account, except as general creditor, of the Company. 9. Definitions. (a) The "Bonus Amount" for a Relevant Tax Year means the amount that would (absent this Amendment) become payable pursuant to Section 4 of the Employment Agreement and would (absent the application of Section 162(m)) be deductible by the Company in that Relevant Taxable Year. (b) The Deferred Amount for a Relevant Tax Year means all or a portion of the Bonus Amount for the Relevant Tax Year, equal to the lesser of the Bonus Amount and the Nondeductible Amount for the Relevant Tax Year. (c) The "Code" means the Internal Revenue Code of 1986, as amended. (d) The "Committee" means the Compensation/Stock Option Committee of the Board of Directors of the Company. (d) "Election Form" means a form substantially in the form attached hereto as Exhibit A, or such other form as the Committee or its delegee may from time to time prescribe, duly completed by the Executive and filed with the Committee or its delegee. (e) The "Nondeductible Amount" for a Relevant Tax Year means the excess of (i) the "applicable employee remuneration" under Section 162(m) with respect to the Execu tive for such Relevant Tax Year over (ii) the portion of such applicable employee remuneration that does not exceed the dollar limitation set forth in Section 162(m)(1) of the Code (without regard to Section 162(m)(4)(F) of the Code); provided, that if there is no such excess, then the "Nondeductible Amount" for that Relevant Tax Year is zero. (f) The "Relevant Tax Year" with respect to any Bonus Amount or Nonde ductible Amount means the taxable year of the Company in which the Company would (absent Section 162(m) of the Code) be entitled to deduct such amount for federal income tax purposes. (g) "Section 162(m)" means Section 162(m) of the Code and the Treasury Regulations thereunder. 9. Except as specifically provided in this Amendment, the Employment Agreement is in all other respects ratified and confirmed without amendment. 10. For purposes of this Amendment, any provisions of the Code other than Section 162(m) that might result in a denial of a tax deduction (as opposed to such provisions affecting the timing of such deduction) shall be ignored, including without limitation Section 280G of the Code. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date first above written. AEROFLEX INCORPORATED By: /s/ Harvey R. Blau Name: Harvey R. Blau Title: Chairman of the Board /s/ Michael Gorin Michael Gorin EXHIBIT A ELECTION FORM To: Chairman, Compensation/Stock Option Committee Aeroflex Incorporated 35 South Service Road Plainview, New York 11803 cc: Charles Badlato From: Michael Gorin Date: 6/15/99 Pursuant to Amendment No. 1 dated as of September 1, 1999 (the "Amendment") to the Employment Agreement (the "Employment Agreement") dated as of March 1, 1999 by and between me and Aeroflex Incorporated (the "Company"), I hereby make the following elections with respect to the payment of the Account (as defined in the Amendment): 1. Time of payments (other than in the event of my death) The balance in my Account shall become payable (or begin to be payable) as promptly as practicable following the date indicated below (choose one): (x) the 10th business day after the termination of my employment with the Company and its affiliates ( ) the later of ________ (fill in a specific date) or the 10th business day after the termination of my employment with the Company and its affiliates 2. Form of payments (other than in the event of my death) The balance in my Account shall be payable to me in the form indicated below (choose one): (x) a single lump-sum payment ( ) monthly over a period of __ years (fill in number, not to exceed 15), with each monthly payment representing an approximately equal portion of the balance in my account on the date payments begins, plus an appropriate share of interest credited to the Account after that date 3. Beneficiary for payments in the event of my death Upon my death, any balance in my Account that has not already been paid to me shall be payable to the following individual(s) in the proportions indicated: Name Address Percentage (1) Diane Gorin 1123 East Long Beach Rd. 100% Nissequogue, NY 11780 4. Form of payments in the event of my death The balance in my Account that becomes payable to the individual(s) indicated in Section 3 above upon my death shall be payable in the form indicated below (choose one): (x) a single lump-sum payment ( ) in continuing monthly installments in accordance with my election in Section 2 above ( ) monthly over a period of __ years(fill in number, not to exceed 15), with each monthly payment representing an approximately equal portion of the balance in my account on the date of my death, plus an appropriate share of interest credited to the Account after that date 5. Change in Control override: If there is a "Change in Control" (as defined in the Employment Agreement), then I elect as follows (choose one): (x) the balance in my Account shall be paid to me (or my beneficiary if I have previously died) in a single lump-sum payment as soon as practi cable after the Change in Control ( ) the balance in my Account shall continue to be payable in accordance with Sections 1-4 above, as applicable I recognize and acknowledge that: (i) if I fail to complete Section 3 above, any balance in my Account upon my death will be paid to my estate in a single lump sum; (ii) if I other wise fill out this form incorrectly or incompletely, the Committee reserves the right to declare it ineffective or to deem it to have been completed in such manner as it determines, in its sole discretion, to be consistent with my intent; and (iii) if this form is filed more than 30 days after [insert date of Amendment], it will become effective on the first anniversary of the date it is filed, except that if any payments from my Account have previously been made, it shall not become effective. /s/ Michael Gorin Michael Gorin Received by on ____________ [Committee or its delegee to insert name and date] (1) The percentages must add up to 100% EX-10.19 5 0005.txt AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT This Amendment No. 1 (this "Amendment") to the Employment Agreement (the "Employment Agreement") dated as of March 1, 1999 by and between Leonard Borow (the "Executive") and Aeroflex Incorporated (the "Company"), hereby amends the Employment Agreement, effective as of September 1, 1999, as set forth below. 1. Requirement of Deferral. To the extent that any Bonus Amount would be nondeductible by the Company in the Relevant Tax Year solely by reason of Section 162(m), and if a Change in Control (as defined in the Employment Agreement) has not occurred on or before the last day of the Relevant Tax Year, then the Deferred Amount (if any) shall not be paid at the time provided for in Section 4 of the Employment Agreement, but instead shall be deferred and paid in accordance with this Amendment. 2. Credits to Account. The Company shall credit each Deferred Amount to a bookkeeping account in the name of the Executive (the "Account") on the date the Deferred Amount would (absent this Amendment) have been paid to the Executive. The Company shall also credit the Account monthly with interest on the balance therein at the prime rate as pub lished in the Wall Street Journal, as in effect from time to time, less one percentage point. The Account shall be reduced as and to the extent distributions are made from the Account pursuant to Sections 4, 6 and 7 of this Amendment. 3. Election Form for Time and Form of Payments and Beneficiaries. The Executive may elect, on an Election Form, or such other form as the Committee or its delegee may from time to time prescribe, the time or times at which the balance in the Account shall be paid to the Executive; provided, that except as provided in Sections 6 and 7 of this Amendment, in no event shall any portion of the balance of the Account be paid to the Executive before the 10th business day following the termination of the Executive's employment with the Company and its affiliates. The Election Form shall permit the Executive to elect a beneficiary or beneficiaries to receive the balance in his Account in the event of his death before payment of such balance in full. Any Election Form filed by the Executive within 30 days after the date of this Amendment shall be immediately effective and shall remain in effect until superseded as set forth in the next sentence. Any Election Form filed by the Executive more than 30 days after the date of this Amendment shall become effective on the first anniversary of its filing, at which time it shall supersede any election form previously filed by the Executive and shall remain in effect until superseded as set forth in this sentence. Notwithstanding the foregoing, no Election Form shall become effective after any payments from the Account have been made pursuant to Section 4 of this Amendment, other than payments pursuant to Sections 6 and 7. 4. Payments from Account. If at the time of the termination of the Execu tive's employment with the Company and its affiliates, there is no election form in effect for the Executive, the Company shall pay him (or his estate, if applicable) the balance in his Account in a single lump-sum cash payment, as promptly as practicable following the 10th business day after the termination of the Executive's employment with the Company and its affiliates for any reason. In all other cases, the Company shall pay the Executive (or his beneficiary or beneficia ries, if applicable) the balance in his Account in accordance with the election form that is in effect for the Executive. 5. Incompetence of the Executive. Notwithstanding the foregoing, if at the time any portion of the Account becomes payable to the Executive, the Executive has been determined to be legally incompetent, the Committee may cause the Company to make payment of such portion to the Executive's legal guardian or such other person or persons as the Commit tee considers appropriate on behalf of the Executive, and such payment shall fully discharge the Company's obligations with respect to the Account and all persons having or claiming to have an interest therein, including without limitation the Executive. 6. Hardship Withdrawals. Notwithstanding any other provision of this Amendment, the Executive or any of his beneficiaries may withdraw all or a portion of his Account in the event of unforeseeable emergency. For this purpose, unforeseeable emergency means that funds are necessary in light of the immediate and heavy unexpected financial needs of the Executive or beneficiary. Any such withdrawal shall be limited to the amount required (taking into account the net after-tax amount that will be available from such withdrawal) to meet any immediate financial need that is not reasonably available from other sources. All determina tions as to whether, and in what amounts, withdrawals are permitted pursuant to this Section 6 shall be made by the Committee in its sole discretion. Withdrawals shall be paid in cash as soon as practicable following approval of the withdrawal request by the Committee. 7. Automatic Withdrawals. Notwithstanding any other provision of this Amendment, if the Committee determines that it is possible for the Company to pay the Executive all or any portion of the amounts credited to his Account at a time when he is still employed with the Company or any of its affiliates, without the amount so paid being nondeduct ible by reason of Section 162(m), then such amount shall be paid to the Executive. 8. Unfunded Arrangement. The Account and the amounts credited thereto shall be unfunded obligations of the Company, and neither the Executive nor any of his benefi ciaries shall have any interest in the assets of the Company relating to or arising out of the Account, except as general creditor, of the Company. 9. Definitions. (a) The "Bonus Amount" for a Relevant Tax Year means the amount that would (absent this Amendment) become payable pursuant to Section 4 of the Employment Agreement and would (absent the application of Section 162(m)) be deductible by the Company in that Relevant Taxable Year. (b) The Deferred Amount for a Relevant Tax Year means all or a portion of the Bonus Amount for the Relevant Tax Year, equal to the lesser of the Bonus Amount and the Nondeductible Amount for the Relevant Tax Year. (c) The "Code" means the Internal Revenue Code of 1986, as amended. (d) The "Committee" means the Compensation/Stock Option Committee of the Board of Directors of the Company. (d) "Election Form" means a form substantially in the form attached hereto as Exhibit A, or such other form as the Committee or its delegee may from time to time prescribe, duly completed by the Executive and filed with the Committee or its delegee. (e) The "Nondeductible Amount" for a Relevant Tax Year means the excess of (i) the "applicable employee remuneration" under Section 162(m) with respect to the Execu tive for such Relevant Tax Year over (ii) the portion of such applicable employee remuneration that does not exceed the dollar limitation set forth in Section 162(m)(1) of the Code (without regard to Section 162(m)(4)(F) of the Code); provided, that if there is no such excess, then the "Nondeductible Amount" for that Relevant Tax Year is zero. (f) The "Relevant Tax Year" with respect to any Bonus Amount or Nonde ductible Amount means the taxable year of the Company in which the Company would (absent Section 162(m) of the Code) be entitled to deduct such amount for federal income tax purposes. (g) "Section 162(m)" means Section 162(m) of the Code and the Treasury Regulations thereunder. 9. Except as specifically provided in this Amendment, the Employment Agreement is in all other respects ratified and confirmed without amendment. 10. For purposes of this Amendment, any provisions of the Code other than Section 162(m) that might result in a denial of a tax deduction (as opposed to such provisions affecting the timing of such deduction) shall be ignored, including without limitation Section 280G of the Code. IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the date first above written. AEROFLEX INCORPORATED By: /s/ Harvey R. Blau ------------------ Name: Harvey R. Blau Title: Chairman of the Board /s/ Leonard Borow ------------------ Leonard Borow EXHIBIT A ELECTION FORM To: Chairman, Compensation/Stock Option Committee Aeroflex Incorporated 35 South Service Road Plainview, New York 11803 cc: Charles Badlato From: Leonard Borow Date: 9/15/99 Pursuant to Amendment No. 1 dated as of September 1, 1999 (the "Amendment") to the Employment Agreement (the "Employment Agreement") dated as of March 1, 1999 by and between me and Aeroflex Incorporated (the "Company"), I hereby make the following elections with respect to the payment of the Account (as defined in the Amendment): 1. Time of payments (other than in the event of my death) The balance in my Account shall become payable (or begin to be payable) as promptly as practicable following the date indicated below (choose one): (x) the 10th business day after the termination of my employment with the Company and its affiliates ( ) the later of ________ (fill in a specific date) or the 10th business day after the termination of my employment with the Company and its affiliates 2. Form of payments (other than in the event of my death) The balance in my Account shall be payable to me in the form indicated below (choose one): (x) a single lump-sum payment ( ) monthly over a period of __ years (fill in number, not to exceed 15), with each monthly payment representing an approximately equal portion of the balance in my account on the date payments begins, plus an appropriate share of interest credited to the Account after that date 3. Beneficiary for payments in the event of my death Upon my death, any balance in my Account that has not already been paid to me shall be payable to the following individual(s) in the proportions indicated: Name Address Percentage Benay Borow 125 Rodeo Drive 100% Oyster Bay Cove, NY 11791 4. Form of payments in the event of my death The balance in my Account that becomes payable to the individual(s) indicated in Section 3 above upon my death shall be payable in the form indicated below (choose one): (x) a single lump-sum payment ( ) in continuing monthly installments in accordance with my election in Section 2 above ( ) monthly over a period of __ years (fill in number, not to exceed 15), with each monthly payment representing an approximately equal portion of the balance in my account on the date of my death, plus an appropriate share of interest credited to the Account after that date 5. Change in Control override: If there is a "Change in Control" (as defined in the Employment Agreement), then I elect as follows (choose one): (x) the balance in my Account shall be paid to me (or my beneficiary if I have previously died) in a single lump-sum payment as soon as practi cable after the Change in Control ( ) the balance in my Account shall continue to be payable in accor dance with Sections 1-4 above, as applicable I recognize and acknowledge that: (i) if I fail to complete Section 3 above, any balance in my Account upon my death will be paid to my estate in a single lump sum; (ii) if I other wise fill out this form incorrectly or incompletely, the Committee reserves the right to declare it ineffective or to deem it to have been completed in such manner as it determines, in its sole discretion, to be consistent with my intent; and (iii) if this form is filed more than 30 days after [insert date of Amendment], it will become effective on the first anniversary of the date it is filed, except that if any payments from my Account have previously been made, it shall not become effective. /s/ Leonard Borow ------------------ Leonard Borow Received by on ____________ [Committee or its delegee to insert name and date] 1. The percentages must add up to 100% EX-23 6 0006.txt Independent Auditors' Consent Board of Directors Aeroflex Incorporated: We consent to incorporation by reference in the registration statements (Nos. 33-75496, 33-88868, 33-88878, 333-42399, 333-42405, 333-64611, 333-90173 and 333-31654) on Form S-8 and (Nos. 333-15339 and 333-21803) on Form S-3 of Aeroflex Incorporated of our report dated August 15, 2000, relating to the consolidated balance sheets of Aeroflex Incorporated and subsidiaries as of June 30, 2000 and 1999, and the related consolidated statements of earnings, stockholders' equity and comprehensive income, and cash flows and related schedule for each of the years in the three-year period ended June 30, 2000, which report appears in the June 30, 2000 annual report on Form 10-K of Aeroflex Incorporated. /s/ KPMG LLP KPMG LLP Melville, New York September 28, 2000 EX-27 7 0007.txt
5 This schedule contains summary financial information extracted from the consolidated financial statements for the year ended June 30, 2000 and is qualified in its entirety by reference to such statements. 12-MOS JUN-30-2000 JUN-30-2000 54,710,000 11,512,000 51,595,000 509,000 37,367,000 162,806,000 91,078,000 38,856,000 248,707,000 28,902,000 0 0 0 2,783,000 199,149,000 248,707,000 185,924,000 185,924,000 118,548,000 163,562,000 0 0 2,316,000 20,600,000 6,200,000 14,400,000 0 0 0 14,400,000 .60 .57
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