Prepared by MERRILL CORPORATION

10-K405 1 a2052511z10-k405.htm 10-K405 Prepared by MERRILL CORPORATION
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

/x/	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2001 or

/ /	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-14224

IFR SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE (State or other jurisdiction of incorporation of organization)		48-1197645 (IRS Employer Identification No.)
10200 West York Street, Wichita, Kansas (Address of principal executive offices)		67215 (Zip Code)

Registrant's telephone number, including area code: (316) 522-4981

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 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. /x/

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 6, 2001 was approximately $20,278,672 (based on the June 6, 2001 closing price of $2.45 per share). As of June 6, 2001, there were 8,277,009 shares of Registrant's common stock outstanding.

Documents Incorporated by Reference

Portions of the Proxy statement for the 2001 Annual Meeting of Stockholders are incorporated by reference in Part III hereof.

The Exhibit Index to this Form 10-K is located on pages 43 through 45.

TABLE OF CONTENTS

		Page
PART I		1
Item 1.	Business	1
Item 2.	Properties	7
Item 3.	Legal Proceedings	7
Item 4.	Submission of Matters to a Vote of Security Holders	7
PART II		8
Item 5.	Market for the Registrant's Common Equity and Related Shareholder Matters	8
Item 6.	Selected Financial Data	9
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	13
Item 8.	Financial Statements and Supplementary Data	14
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	40
PART III		40
Item 10.	Directors and Executive Officers of the Registrant	40
Item 11.	Executive Compensation	41
Item 12.	Security Ownership of Certain Beneficial Owners and Management	41
Item 13.	Certain Relationships and Related Transactions	41
PART IV		42
Item 14.	Exhibits, Financial Statement Schedules and Reports on Form 8-K	42
	Exhibit Index	43
	Signatures	46

PART I

ITEM 1. BUSINESS

General

IFR Systems, Inc. ("IFR" or the "Company") is a Delaware corporation, incorporated in 1998 as a successor by merger to a corporation incorporated in 1985, with its principal offices in Wichita, Kansas. IFR's predecessor corporation was originally founded in 1968 as a supplier of specialized test solutions to the avionics industry. IFR expanded its activities in 1974 to apply its knowledge of radio frequency ("RF") and related technologies to the development of test solutions for the then emerging wireless communications market. IFR designs, manufactures, and markets communications, test and measurement, and avionics test instruments that are used to test a wide variety of radio products, aircraft and avionics systems.

In the description of the Company's business, reference to IFR and to the Company includes all subsidiaries of the Company, unless otherwise stated.

Discontinued Operations—see Note 9 to the consolidated financial statements

On June 25, 1999, the Board of Directors approved a formal plan to sell the Company's Optical Test and Measurement Division (OTM Division). The sale was completed on July 7, 1999 to GN Nettest, a company in the GN Great Nordic Group, Copenhagen, Denmark for $43,988,000 in cash resulting in a net-of-tax gain of $11,031,000 (approximately $1.34 per share). The proceeds from the sale were used to reduce the Company's outstanding debt obligation in July 1999, with $31,740,000 applied to long-term debt and $11,260,000 used to reduce short-term debt.

The results of operations for the OTM Division have been segregated and classified as discontinued operations in the consolidated statements of operations and prior periods have been restated. The consolidated balance sheets have been segregated to reflect the OTM Division as discontinued operations and prior periods have been restated. The consolidated statements of cash flows and the consolidated statements of shareholders' equity include the OTM Division through the date of disposition.

Products

While the Company makes a broad variety of products, substantially all of the Company's products are test instruments. The Company has one segment, the electronics test and measurement segment (ETM).

The following table sets forth the contribution to total net sales of each of the Company's three classes of test instruments for the periods ended (amounts in thousands of dollars):

	Year Ended March 31, 2001			Year Ended March 31, 2000			Nine Months Ended March 31, 1999
	Amount		%	Amount		%	Amount		%
Communications	$	43,886	31.0	$	39,727	28.0	$	31,654	29.8
Test & Measurement		39,447	27.9		37,905	26.7		26,441	24.9
Avionics		13,123	9.3		13,209	9.3		11,387	10.7
Other		45,070	31.8		51,050	36.0		36,677	34.6

Set forth below are discussions of each of the three classes of test instruments that are designed, manufactured, and sold by the Company: communications test equipment, test and measurement test equipment, and avionics test equipment. In addition, the Company sells software computer solutions to be used in connection with certain of the Company's test equipment products.

Communications Test Equipment. The Company's communications test equipment products are designed to test mobile radio products, such as mobile telephones and cellular telephones, as well as base station equipment. IFR products emulate the required system or parameters so the systems can be tested for proper frequency transmission, signal modulation, power levels, and other key performance parameters. The Company produces self-contained portable test sets for both the digital and analog communications markets.

IFR's communications service monitors are used to test and maintain radio products, including pagers, scanners, military communication transceivers, and cellular, land mobile, marine and citizen band radios. Service monitors test mobile radio equipment for proper frequency transmission, signal modulation and power output. The principal end users of communications service monitors are original equipment manufacturers, service and repair companies, government agencies, and users of mobile radio equipment.

The mobile radio product industry is undergoing a transformation as the result of the increased use of digital technology. Digital technology offers spectral efficiencies, better voice quality, and more data services. As a result, there is an increasing demand for products that use complex digital modulation schemes. Cellular telephone systems currently deployed use CDMA, GSM, and TDMA technologies. IFR provides a wide range of mobile radio test products for both GSM and TDMA technologies and has secured software licensing agreements with Qualcomm for marketing Qualcomm's production test software for CDMA technology.

The professional mobile radio market, a traditionally strong market for IFR, is also beginning to move towards digital technology with a new worldwide terrestrial trunked radio access ("TETRA") protocol. IFR has been one of the contributing suppliers for the initial test equipment requirements for TETRA system design and production. IFR is presently designing products for other new technologies, including the Project 25 ("P25") standard proposed by the Association of Public Safety Communications Officials, "iDEN", a Motorola technology used predominately by Nextel for general trunked radio access, and "EDACS Prism" developed by Ericsson.

IFR continues to sell products to test mobile and professional analog telephones and systems. Analog telephone systems continue to be deployed in South America and a majority of the professional mobile radio market, which includes users such as police, ambulance, and other mission-critical environments, still relies on analog technology.

Test and Measurement Test Equipment. The Company's electronic test and measurement products are sophisticated instruments for the test and maintenance of digital and analog communication systems, laboratory and field measurement of electromagnetic signals and radio frequency test equipment for the aviation industry, and automated test equipment. Included in the Company's test and measurement equipment are spectrum analyzers, signal generators, counter power meters, and microwave and modulation analyzers. These products are primarily used to bench test equipment and are sold to original equipment manufacturers, service and repair companies, and educational institutions.

The Company's spectrum analyzers, which display and measure the level of a signal across a swept range of frequencies, signal amplitude versus frequency, are used as a tool in the design of communications transmitting and receiving equipment. The Company does not have a significant share of the spectrum analyzer market.

The Company's signal generators create time-varying waveforms with defined characteristics that simulate radio frequency signals under test. This product series is used in the design, manufacture, and test of electronic subassemblies, intermodulation distortion measurements and cordless telephone manufacturing.

IFR manufactures microwave products and multifunction microwave test sets, which are used to measure the output and frequency of a device under test. The products are used in establishing the

microwave links that form the core infrastructure of a communication network. The Company does not have a significant share of the microwave test product market.

Microwave and modulation analyzers are used to measure the characteristics of forward and reverse gain input and output impedance on radio frequency or microwave networks.

Avionics Test Equipment. The Company's avionics test instruments include portable and stationary precision simulators which duplicate airborne conditions to test the communications, weather radar, and instrument landing and navigational systems installed in aircraft and ground stations. Principal products tested by IFR equipment include transponder simulation systems, navigation systems, collision avoidance systems, weather radar systems, global positioning systems ("GPS") and military variants of such products. IFR's precision simulators are used to test the avionics systems in commercial, military, and general aviation aircraft. These products are primarily used by general aviation service and repair companies, commercial airlines, manufacturers, and the federal government.

IFR navigation test products are designed for testing instrument landing systems, VHF omnidirectional radio range, marker beacons, automatic direction finders, and selective calling systems and microwave landing system angle receivers installed in aircraft.

IFR traffic alert and collision avoidance ("TCAS") products simulate the airborne environment necessary to perform many of the required tests for supplemental type certification.

IFR also has a weather radar simulation product, the RD-301A, that is designed to test weather radar and narrow-pulse marine radar systems. This fully integrated test set permits complete testing of routine radar functions and provides the capabilities to satisfy simulation requirements for new generation non-coherent radar systems.

IFR's global positioning simulator provides accurate and repeatable testing of GPS receivers. It achieves this testing capability by simulating a GPS satellite and generating specific vehicle and navigational data patterns.

Other Products and Services. Within the ETM segment, IFR also offers calibration, repair, and onsite field services for most types and makes of electronic test equipment. IFR maintains major customer service facilities in the United States and the United Kingdom, which are ISO accredited facilities. Services performed include full maintenance and calibration, express calibration and facilities management, including in-house calibration, repair, asset management, and consultant services.

The Company's line of high-volume automated test equipment ("ATE") includes products designed for the automotive, consumer electronics, and communications industries. Such products include manufacturing defect analyzers, in-circuit analyzers, and functional analyzers, all of which are used to test printed circuit boards.

The following table sets forth the total sales of other products and services of the Company for the periods ended (amounts in thousands of dollars):

	Year Ended March 31, 2001		Year Ended March 31, 2000		Nine Months Ended March 31, 1999
Service	$	21,799	$	26,233	$	17,497
ATE & Solutions		18,408		14,148		10,869
Other		4,863		10,669		8,311

Total Other	$	45,070	$	51,050	$	36,677

Competition

IFR competes with numerous companies, foreign and domestic, many of which have greater financial, marketing, and technical resources than IFR. According to Prime Data, the test instrument global market is estimated at approximately $8.0 billion. IFR's market share is estimated as approximately two percent. Two suppliers control over 40% of the test instrument market. Competition is based primarily on product quality, technological innovation, product features and customer service. IFR believes it is an effective competitor in all these areas.

Marketing and Distribution

IFR products and services are marketed and sold throughout the world by a combination of IFR sales persons and distributors. The Company employs approximately 155 salespersons located in the United States, the United Kingdom, Hong Kong, France, Germany, Spain, and China, who call on various "house" accounts as well as call on and assist independent distributors in selling IFR products. The Company has been reducing the number of its nonexclusive independent distributors to reflect its increasing emphasis on direct sales.

IFR's sales personnel and distributors are supported by an internal marketing staff that performs market research and creates brochures and other marketing materials.

Sources and Availability of Raw Materials

The Company's products require a wide variety of electronic and mechanical components, most of which are purchased. The Company has multiple sources for the vast majority of the components and materials it uses; however, there are some instances where the components are obtained from a sole-source supplier. If a sole-source supplier ceased to deliver, the Company could experience a temporary adverse impact on its operations; however, management believes alternative sources could be identified quickly. With occasional exceptions, purchased materials and components have generally been available to the Company as needed with acceptable lead times.

Patents, Trademarks, Licenses, Franchises, and Concessions

The Company owns a number of patents in the United States and various foreign countries and is licensed to use patents owned by others. IFR has granted licenses to use certain of its patents, but does not anticipate revenues from licensing activities will be material. There can be no assurances that any of the Company's current patents will provide the Company with adequate protection. IFR has registered its "IFR" trademark. While the Company considers its patents and trademark registrations to be valuable in the aggregate, it does not consider that the loss of any single patent or trademark registration would have a material effect on the Company or its operations. Likewise, while the Company believes its products do not infringe the patent or other intellectual property rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company or that the Company will prevail on any such claim or that a license, if needed, would be available on acceptable terms.

Seasonality

The Company's business is not seasonal in nature.

Working Capital Items

IFR is typically able to meet its delivery schedules without maintaining large inventories of completed goods and its customers generally do not require extended payment terms. Accordingly, the ability to fund working capital requirements for inventory and receivables financing is not a significant factor and the Company does not consider itself to have any unusual working capital needs.

Customers

IFR's products are marketed to a diverse customer base and no single product line is a predominant factor in determining revenues or profits. IFR does not have a single customer or a few customers, the loss of any one or more of which would have a significant adverse effect.

Backlog

Backlog is not a significant factor in the Company's business because most orders are in smaller quantities or on terms that allow the customer to cancel or delay delivery without significant penalty. The Company's backlog of firm orders was approximately $26,056,000 at March 31, 2000, and $26,509,000 at March 31, 2001. It is anticipated that all of the backlog orders will be filled during the current fiscal year unless canceled or deferred by customers.

Government and Military Contracts

During the past fiscal year, approximately 6.4% of the Company's revenues were derived from sales to the United States and its various agencies including the armed services. All contracts with the United States Government and its agencies are subject to termination at the convenience of the government.

IFR has maintained a portion of its business in military contracting. Over the past five fiscal years, the percentage of total revenues from sales to the military has ranged from a high of 30.5% in 1997 to a low of 3.1% in fiscal 1999. Military contracts generally provide an opportunity to diversify the customer base, but typically involve lower margins than commercial sales to private industry. IFR anticipates continuing to make military sales on a selective basis but has no present plan to significantly increase its military contracting.

Research and Development

The test equipment industry is characterized by continuous technology changes that require an ongoing effort to enhance existing products and to develop new products. IFR relies primarily on its internal research and development programs for the development of new products and for improvement of existing products. The Company does not perform basic research but uses new component and software technologies in the development of new products. The Company's research and development expenditures excluding discontinued operations were approximately $13,302,000 in fiscal 2001, $14,077,000 in fiscal 2000, and $11,816,000 in fiscal 1999. As of April 30, 2001, the Company had approximately 160 professional employees engaged in research and development activities.

Governmental Regulation

IFR is subject to laws and regulations affecting manufacturers and employers generally and to certain Federal Communications Commission regulations that affect equally all suppliers of similar products and are not considered a significant factor in the Company's competitive position. Compliance with federal, state, and local provisions which have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment have not had and are not expected to have a material effect upon IFR's capital expenditures, earnings, or competitive position.

Employees

At May 31, 2001, the Company had approximately 1,200 full-time employees. None of the Company's employees is covered by a collective bargaining agreement or is represented by a labor union. The Company considers its relationship with its employees to be satisfactory.

The design and manufacture of the Company's products require technical capabilities in many disciplines. While the Company believes that the capability and experience of its employees compare favorably with other similar manufacturers, there can be no assurance that it can retain existing employees

or attract and hire a sufficient number of the highly capable employees it may need in the future on satisfactory terms.

Financial Information about Foreign and Domestic Operations and Export Sales

For information concerning the Company's sales outside of the United States, see Note 7 of the "Notes to Consolidated Financial Statements" for the year ended March 31, 2001. More than half of the Company's revenues are to customers located outside the United States. Consequently, the Company's results are affected by economic conditions in other countries and by changes in various foreign currency exchange rates. The Company believes that its foreign subsidiaries and other larger international markets are in countries where the economic and political climate is generally stable.

Private Securities Litigation Reform Act of 1995—Forward-Looking Statements

In addition to historical information, this report contains forward-looking statements and information that are based on management's beliefs and assumptions, as well as information currently available to management. Forward-looking statements are all statements other than statements of historical fact included in this report. When used in this document, the words "anticipate", "estimate", "expect", "intend", "believe", and similar expressions are intended to identify forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable and are based on reasonable assumptions within the bounds of its knowledge of its business and operations, it can give no assurance that such expectations will prove to be correct and that actual results will not differ materially from the Company's expectations. Such forward-looking statements speak only as of the date of this report, and the Company cautions readers not to place undue reliance on such statements.

Factors that could cause actual results to differ from expectations include: (1) the degree and nature of competition, including pricing pressure and the development of new products or discoveries of new technologies by competitors, (2) fluctuations in the global economy and various foreign countries, (3) demand for the Company's products, (4) loss of significant customers, (5) the Company experiencing delays in developing new products and technologies, (6) the ability of the Company to continue the transition to digital technologies in the communications test equipment products, (7) the failure of such technologies or products to perform according to expectations, (8) difficulties in manufacturing new products so they may be profitably priced on a competitive basis, (9) lack of adequate market acceptance of new products or technologies, (10) changes in products or sales mix and the related effects on gross margins, (11) availability of components, parts, and supplies from third party suppliers on a timely basis and at reasonable prices, (12) currency fluctuations, (13) inventory risks due to changes in market demand or the Company's business strategies, (14) inability to hire sufficient personnel at reasonable levels of compensation and other labor problems, and (15) other risks described herein.

ITEM 2. PROPERTIES

IFR's principal executive offices and principal manufacturing facilities are located at 10200 West York Street, Wichita, Kansas, 67215. IFR also operates manufacturing facilities and sales offices in the United Kingdom and has sales offices in four other countries.

IFR generally considers the productive capacity of its plants adequate and suitable for the requirements of the company. The extent of utilization of such manufacturing facilities varies from plant to plant and from time to time during the year. The following table describes the Company's principal facilities.

Location		Square Footage	Lease/Owned	Lease(1) Expires	Description
Wichita, Kansas		156,000	Capital lease(2)	2017	Manufacturing, Engineering, Administration, Sales
Stevenage,Hertfordshire, England
	Longacres House	46,000	Operating lease	2020	Administration, Sales
	Six Hills Way Bldg	81,000	Owned	N/A	Manufacturing, Engineering
	Gunnelswood Road Bldg	34,000	Owned	N/A	Manufacturing
	Pin Green	29,000	Operating lease	2011	ATE Manufacturing
	Sanders Bldg	27,000	Owned	N/A	Inventory, Customer Service
Chelmsford, England		3,000	Leased	2001	Customer Service
Portsmouth, England		5,000	Leased	2002	Customer Service
Donibristle, Scotland		20,000	Leased	2020	Customer Service, Engineering

(1): Includes renewal option periods where appropriate.
(2): Industrial revenue bond financing in which the Company has an option to purchase for a nominal price.

ITEM 3. LEGAL PROCEEDINGS

IFR is not a party to any material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of IFR's security holders during the fiscal quarter ended March 31, 2001.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's common stock is traded on the national over-the-counter market under the NASDAQ symbol IFRS. The approximate number of shareholders of record as of June 22, 2001, was 1,210. The high and low sales prices of the Company's common stock for the fiscal quarters for the periods ended are set forth below (in dollars).

	Year Ended March 31, 2001		Year Ended March 31, 2000		Nine Months Ended March 31, 1999
Quarters	Year Ended March 31, 2001		Year Ended March 31, 2000		Nine Months Ended March 31, 1999
Quarters	High	Low	High	Low	High	Low
First	7.875	4.500	5.000	3.875	23.250	4.125
Second	5.813	3.875	6.500	2.938	6.500	3.125
Third	5.000	2.109	13.000	3.000	7.000	4.625
Fourth	4.000	2.438	11.875	5.125	—	—

No cash dividends were paid during the fiscal years ended March 31, 2001 and March 31, 2000.

The Company's credit agreement with Bank One and other lenders precludes the payment of cash dividends by the Company.

ITEM 6. SELECTED FINANCIAL DATA (unaudited)

(Dollars in thousands, except per share data)

			(Nine Months)
			2001			2000			1999			1998			1997
Income Statement Data
	Sales		$	141,526		$	141,891		$	106,159		$	108,891		$	67,710
	Research & development expense			13,302			14,077			11,816			9,208			6,223
	Operating income (loss)			9,086			1,829			3,468			(16,137	)		8,417
	Operating income—excluding non-recurring charges(1)			9,086			1,829			3,468			11,407			8,417
	Continuing operations:
		Income (loss)		1,208			(4,098	)		(2,149	)		(18,078	)		5,254
		Income (loss) excluding non-recurring charges(1)		1,208			(4,098	)		(2,149	)		5,797			5,254

Balance Sheet Data
	Total assets		$	148,885		$	151,146		$	187,043		$	190,757		$	65,830
	Working capital			22,001			29,924			46,163			49,692			33,515
	Shareholders' equity			31,044			34,818			28,228			32,081			48,154
	Long-term debt and capital lease obligations			50,099			59,383			96,567			100,080			3,765

Profitability Ratios
	Gross profit			43.0	%		41.3	%		44.6	%		32.7	%		39.4	%
	Gross profit—excluding non-recurring charges(1)			43.0			41.3			44.6			43.6			39.4
	Continuing operations:
		Income (loss)		0.9			(2.9	)		(2.0	)		(16.6	)		7.8
		Income (loss) excluding non-recurring charges(1)		0.9			(2.9	)		(2.0	)		5.3			7.8
		Effective income tax rate(1)		17.4			36.1			41.3			34.3			37.0
	Return on assets(2)			0.8			(2.4	)		(1.5	)		(14.1	)		8.3
	Return on equity(2)			3.7			(13.0	)		(9.5	)		(45.1	)		11.5

Earnings Per Share—Diluted
	Continuing operations:
		Income (loss)	$	0.15		$	(0.50	)	$	(0.26	)	$	(2.21	)	$	0.62
		Income (loss) excluding non-recurring charges (1)		0.15			(0.50	)		(0.26	)		0.66			0.62
	Book value			3.99			3.83			3.67			4.90			5.43
	Dividends			—			—			—			0.07			—

(1)—In 1998, excludes pre-tax acquisition related charges of $11,844,000 in cost of products sold and $15,700,000 in operating expenses. The effective income tax rate excludes the effect of the acquisition adjustments.

(2)—In 1999, annualized the nine month loss from continuing operations ($2,149,000) to calculate these returns.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Private Securities Litigation Reform Act of 1995—Forward-Looking Statements

Sale of the OTM Division

On June 25, 1999, the Board of Directors approved a formal plan to sell the Company's Optical Test and Measurement Division (OTM Division). The sale was completed on July 7, 1999 to GN Nettest, a company in the GN Great Nordic Group, Copenhagen, Denmark for $43,988,000 in cash resulting in a net-of-tax gain of $11,031,000 (approximately $1.34 per share) was recorded. The proceeds from the sale were used to reduce the Company's outstanding debt obligation in July 1999, with $31,740,000 applied to long-term debt and $11,260,000 used to reduce short-term debt.

As a consequence of the divestiture, the results of operations for the OTM Division have been segregated and classified as discontinued operations in the consolidated statements of operations and prior periods have been restated. The consolidated balance sheets have been segregated to reflect the OTM Division as discontinued operations and prior periods have been restated. The consolidated statements of cash flows and consolidated statements of shareholders' equity include the OTM Division through the date of divestiture.

The net gain on disposal was recognized in the period the sale was completed. See Note 9 to the consolidated financial statements for further discussion.

Comparison of Fiscal 2001 vs. 2000

Explanations for gross profit and operating expenses below exclude the one time cost reduction charges of $667,000 in cost of products sold, $279,000 in selling expense, $1,611,000 in administrative expense and $323,000 in engineering expense incurred during the third quarter of fiscal 2000.

Sales for the fiscal year ended March 31, 2001 were $141,526,000 compared to $141,891,000 for the fiscal year ended March 31, 2000. This represents a decrease of 0.3%. International sales were $93,371,000 (66.0% of sales) in fiscal year 2001 compared to $79,867,000 (56.3% of sales) in fiscal year 2000. The majority of the increase in international sales took place in Europe (10.6%).

Gross profit as a percent of sales increased to 43.0% in fiscal year 2001 from 41.7% in the prior fiscal year. For comparison purposes, the prior fiscal year excludes $667,000 (0.5% of sales) of non-recurring charges due to the recording of cost reduction charges (termination and severance benefits) in the third quarter. The increase of 1.3% is due to stable selling prices and greater control of costs, offset by increases in material prices.

Operating expenses decreased 3.4% to 36.6% of sales. The prior year includes non-recurring cost reduction charges of $2,213,000 or 1.6% of sales in fiscal year 2000. Excluding the effect of the cost reduction charges, operating expenses decreased to 36.6% compared to 38.4% in the prior year. Selling expenses decreased 0.6% as a percentage of sales from 16.7% in fiscal year 2000 to 16.1% for fiscal year 2001. Administrative expenses decreased 0.1% as a percentage of sales from 8.5% in fiscal year 2000 to 8.4% for fiscal year 2001. Engineering expenses decreased 1.1% as a percentage of sales from 11.4% in fiscal year 2000 to 10.3% for fiscal year 2001. The decrease is due to greater control of costs.

Operating income as a percent of sales increased from 1.3% for fiscal year 2000 to 6.4% for fiscal year 2001. Excluding the non-recurring cost reduction charges in fiscal year 2000 noted above, normalized operating income was $4,709,000 or 3.3% of sales compared to 6.4% for fiscal year 2001.

Interest expense for fiscal year 2001 was $7,839,000 compared to interest expense for fiscal year 2000 of $8,121,000. Other income was $44,000 compared to expense of $293,000 in the prior year.

The effective income tax rate from continuing operations was 36.1% for fiscal year 2000 compared to 17.4% for fiscal year 2001. The decrease in the rate is due to the realization of benefits from a tax effective international financing strategy.

The profit from continuing operations, as a percent of revenue, was 0.9% in fiscal year 2001 compared to a loss, including the cost reduction charges, of 2.9% in the prior period.

Comparison of Fiscal 2000 (12 Months) vs. 1999 (9 Months)

Sales for the fiscal year ended March 31, 2000 were $141,891,000 compared to $106,159,000 for the nine-month fiscal period ended March 31, 1999. This represents an increase of 33.7%. Sales increased by $35,732,000 or 33.7% due mainly to one more quarter in the current fiscal year. International sales were $79,867,000 (56.3% of sales) in fiscal year 2000 compared to $67,776,000 (63.8% of sales) in the nine-month fiscal period ended in 1999. The increase in foreign sales dollars is due to one more quarter in fiscal year 2000. The decrease in foreign sales percentage is due to the increased demand in the US market. The majority of the increase in international sales took place in the Americas and the Pacific Rim.

Gross profit as a percent of sales decreased from 44.6% in the nine months ended in 1999 to 41.3% in fiscal year 2000. The current year includes $667,000 (0.5% of sales) of non-recurring charges due to the recording of cost reduction charges (termination and severance benefits) in the third quarter. Excluding the cost reduction charges, the normalized gross profit percentage for 2000 was 41.7% or 2.9% lower than the prior year. The decrease is due to the product mix.

Operating expenses decreased 1.3% to 40.0% of sales. The current year includes non-recurring cost reduction charges of $2,213,000 or 1.6% of sales in fiscal year 2000 which are excluded for comparison purposes. Excluding the effect of the cost reduction charges, operating expenses decreased to 38.4% compared to 41.3% in the nine months ended in 1999. Engineering expenses decreased 1.5% as a percentage of sales from 12.9% in the nine months ended in 1999 to 11.4% for fiscal year 2000. Selling expenses decreased 0.6% as a percentage of sales from 17.3% in the nine months ended in 1999 to 16.7% for fiscal year 2000. Administrative expenses decreased as a percentage of sales from 11.2% in the nine months ended in 1999 to 10.3% for fiscal year 2000.

Operating income as a percent of sales decreased from 3.3% for the nine months ended in 1999 to 1.3% for fiscal year 2000. Excluding the non-recurring cost reduction charges in fiscal year 2000 noted above, normalized operating income was $4,709,000 or 3.3% of sales compared to 3.3% in the nine months ended in 1999.

Interest expense for fiscal year 2000 was $8,121,000 compared to interest expense for the nine months ended in March 1999 of $7,685,000. Interest income decreased $407,000 from the prior year. Other expense was $293,000 compared to $22,000 in the prior year.

The effective income tax rate from continuing operations was 41.3% for the nine months ended in 1999 compared to 36.1% for fiscal year 2000. The decrease in rate results from a prior period increase in valuation allowances not repeated in the current year.

The loss from continuing operations including the cost reduction charges, as a percent of revenue, was 2.9% in fiscal year 2000 compared to 2.0% in the prior period.

Euro Conversion

Effective January 1, 1999, the European Economic and Monetary Union created a single Eurocurrency (the euro) for its member countries. A transition period is in effect that began January 1, 1999, and goes through December 31, 2001, during which time transactions will be executed in both the euro and the member country currencies. Effective January 1, 2002 the euro will be the sole legal tender of the European Economic and Monetary Union countries.

In general, the adoption of a single currency for the participating countries is expected to result in greater transparency of pricing, making Europe a more competitive environment for businesses. In addition, conversion to the euro is expected to affect many financial systems and business applications

At the time IFR switches to using the euro as a functional currency for certain of its affiliates, information system modifications will be required. It is not anticipated, at this time, that the euro will have a material impact on the competitive environment in which IFR operates or a significant impact on IFR's fundamental risk management philosophy. Any costs incurred associated with the adoption of the euro will be expensed as incurred, and are not anticipated to be material to IFR's results of operations, financial condition, or liquidity.

Liquidity and Capital Resources

The Company maintains an adequate financial position with working capital of $22,001,000 at March 31, 2001. The Company generated cash from operations of $7,862,000 in fiscal year 2001 and used cash in operations of $3,719,000 in fiscal year 2000.

Cash flows used in investing activities and cash flows provided in financing activities reflect primarily the proceeds from short term bank borrowings, subsequent debt payments and capital expenditures.

No cash dividends were paid in fiscal year 2001 and 2000. The Company's credit agreement with Bank One and other lenders precludes the payment of cash dividends by the Company.

On June 29, 2001, the Company signed an amendment to its credit agreement which reduced the principal payments, modified certain financial covenants and extended the maturity date of the loan. See Note 11 to the consolidated financial statements. This amendment to the Agreement along with the modified covenants, will provide the Company with additional financial flexibility. Consequently, the Company anticipates that the available line of credit and funds generated from operations will be adequate to meet capital asset expenditures, interest and working capital needs for the next twelve months. During fiscal 2002, the Company will explore various refinancing alternatives for its current debt structure.

Inflation

Changes in product mix from year to year and highly competitive markets make it very difficult to define accurately the impact of inflation on profit margins. The Company believes that during the recent period of moderate inflation it has been able to reduce inflationary effects by vendor partnering arrangements and continuing expense control.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.

The Company is exposed to interest rate risk primarily from its Credit Agreement (Agreement) in which floating rates are based upon the relationship between earnings before interest, depreciation and taxes (EBITDA) and total debt. To mitigate the impact of fluctuations in interest rates, the Company has entered into interest rate swap agreements on $50,000,000 of the associated debt. Because of the Company's interest rate swap agreements a hypothetical 10% movement in interest rates would not have a material impact on net income.

Due to the global nature of its operations, the Company conducts its business in various foreign currencies (primarily the currencies of Western Europe) and as a result, is subject to the exposures that arise from foreign exchange rate movements. Such exposures arise primarily from the translation of results of operations from outside the United States. Because the Company intends to maintain its international operations and not repatriate earnings from those operations, IFR does not hedge its net investment exposure.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

IFR Systems, Inc.
Index To Consolidated Financial Statements

Responsibility for Financial Statements		15
Report of Independent Auditors		16
Consolidated Balance Sheets as of March 31, 2001 and March 31, 2000		18
Consolidated Statements of Operations for the years ended March 31, 2001 and March 31, 2000, and the nine months ended March 31, 1999		20
Consolidated Statements of Shareholders' Equity for the years ended March 31, 2001 and March 31, 2000, and the nine months ended March 31, 1999		21
Consolidated Statements of Cash Flows for the years ended March 31, 2001 and March 31, 2000, and the nine months ended March 31, 1999		22
Notes to Consolidated Financial Statements		23
Quarterly Results of Operations (unaudited)		38

RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of IFR Systems, Inc. is responsible for the preparation of the financial statements and financial statement schedule, the Annual Report and for the integrity and objectivity of the information presented. The financial statements and financial statement schedule have been prepared in conformity with accounting principles generally accepted in the United States and necessarily include amounts which are estimates and judgments. The fairness of the presentation in these statements of the Company's financial position, results of operations and cash flows is reported on by the independent auditors.

To assist in carrying out the above responsibility, the Company has internal systems which provide for selection of personnel, segregation of duties and the maintenance of accounting policies, systems, procedures and related controls.

Although no cost effective system can ensure the elimination of errors, the Company's systems have been designed to provide reasonable but not absolute assurances that assets are safeguarded, that policies and procedures are followed, and that the financial records are adequate to permit the production of reliable financial statements.

The Audit Committee of the Board of Directors, which is composed of Directors who are not employees of the Company, meets regularly with Company officers and independent auditors in connection with the adequacy and integrity of the Company's financial reporting and internal controls.

Dennis H. Coley
Chief Financial Officer
and Treasurer

REPORT OF INDEPENDENT AUDITORS

Board of Directors
IFR Systems, Inc.

We have audited the accompanying consolidated balance sheets of IFR Systems, Inc. as of March 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended March 31, 2001 and March 31, 2000, and the nine months ended March 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of IFR Systems, Inc. at March 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for the years ended March 31, 2001 and March 31, 2000 and nine months ended March 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Indianapolis, Indiana
May 4, 2001
except for Note 11, as to which that date is
June 29, 2001

[THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]

IFR Systems, Inc.
Consolidated Balance Sheets

			March 31,
			2001			2000
			(in thousands, except share information)
Assets
Current assets:
	Cash and cash equivalents		$	5,087		$	3,169
	Accounts receivable, less allowance for doubtful accounts of $565 in 2001 and $600 in 2000			30,887			29,267
	Inventories:
		Finished products		12,137			13,278
		Work in process		9,244			9,174
		Materials		14,529			14,537

	Total inventories			35,910			36,989
	Prepaid expenses and sundry			4,163			4,301
	Deferred income taxes			2,020			2,248

Total current assets				78,067			75,974
Property and equipment:
	Land			4,465			4,650
	Buildings			7,835			8,223
	Machinery			28,286			26,299
	Accumulated depreciation			(21,167	)		(17,976	)

				19,419			21,196
Property under capital lease:
	Building			2,757			2,757
	Machinery			2,804			2,444
	Accumulated depreciation			(2,931	)		(2,414	)

				2,630			2,787
Other assets:
	Cost in excess of net assets acquired, less accumulated amortization of $2,300 in 2001 and $1,556 in 2000			19,381			20,125
	Developed technology, less accumulated amortization of $2,964 in 2001 and $2,028 in 2000			15,836			16,772
	Other intangibles, less accumulated amortization of $3,298 in 2001 and $2,446 in 2000			11,468			12,320
	Other			2,084			1,972

				48,769			51,189

Total assets			$	148,885		$	151,146

See accompanying notes.

IFR Systems, Inc.
Consolidated Balance Sheets (continued)

			March 31,
			2001			2000
			(in thousands, except share information)
Liabilities and shareholders' equity
Current liabilities:
	Short-term bank borrowings		$	23,000		$	15,700
	Accounts payable			12,370			12,493
	Accrued compensation and payroll taxes			4,040			4,262
	Other liabilities and accrued expenses			5,867			6,355
	State and local taxes			1,158			887
	Federal income taxes			55			913
	Current maturities of capital lease obligations			326			190
	Current maturities of long-term debt			9,250			5,250

Total current liabilities				56,066			46,050
Capital lease obligations				3,214			3,248
Long-term debt				46,885			56,135
Deferred income taxes				11,676			10,895
Shareholders' equity:
	Preferred Stock, $.01 par value:
		Authorized shares—1,000,000, none issued		—			—
	Common Stock, $.01 par value:
		Authorized shares—50,000,000
		Issued shares—9,266,250		93			93
	Additional paid-in capital			7,192			7,330
	Cost of common stock in treasury—994,241 shares in 2001 and 1,025,722 shares in 2000			(8,100	)		(8,357	)
	Accumulated other comprehensive loss			(7,173	)		(2,072	)
	Retained earnings			39,032			37,824

Total shareholders' equity			$	31,044		$	34,818

Total liabilities and shareholders' equity			$	148,885		$	151,146

See accompanying notes.

IFR Systems, Inc.
Consolidated Statements of Operations

		Year ended March 31, 2001			Year ended March 31, 2000			Nine months ended March 31, 1999
		*(In thousands, except per share data)*
Sales		$	141,526		$	141,891		$	106,159
Cost of products sold			80,603			83,350			58,858

Gross profit			60,923			58,541			47,301
Operating expenses:
	Selling		22,748			24,035			18,329
	Administrative		11,915			13,620			9,936
	Engineering		14,642			16,525			13,705
	Intangibles amortization		2,532			2,532			1,863

			51,837			56,712			43,833

Operating income			9,086			1,829			3,468
Other expense:
	Interest income		171			171			578
	Interest expense		(7,839	)		(8,121	)		(7,685	)
	Other, net		44			(293	)		(22	)

			(7,624	)		(8,243	)		(7,129	)

Income (loss) from continuing operations before income taxes			1,462			(6,414	)		(3,661	)
Income tax expense (benefit)			254			(2,316	)		(1,512	)

Income (loss) from continuing operations			1,208			(4,098	)		(2,149	)
Income (loss) from discontinued operations less applicable income taxes			—			11,357			(446	)

Net income (loss)		$	1,208		$	7,259		$	(2,595	)

Earnings (loss) per share—basic:
	Income (loss) from continuing operations	$	0.15		$	(0.50	)	$	(0.26	)
	Income (loss) from discontinued operations		—			1.38			(0.06	)

	Net income (loss)	$	0.15		$	0.88		$	(0.32	)

Earnings (loss) per share—diluted:
	Income (loss) from continuing operations	$	0.15		$	(0.50	)	$	(0.26	)
	Income (loss) from discontinued operations		—			1.38			(0.06	)

	Net income (loss)	$	0.15		$	0.88		$	(0.32	)
Average common shares outstanding			8,260			8,233			8,207

Dilutive common shares outstanding			8,275			8,233			8,207

See accompanying notes.

IFR Systems, Inc.
Consolidated Statements of Shareholders' Equity

	Common Stock						Treasury Stock
	Common Stock			Additional Paid-in Capital			Treasury Stock					Other Comprehensive Income (loss)			Retained Earnings
	Shares	Amount		Additional Paid-in Capital			Shares		Amount			Other Comprehensive Income (loss)			Retained Earnings			Total
	*(In thousands)*
Balance at June 30, 1998	9,266	$	93	$	7,121		(1,065	)	$	(8,679	)	$	386		$	33,160		$	32,081
Net loss	—		—		—		—			—			—			(2,595	)		(2,595	)
Translation adjustments	—		—		—		—			—			(1,573	)					(1,573	)

Comprehensive loss																			(4,168	)
Incentive stock options exercised	—		—		(17	)	5			44			—						27
Tax benefit from exercise of stock options	—		—		288		—			—			—			—			288
Restricted stock grants	—		—		(24	)	3			24			—			—			—

Balance at March 31, 1999	9,266	$	93	$	7,368		(1,057	)	$	(8,611	)	$	(1,187	)	$	30,565		$	28,228
Net Income	—		—		—		—			—			—			7,259			7,259
Translation adjustments	—		—		—		—			—			(885	)		—			(885	)

Comprehensive income																			6,374
Incentive stock options exercised	—		—		(37	)	9			79			—			—			42
Issuance of stock options	—		—		20		—			—			—			—			20
Restricted stock grants	—		—		(21	)	22			175			—			—			154

Balance at March 31, 2000	9,266	$	93	$	7,330		(1,026	)	$	(8,357	)	$	(2,072	)	$	37,824		$	34,818
Net Income	—		—		—		—			—			—			1,208			1,208
Translation adjustments	—		—		—		—			—			(5,101	)		—			(5,101	)

Comprehensive loss																			(3,893	)
Incentive stock options exercised	—		—		(118	)	27			216			—			—			98
Issuance of stock options	—		—		21		—			—			—			—			21
Restricted stock grants	—		—		(41	)	5			41			—			—			—

Balance at March 31, 2001	9,266	$	93	$	7,192		(994	)	$	(8,100	)	$	(7,173	)	$	39,032		$	31,044

See accompanying notes.

IFR Systems, Inc.
Consolidated Statements of Cash Flows

			Year ended March 31, 2001			Year ended March 31, 2000			Nine months ended March 31, 1999
			*(in thousands)*
Operating activities
Net income (loss)			$	1,208		$	7,259		$	(2,595	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
	Depreciation of property and equipment			4,093			4,545			4,422
	Amortization of intangibles			2,532			2,532			2,276
	Amortization of loan origination fees			822			403			—
	Gain on sale of discontinued operations			—			(17,207	)		—
	Deferred income taxes			1,009			(689	)		910
	Deferred compensation expense			—			135			—
	Changes in operating assets and liabilities:
		Accounts receivable		(1,620	)		(1,961	)		8,971
		Inventories		1,079			1,040			(494	)
		Other current assets		138			233			(2,974	)
		Accounts payable and accrued liabilities		(703	)		552			(6,549	)
		Other current liabilities		(696	)		(561	)		1,092

Net cash provided by (used in) operating activities				7,862			(3,719	)		5,059
Investing activities
Proceeds from sale of discontinued operations				—			43,988			—
Purchases of property and equipment				(3,887	)		(3,358	)		(3,239	)
Proceeds from sale of equipment				330			70			—
Sundry				(934	)		(293	)		(525	)

Net cash provided by (used in) investing activities				(4,491	)		40,407			(3,764	)
Financing activities
Principal payments on capital lease obligations				(198	)		(189	)		(138	)
Principal payments on long-term debt				(5,250	)		(35,990	)		(2,625	)
Principal payments on short-term bank borrowings				(30,500	)		(36,660	)		(8,100	)
Proceeds from short-term bank borrowings				37,800			34,660			14,800
Proceeds from capital lease				300			—			—
Proceeds from exercise of common stock options				98			216			315

Net cash provided by (used in) financing activities				2,250			(37,963	)		4,252
Effect of exchange rate changes on cash				(3,703	)		(642	)		(620	)

Increase (decrease) in cash and cash equivalents				1,918			(1,917	)		4,927
Cash and cash equivalents at beginning of period				3,169			5,086			159

Cash and cash equivalents at end of period			$	5,087		$	3,169		$	5,086

See accompanying notes.

IFR Systems, Inc.

Notes to Consolidated Financial Statements

March 31, 2001

1. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements of IFR Systems, Inc. (Company or IFR) include the accounts of all subsidiaries after elimination of intercompany accounts and transactions.

Use of Estimates

Preparation of the financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to current year presentation.

Foreign Currency Translation

The functional currency for the Company's foreign operations is the applicable local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using the exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the period. The gains or losses resulting from such translation are included in other comprehensive income. Gains or losses resulting from foreign currency transactions are included in other income.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Inventories

Inventories are valued at the lower of cost (first-in, first-out method) or market.

Property and Equipment

Property and equipment is stated at cost. Depreciation is computed by straight-line and declining balance methods at rates based on the estimated useful lives of the assets from 3 to 30 years.

Property Under Capital Lease

Property under capital lease is recorded at the lower of the fair market value of the leased property or the present value of the minimum lease payments. Depreciation of leased property is computed by the straight-line method over the useful life of the asset.

Intangible Assets

The cost in excess of net assets acquired (goodwill), developed technology and other intangibles are being amortized by the straight-line method over periods ranging from 10 to 30 years. Goodwill and other intangibles are reviewed to assess recoverability when impairment indicators are present. Assets are considered to be impaired and are written down to fair value if expected future operating cash flows of the related assets are less than their carrying amounts. Fair value is the present value of the expected future cash flows of the related assets using a discount rate commensurate with the risk involved. Assets are grouped at the lowest level for which there are identifiable cash flows for purposes of impairment testing.

Interest Swap Agreements

The Company is required by its bank syndicate to enter into interest rate swaps to manage interest rate exposures. The Company designates the interest rate swaps as hedges of the underlying debt. Interest expense on the debt is adjusted to include the payments made or received under the swap agreements.

Income Taxes

Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates. Federal income taxes are provided on the portion of the income of foreign subsidiaries that is expected to be remitted to the United States and be taxable.

Revenue Recognition

Revenue from the sale of products is recognized at the time products are shipped or when services have been rendered to the customer.

Sales and cost of sales on long-term contracts are recorded as deliveries are made. Estimates of cost to complete are revised periodically throughout the lives of the contracts, and any estimated losses on contracts are recorded in the accounting period in which the revisions are made.

Earnings (Loss) Per Share

Basic earnings (loss) per share is calculated based on the weighted-average number of outstanding common shares. Diluted earnings (loss) per share is calculated based on the weighted-average number of outstanding common shares, plus the effect of dilutive stock options.

Recently Issued Accounting Pronouncements

The Financial Accounting Standards Board issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. As required, the Company has adopted the statement effective April 1, 2001 (Fiscal year 2002). The statement requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in

earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company's adoption of this statement has resulted in a $1,022,000 liability with an offsetting decrease in Other Comprehensive Income at April 1, 2001.

Change in Fiscal Year

In January 1999, the Company's Board of Directors approved an amendment of the Bylaws to change the fiscal year end from June 30 to March 31. The change in year end was implemented to allow more efficient alignment of the planning and accounting functions of the business which has changed significantly with the increase in the Company's international presence.

2. Debt and Lease Arrangements

Long-term debt consisted of the following (in thousands):

	March 31,
	2001		2000
Term Loan A	$	39,250	$	44,000
Term Loan B		16,885		17,385

		56,135		61,385
Less current maturities		9,250		5,250

Total long-term debt	$	46,885	$	56,135

Term loans payable to bank: Both of the Company's term loans are payable in quarterly installments of principal pursuant to a schedule contained in its Credit Agreement (the Agreement) which calls for such payments to increase over the term of the loan. All amounts payable under Term Loan A and Term Loan B mature June 30, 2002. Under certain conditions the Company has the ability to extend the term to June 30, 2003. A summary of maturities by year as of March 31, 2001 is as follows (in thousands):

2002	$	9,250
2003		46,885

Total	$	56,135

This maturity schedule reflects the amounts on the consolidated balance sheet at March 31, 2001. Refer to Note 11 for discussion of a subsequent amendment to the Agreement which outlines the new maturity schedule of the Company's term loans.

Under the terms of the Agreement, borrowings bear interest at a spread up to 3.75% per annum over the London Interbank Offered Rate (LIBOR) which varies depending on the Term Loan and the current leverage ratio as defined in the Agreement. At March 31, 2001, the spread was 3.0% on Term Loan A and 3.5% on Term Loan B. The interest rate on the loans at March 31, 2001 was 8.60% on Term Loan A and 9.04% on Term Loan B. The fair value of the Company's long-term debt approximates carrying value since the facilities bear a current market rate of interest.

In July 1999 Term Loan B was paid down $31,740,000 using the proceeds of the sale of the OTM Division.

Lines of Credit: The Company also has available lines of credit with the bank syndicate aggregating $23,000,000. The full amount was in use at March 31, 2001. The Credit Agreement expires on June 30, 2002. Under the terms of the Agreement, borrowings bear interest at a spread over LIBOR based on certain financial criteria. At March 31, 2001, this spread was 3.0%. The total interest rate on the outstanding portion of the lines of credit was 8.88% at March 31, 2001. As of March 31, 2001, the Company has no additional lines of credit availability.

Swing Line Note: The Agreement allows for swing line loans for an amount not to exceed $5,000,000 As of March 31, 2001, the Company has no swing line note availability.

Interest Swap Agreement: In February 1998, the Company entered into two separate interest swap agreements for $25,000,000 each. The first swap agreement is for a fixed interest rate of 5.8% and matures March 30, 2003. The second swap agreement is for a fixed interest rate of 5.76% and matures March 30, 2003. The swap agreements limit the Company's exposure to increased LIBOR rates on the Term Loans. The fair value of the swaps is approximately ($1,022,000) at March 31, 2001 and is determined using the current market rate of the instrument.

Capital Leases: In March 1997, the Company entered into a capital lease to refund and redeem the industrial revenue bonds dated May 1, 1989 which were issued in the original principal amount of $3,500,000 of which $2,330,000 were outstanding; and to finance manufacturing support equipment and building improvements to the existing facility. This lease was entered into in connection with an issuance of industrial revenue bonds dated March 15, 1997 (the 97 Bonds) by the City of Goddard, Kansas (the City). The transaction for the 97 Bonds totaled $3,940,000. The Company has guaranteed the future repayment of all amounts due relating to the 97 Bonds. The City has retained title to the facilities and related equipment. The Company has the option to purchase the facilities and equipment for a nominal amount after repayment in full of all amounts due relating to the 97 Bonds. Under the terms of the lease, the Company is required to make quarterly payments in an amount sufficient to pay the principal and interest installments of the 97 Bonds when due. The 97 Bonds mature serially over a 15 year period which commenced May 1, 1997, and are callable for early redemption by the Company on or after May 1, 2004. Upon the occurrence of certain events, the 97 Bonds are subject to immediate redemption at the option of each Bond holder. These events include the acquisition or right to acquire beneficial ownership of 25% of the outstanding Common Stock (unless waived by the Board of Directors), the subsequent determination that the Bonds are taxable or other specified events. The Company has additional capital leases in the principal amount of $360,000.

Amortization of the building and equipment pledged for the 97 Bonds and the capital leases are included in depreciation expense.

Future minimum lease payments, based upon scheduled payments as of March 31, 2001, are as follows (in thousands):

2002	$	545
2003		526
2004		461
2005		400
2006		396
Thereafter		2,645

Total minimum lease payments		4,973
Amounts representing interest		1,433

Present value of minimum lease payments		3,540
Current maturities		326

Long-term portion	$	3,214

Operating Leases: The Company also leases certain facilities and equipment under operating leases that expire at various dates. The equipment leases provide the Company with the option after the initial lease term to purchase the property at the then fair value, renew its lease at the then fair rental value for a period of one year or return the equipment to the lessor. Generally, management expects that, after the initial lease term, the equipment will be purchased for the then fair value.

Minimum payments for operating leases having initial or remaining noncancelable terms in excess of one year are as follows (in thousands):

2002	$	2,318
2003		1,845
2004		1,477
2005		1,277
2006		1,180
Thereafter		12,888

Total minimum lease payments	$	20,955

Minimum lease payments have not been reduced by sublease rentals of $643,000 due in the future under noncancelable subleases.

Total rent expense for all operating leases amounted to approximately $2,521,000, $1,976,000, and $1,776,000 for 2001, 2000 and 1999, respectively.

Interest Paid: Interest paid during 2001, 2000 and 1999 was approximately $8,152,000, $7,828,000, and, $7,257,000, respectively.

3. Income Taxes

The Company files a consolidated federal income tax return for all U.S. subsidiaries and files group relief or separate returns for foreign subsidiaries. Income reported for federal and foreign tax purposes differs from pre-tax accounting income due to variations between the requirements of the jurisdictional tax codes and the Company's accounting practices.

For financial reporting purposes, income (loss) from continuing operations before income taxes is as follows (in thousands):

	Year ended March 31, 2001			Year ended March 31, 2000			Nine months ended March 31, 1999
U.S.	$	(5,062	)	$	(5,699	)	$	(2,672	)
Foreign		6,524			(715	)		(989	)

Total	$	1,462		$	(6,414	)	$	(3,661	)

Income tax expense (benefit) from continuing operations is summarized as follows (in thousands):

		Year ended March 31, 2001			Year ended March 31, 2000			Nine months ended March 31, 1999
Federal:
	Current	$	449		$	(2,197	)	$	1,308
	Deferred		(1,035	)		533			343
Foreign:
	Current		1,266			(1,338	)		1,369
	Deferred		(85	)		1,140			(1,633	)
State			(341	)		(454	)		(283	)

Income tax expense (benefit)		$	254		$	(2,316	)	$	(1,512	)

Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands):

		March 31,
		2001			2000
Deferred tax liabilities:
	Tax over book depreciation	$	594		$	599
	Purchased intangibles		9,360			9,915
	Other		1,722			381

Total deferred tax liabilities			11,676			10,895
Deferred tax assets:
	Net operating loss carryforwards		195			627
	Inventory reserve		522			434
	Accrued vacation		469			477
	Warranty reserve		378			375
	Allowance for bad debts		124			132
	Other—net		489			599

Total deferred tax assets			2,177			2,644
Valuation allowance for deferred tax assets			(157	)		(396	)

Net deferred tax assets			2,020			2,248

Net total deferred tax liabilities		$	(9,656	)	$	(8,647	)

At March 31, 2001, the Company had unused foreign net operating loss carryforwards of $447,000 which do not expire. For financial reporting purposes, a valuation allowance has been recognized to offset the deferred tax assets related to these assets.

Deferred taxes have not been provided on undistributed earnings of foreign subsidiaries since substantially all of these earnings are expected to be permanently reinvested in foreign operations. Determination of the amount of unrecognized deferred U.S. income tax liabilities and potential foreign tax credits is not practical to calculate because of the complexity related with this hypothetical calculation.

The effective income tax rate from continuing operations varied from the statutory federal income tax rate as follows for the periods ended:

		Year ended March 31, 2001		Year ended March 31, 2000		Nine months ended March 31, 1999
Statutory federal income tax rate		34.0	%	34.0	%	34.0	%
Increases (decreases):
	State income taxes, net of federal tax benefit	(11.6	)	3.8		3.4
	Amortization of goodwill and intangibles	15.8		(3.1	)	(7.5	)
	Valuation allowance	(14.1	)	—		7.2
	Change in tax rate	—		0.8		4.5
	Foreign Rate Differential	(9.7	)	(4.4	)	(4.6	)
	Other	3.0		5.0		4.3

		17.4	%	36.1	%	41.3	%

Income taxes paid during 2001, 2000 and 1999 were approximately $861,000, $1,367,000, and $2,732,000, respectively.

4. Research and Development Costs

Research and development costs were approximately $13,302,000, $14,077,000, and $11,816,000 for 2001, 2000 and 1999, respectively.

5. Shareholders' Equity

Incentive Stock Option Plan: The Company has an incentive stock option plan adopted in 1996 (the Plan). At March 31, 2001, under the Plan, 600,000 shares of Common Stock have been reserved for issuance. The Company grants qualified stock options to officers and key employees. The option price per share under the Plan is not to be less than the fair market value of a share of Common Stock on the date of grant. Generally options vest over 3 years and have a term of 10 years. All grants are made by the Compensation Committee.

Nonqualified Stock Option Plan: In August 2000, shareholders of the Company approved the 1992 Amended and Restated Nonqualified Stock Option Plan which increased the number of authorized shares by 300,000. A total of 1,050,000 authorized but unissued or treasury shares of the Company's Common Stock were reserved for grant under the plan. The Compensation Committee determines the time or times at which options will be granted, selects the employees to whom options will be granted, and determines the number of shares covered by each option, purchase price, vesting periods and other terms.

Outside Director Plan: In August 1999, an Amended Outside Director Compensation, Stock Option and Retirement Plan (Outside Director Plan) was approved by the shareholders. The Outside Director Plan provides that each director who is not an employee of the Company will be granted an option to purchase 1,500 shares of the Company's Common Stock on the third business day after the annual meeting of the shareholders in each of the next ten years, commencing in fiscal 2000. The option price under the Outside Director Plan is the fair market value of a share of Common Stock on the date of grant.

The following table summarizes information concerning options outstanding and exercisable at March 31, 2001 for all plans:

	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted-Average Exercise Price		Number Exercisable	Weighted-Average Exercise Price
$1 - $5	747,850	7.74	$	4.76	199,963	$	4.39
$6 - $8	122,500	4.83		7.42	115,832		7.42
$9 - $11	78,000	5.59		10.55	78,000		10.55
$12 - $18	106,750	6.40		14.25	81,623		14.24
$19 - $22	44,000	6.98	$	19.88	26,125	$	19.95

Stock option activity during 1999-2001 is summarized below:

	Number of Shares Outstanding		Weighted-Average Exercise Price		Number of Shares Exercisable	Weighted-Average Exercise Price
June 30, 1998	970,255		$	11.58	352,821	$	6.62
Granted	25,500			5.47
Exercised	(5,400	)		5.11
Canceled or expired	(17,000	)		19.75

March 31, 1999	973,355			11.31	455,638		8.16
Granted	488,000			4.31
Exercised	(9,769	)		4.39
Canceled or expired	(511,136	)		10.27

March 31, 2000	940,450			8.31	389,987		9.44
Granted	309,500			5.44
Exercised	(26,481	)		3.70
Canceled or expired	(124,369	)		13.84

March 31, 2001	1,099,100		$	6.99	501,543	$	8.46

The Company accounts for stock option awards as prescribed by Accounting Principles Board Opinion No. 25. Accordingly, no compensation cost has been recognized in the Consolidated Statements of Operations. Had the Company recorded compensation expense for the fair value of the options granted, as provided by SFAS No. 123, the Company's proforma net income (loss) and proforma net income (loss) per common share as compared to reported amounts would have been as follows:

		Year ended March 31, 2001		Year ended March 31, 2000			Nine months ended March 31, 1999
		*(In thousands, except per share data)*
Income (loss) from continuing operations:
	As reported	$	1,208	$	(4,098	)	$	(2,149	)
	Pro forma		806		(4,172	)		(2,927	)
Income (loss) from continuing operations per share—diluted:
	As reported	$	0.15	$	(0.50	)	$	(0.26	)
	Pro forma		0.10		(0.51	)		(0.36	)

The fair values of the options were determined by using a Black-Scholes option-pricing model with the following assumptions:

	Year ended March 31, 2001	Year ended March 31, 2000	Nine months ended March 31, 1999
Dividend yield	0%	0%	0%
Volatility	71%	71%	61%
Risk-free interest rate	6%	6%	6%
Expected life	6 years	6 years	6 years

The weighted average fair value of options granted at the market price for 2001, 2000 and 1999 was $3.78, $2.88, and $3.42, respectively.

Restricted Stock Grant Plan: On February 27, 1989, the shareholders of the Company approved a restricted stock grant plan whereby officers and key employees may be granted restricted shares of the Company's Common Stock. The restrictions lapse over various vesting periods not to exceed ten years. A total of 450,000 authorized but unissued or treasury shares of the Company's Common Stock were reserved for grant under the plan. These restricted shares may be granted at a price equal to par value. In 2001, 2000, and 1999 the Company made grants of 5,000, 21,500, and 3,000 shares, respectively. The market value of restricted shares granted is being amortized as compensation expense over the vesting period. Total expense of $20,482, $153,816, and $15,000 was recognized in 2001, 2000, and 1999, respectively, in connection with the restricted stock grant plan. The shares reserved for future grants are 97,541 as of March 31, 2001.

Shareholder Rights Plan: The Board of Directors of the Company amended its Shareholder Rights Plan on January 21, 2000, whereby common stock purchase rights (the Rights) were distributed as a dividend at the rate of one Right for each share of the Company's Common Stock held as of the close of business on January 25, 1999. The Rights will expire on January 20, 2009. Each Right entitles shareholders to buy one share of common stock of the Company at an exercise price of $65 per share. The Rights are

exercisable only if a person or group acquires beneficial ownership of 20% or more of the Company's Common Stock or announces a tender or exchange offer upon consummation of which such person or group would beneficially own 20% or more of the Common Stock.

Following the acquisition of 20% or more, but less than 50%, of the Company's Common Stock by a person or group, the Board of Directors may authorize the exchange of the Rights (except those owned by the acquirer), in whole or in part, for shares of the Company's Common Stock at an exchange ratio of one share for each Right.

The Board of Directors of IFR will generally be able to redeem the Rights at $.01 per Right at any time prior to the time that a 20% position in the Company has been acquired. If a bidder who owns less than 5% of the Common Stock offers to buy all of the Common Stock at a price which a nationally recognized investment banker states in writing is fair and if the bidder has full financing for the bid, the shareholders of the Company may cause the Rights to be automatically redeemed immediately prior to the consummation of the offer, provided that such offer or another offer is consummated within 60 days at a price per share that is not less than the price approved by the shareholders.

6. Earnings Per Share

The following is a reconciliation of the numerator and denominators used in computing basic and diluted earnings per share from continuing operations:

			Year ended March 31, 2001		Year ended March 31, 2000			Nine months ended March 31, 1999
			*(in thousands, except per share data)*
*Numerator*
	Income (loss) from continuing operations available to common shareholders		$	1,208	$	(4,098	)	$	(2,149	)

*Denominators*
	Basic income (loss) per share:
	Weighted-average common shares outstanding			8,260		8,233			8,207

	Basic Income (loss) per share from continuing operations		$	0.15	$	(0.50	)	$	(0.26	)

	Diluted income (loss) per share:
		Weighted-average common shares outstanding		8,260		8,233			8,207
		Effect of stock options		15		57			47

		Weighted-average common shares outstanding—diluted		8,275		8,290			8,254

		Diluted income (loss) per share from continuing operations	$	0.15	$	(0.49	)	$	(0.26	)

Since the effect of stock options for 2000 and 1999 is antidilutive, the statements of operations reflect diluted per share amounts equal to the basic per share amounts.

7. Segments

Description of the types of products and services

As a result of sale of its Optical Test and Measurement Division (see Note 9), the Company now operates within only one segment: Electronic Test and Measurement Equipment (ETM). The Company manufactures and markets a broad array of test equipment as well as offers service and repair for these products.

				Year ended March 31, 2001		Year ended March 31, 2000		Nine months ended March 31, 1999
				*(in thousands)*
*Geographic area sales*
	United States			$	48,155	$	62,024	$	38,383
	South America and Canada				5,096		5,829		7,325

			Total Americas		53,251		67,853		45,708

	United Kingdom				42,596		23,481		23,361
	France				8,862		10,437		8,582
	Germany				4,913		5,655		5,045
	Other				12,019		13,963		9,190

			Total Europe		68,390		53,536		46,178

	Pacific Rim				15,915		16,137		10,090
	Rest Of World				3,970		4,365		4,183

		Total		$	141,526	$	141,891	$	106,159

Sales are attributed to geographic areas based on the location of the customers.

			Year ended March 31, 2001		Year ended March 31, 2000		Nine months ended March 31, 1999
			*(in thousands)*
*Sales by market sector*
	Communications		$	43,886	$	39,727	$	31,654
	Test & Measurement			39,447		37,905		26,441
	Avionics			13,123		13,209		11,387
	ATE & Solutions			18,408		14,148		10,869
	Service			21,799		26,233		17,497
	Other			4,863		10,669		8,311

		Total	$	141,526	$	141,891	$	106,159

			Year ended March 31, 2001		Year ended March 31, 2000
*Geographic area long-lived assets*
	United States—Total Americas		$	6,907	$	9,882

	United Kingdom			61,598		65,511
	France			116		154
	Germany			46		51
	Other			12		2

		Total Europe		61,772		65,718

	Pacific Rim			55		48

		Total	$	68,734	$	75,648

8. Benefit Plans

Retirement Plan: The Company has a trusteed, defined contribution retirement plan for all U.S. employees. Company contributions are discretionary with respect to the plan. Employee benefits are based on amounts accumulated from contributions and investment gains or losses. The Company has also established a defined contribution plan for substantially all U.K. employees. Total retirement plan expenses for 2001, 2000 and 1999 were approximately $1,681,000, $2,375,000, and $1,736,000, respectively.

Directors Retirement Plan: The Company maintains an unfunded retirement plan for nonemployee directors of the Company. Benefits will not accrue for periods in excess of 10 years of service and are payable when the Plan's requirements are satisfied. In August 1999, an Amended Outside Director Compensation, Stock Option and Retirement Plan (Outside Director Plan) was approved by the shareholders. No additional benefits will be earned under the Plan after fiscal year 2000. The estimated liability at March 31, 2001 and March 31, 2000 was $471,000 and $454,000, respectively, and is included in the balance sheet caption Other Liabilities and Accrued Expenses.

Savings and Investment Plan: The Company has a savings and investment plan for substantially all U.S. employees under Section 401(k) of the Internal Revenue Code. Employees may contribute to the plan up to 12% of their salary. Matching Company contributions are discretionary with respect to the plan. During 2001, 2000 and 1999, the Company matched 50% of each employee's contribution up to 4% of their salary. Company contributions charged to expense in 2001, 2000 and 1999, were approximately $289,000, $300,000, and $218,000,respectively.

Incentive Bonus Plan: The Company has established a bonus plan payable to selected employees based on pre-established operating income goals approved by the Board of Directors. No bonuses were earned during the past three fiscal years.

VEBA Trust: The Company has a voluntary employees' beneficiary association (VEBA), which funds certain employee welfare plan benefits. The Company is obligated to fund a trust as needed to provide for actual claims and trust expenses incurred. Total VEBA expenses for 2001, 2000 and 1999 were approximately $1,386,000, $1,710,000, and $1,034,000, respectively.

9. Discontinued Operations

On June 25, 1999, the Board of Directors approved a formal plan to sell the Company's Optical Test and Measurement (OTM) Division. The sale was completed on July 7, 1999 to GN Nettest, a company in the GN Great Nordic Group, Copenhagen, Denmark for $43,988,000, resulting in a net-of-tax gain of $11,031,000 (approximately $1.34 per share). The proceeds from the sale were used to reduce the Company's outstanding debt obligation in July 1999, with $31,740,000 applied to long-term debt and $11,260,000 used to reduce short-term debt (see Note 2). The results of operations for the OTM Division have been segregated and classified as discontinued operations in the consolidated statements of operations and prior periods have been restated. The consolidated statements of cash flows and consolidated statements of shareholders' equity include the OTM Division. Selected results of operations for the OTM Division follows (in thousands):

	Year ended March 31, 2000		Nine months ended March 31, 1999
Sales	$	8,335	$	23,358
Income tax expense (benefit)		7,184		(6	)
Income (loss) from discontinued operations		326		(446	)
Net gain on sale of OTM Division		11,031		—

10. Specified Financial Information

As a result of the change in the Company's year end in 1999, the following comparative information is presented for the years ending March 31, 2001, March 31, 2000 and March 31, 1999 (in thousands, except per share data):

		2001		2000			1999
							*(unaudited)*
Sales		$	141,526	$	141,891		$	145,974
Gross profit			60,923		58,541			59,538
Income tax expense (benefit)			254		(2,316	)		(3,907	)
Continuing operations:
	Net income (loss)		1,208		(4,098	)		(5,188	)
	Net income (loss) per share		0.15		(0.50	)		(0.63	)
	Net income (loss) per share assuming dilution		0.15		(0.50	)		(0.63	)

Since the per share amounts for 2000 and 1999 are antidilutive, the diluted per share amounts equal the basic per share amounts.

11. Subsequent Event

On June 29, 2001, the Company signed Amendment No. 6 to its debt Agreement which extended the maturity date of the loan to September 30, 2002 and reduced the quarterly principal payments to $500,000 through the remainder of the term. In addition, certain financial ratios were modified. A summary of maturities by year is as follows (in thousands):

2002	$	2,000
2003		54,135

Total	$	56,135

Quarterly Results of Operations (unaudited)

		Quarters Ended
Fiscal 2001		Jun. 30, 2000		Sep. 30, 2000		Dec. 31, 2000		Mar. 31, 2001
		*(Dollars in thousands, except per share data)*
Sales		$	34,549	$	35,862	$	34,512	$	36,603
Gross profit			14,532		15,307		15,101		15,983
Income from continuing operations			482		247		174		305
Net income			482		247		174		305
Earnings per share—basic:
	Continuing operations	$	0.06	$	0.03	$	0.02	$	0.04
	Net income		0.06		0.03		0.02		0.04
Earnings per share—diluted:
	Continuing operations	$	0.06	$	0.03	$	0.02	$	0.04
	Net income		0.06		0.03		0.02		0.04
Average common shares outstanding			8,244		8,256		8,271		8,271
Dilutive common shares outstanding			8,351		8,300		8,276		8,274

Quarterly Results of Operations (unaudited)

		Quarters Ended
Fiscal 2000		Jun. 30, 1999			Sep. 30, 1999			Dec. 31, 1999			Mar. 31, 2000
		*(Dollars in thousands, except per share data)*
Sales		$	33,991		$	34,705		$	35,265		$	37,930
Gross profit			14,930			13,751			13,393			16,467
Income (loss) from:
	Continuing operations		(1,101	)		(993	)		(2,632	)		628
	Discontinued operations		326			10,134			—			897
Net income (loss)			(775	)		9,141			(2,632	)		1,525
Earnings (loss) per share—basic:
	Continuing operations	$	(0.13	)	$	(0.12	)	$	(0.32	)	$	0.08
	Discontinued operations		0.04			1.23			—			0.11
	Net income (loss)		(0.09	)		1.11			(0.32	)		0.19
Earnings (loss) per share—diluted:
	Continuing operations	$	(0.13	)	$	(0.12	)	$	(0.32	)	$	0.07
	Discontinued operations		0.04			1.23			—			0.11
	Net income (loss)		(0.09	)		1.11			(0.32	)		0.18
Average common shares outstanding			8,223			8,231			8,236			8,240
Dilutive common shares outstanding			8,223			8,231			8,236			8,481

The effect of stock options for the first, second, and third quarters in fiscal year 2000 is antidilutive because of the net loss. In these cases, the diluted per share amounts equal the basic per share amounts.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by Item 10 concerning directors of IFR is incorporated herein by reference from "Election of Directors" contained in IFR's Proxy Statement for its August 20, 2001 annual meeting of shareholders (the "2001 Proxy Statement"). The executive officers and senior staff of the Company are as follows:

Name	Age	Position
Alfred H. Hunt, III	65	Chairman of the Board of Directors
Jeffrey A. Bloomer	44	President and CEO	Executive Officer
Dennis H. Coley	57	Vice President Finance, Treasurer and Chief Financial Officer	Executive Officer
Jeff L. Ray	54	Vice President US Operations
Mike McCreary	57	Vice President European Operations
Lynn K. Giles	47	Vice President Human Resources
John B. Bickley	45	Vice President Global Sales
Bob R. Vogel	41	Vice President Product Development
Edward S. Mathieu	62	Vice President Marketing

Executive officers are appointed by the Board of Directors on an annual basis and serve until their successors have been duly elected. There are no family relationships among any of the executive officers or directors of the Company.

Alfred H. Hunt, III was named Chairman of the Board of the Company in April 1999 and is also the Chief Technology Officer. Mr. Hunt served as the President & Chief Executive Officer of IFR since 1983 and became Vice Chairman in 1990. He was the Vice President and General Manager of IFR from 1971 through 1983.

Jeffrey A. Bloomer has been the Chief Executive Officer and President of the Company since October 12, 1999. From April 1999 to October 1999, he served as Executive Vice President of the Company and from November 1995 to April 1999, he was its Treasurer and Chief Financial Officer. He served as the Company's Director of Finance from August 1994 through November 1995.

Dennis H. Coley has been the Company's Treasurer and Chief Financial Officer since August 1999. He served as the Company's Controller from May 1996 through August 1999. Prior to joining the company, he was the Controller of Learjet Inc., an aircraft manufacturing company.

John Bickley was selected as Vice President of Worldwide Sales in June of 2001. He was previously Director of Product Marketing—Broadband Routing and Switching Division at Marconi Communications, a global supplier of equipment and services for the Internet, enterprise networks and telecommunications systems based in Warrendale, Pennsylvania. Prior to this he was Director of Marketing and Sales—Semiconductor Group at Keithley Instruments, a measurement solutions company based in Cleveland, Ohio.

Bob Vogel, was selected as Vice President of Product Development in June of 2001. He was previously Vice President, Broadband Networks Division at Acterna Corp. (previously Dynatech Corp.), Burlington, Massachusetts, where he managed all product development efforts related to the company's cable business, including instruments and systems offerings. Previously, he was General Manager, Acterna Portable Loop Products Division, where he developed the growth and instrument strategy for the TPI division. Prior to Acterna, Vogel served as Vice President of AM Communications where he managed the Sales and Marketing organization and developed the status monitoring project strategy.

Lynn K. Giles was selected as Vice President of Human Resources in October of 2000. Prior to joining IFR, Lynn spent 16 years with Philips Electronics in various positions, most recently as Director of Human Resources for Philips's New Business Group, where he gained extensive multi-cultural expertise. Giles has lived in the U.K., and has worked in Europe, the Caribbean and Mexico.

Edward Mathieu was selected as its Vice President of Marketing and Business Development in May of 2000. Mathieu had been an independent management consultant since 1992 specializing in corporate development, long rage planning and strategic marketing for organizations primarily engaged in the electronic communications business. Mathieu also held senior management positions at North American Philips Corp., Repco Inc., Communications Control Centers, Inc., and several other companies specializing in wireless systems.

Mike McCreary, Vice President European Operations joined IFR (formerly Marconi Instruments) in 1992 as Manufacturing Director. In 1997, he was appointed to the role of Director and General Manager, Systems and Service. This role entailed responsibility for three business units, ATE, Systems and Service. In 1999, Mike was appointed Operations Director and General Manager. This role was then expanded to resume responsibility for Manufacturing in addition to the business units.

Jeff L. Ray, Vice President of U.S. Operations, joined IFR in 1989 as Director of Materials and Purchasing. In June of 1992, he was appointed to the role of Director of Manufacturing and in June of 2000 he was promoted to Vice President of U.S. Operations.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is incorporated herein by reference from "Election of Directors" and "Compensation of Directors", "Executive Compensation", and "Compensation Committee Report on Executive Compensation" contained in the 2001 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by Item 12 is incorporated herein by reference from "Outstanding Shares" and "Election of Directors" contained in the 2001 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by Item 13 is incorporated herein by reference from "Certain Relationships" contained in the 2001 Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a): (1) Financial Statements—See Index to Financial Statements at Item 8 of this report.
(a): (2) Financial Statement Schedules

The following financial statement schedule of IFR is included in this report in response to Item 14(d):

Schedule II—Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the instructions or are inapplicable, and therefore have been omitted.

(a): (3) See Exhibit Index
(b): No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended March 31, 2001.

EXHIBIT INDEX

Exhibit No.		Description of Exhibit
2.1		Share Sale and Purchase Agreement, dated February 6, 1998, among IFR Systems, Inc., IFR Systems Limited, and The General Electric Company p.l.c. (Exhibit 2.01 to Form 8-K, dated February 6, 1998, previously filed by Registrant).*
2.2		Deed of Tax Covenant, dated February 6, 1998, between The General Electric Company p.l.c., as Covenantor, and IFR Systems Limited, as Purchaser (Exhibit 2.02 to Form 8-K, dated February 6, 1998, previously filed by Registrant).*
2.3		Agreement and Plan of Merger of IFR Systems, Inc., with IFR Merger Corporation, dated as of January 20, 1998 (Exhibit 2 to Form 8-K, dated January 30, 1998, previously filed by Registrant).*
3.1		Amended and Restated Certificate of Incorporation of IFR Systems, Inc. (the "Company"), dated January 30, 1998 (Exhibit 3.01 to Form 8-K, dated January 30, 1998, previously filed by Registrant).*
3.2		Bylaws of the Company (Exhibit 3.2 to the Company's Amendment No. 1 to Form 8-K, dated February 18, 1999, File No. 0-14224, previously filed by Registrant).*
4.1		Specimen certificate representing common stock of the Company (Exhibit 4.1 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed January 17, 1986, Reg. No. 33-2122, as previously filed by Registrant).*
4.2		Article II of the Amended and Restated Certificate of Incorporation of the Company, (Included in Exhibit 3.1).*
4.3		Articles I, III, and VII of the Amended and Restated Certificate of Incorporation of the Company, (Included in Exhibit 3.1).*
4.4		Articles 2, 3, and 5 of the By-laws of the Company. (Included in Exhibit 3.2).*
4.5		Rights Agreement between the Company and Harris Trust & Savings Bank dated as of February 28, 1999 (Exhibit 4 to the Company's registration statement on Form 8-A dated February 19, 1999, previously filed by Registrant).*
4.6		Form of Rights Certificate of the Company. (Included in Exhibit 4.5).*
4.7		IFR Systems, Inc., 1992 Nonqualified Stock Option Plan (Exhibit 4(a) to the Company's Registration Statement on Form S-8 filed January 8, 1993, Reg. No. 33-56862, previously filed by Registrant).*
4.8		Form of Option Agreement for IFR Systems, Inc., 1992 Nonqualified Stock Option Plan (Exhibit 4(b) to the Company's Registration Statement on Form S-8 filed January 8, 1993, Reg. No. 33-56862, previously filed by Registrant).*
10.1		Description of Incentive Bonus Plan for Management of the Company. (Incorporated by reference from page 8 of the 1996 Proxy Statement as filed on September 23, 1996, File No. 0-14224).*
10.2		Stock Purchase Agreement, dated as of June 28, 1999, between GN Nettest A/S, GN Nettest (New York)Inc, and GN Great Britain Limited and IFR Systems, Inc. (Exhibit 1 to Form 8-K, dated July 8,1999, previously filed by Registrant).*

10.4		Termination Agreement between the Company and Jeffrey A. Bloomer (Exhibit 10.0 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, previously filed by Registrant).*
10.5		Termination Agreement between the Company and Dennis H. Coley (Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended March 31, 2000, previously filed by Registrant).*
10.6		IFR Systems, Inc. Employees' Profit Sharing Plan (Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended June 30, 1990, File No. 0-14224, previously filed by Registrant).*
10.7		Restricted Stock Grant Plan of the Company (Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year ended June 30, 1989, File No. 0-14224, previously filed by Registrant).*
10.9		1996 Incentive Stock Option Plan of the Company (Exhibit A of the 1996 Proxy Statement as filed on September 23, 1996, File No. 0-14224, previously filed by Registrant).*
10.10		Form of Indemnity Agreement entered into between the Company and its directors and certain of its officers as of February 27, 1989 (Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended June 30, 1989, File No. 0-14224, previously filed by Registrant).*
10.11		IFR Systems, Inc., Outside Director Compensation, Stock Option, and Retirement Plan (Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended March 31, 2001, File No. 0-14224, previously filed by Registrant).*
10.12		Lease between the Company and the City of Goddard, Kansas, dated as of March 15, 1997 (Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997, previously filed by Registrant)*
10.13		Credit Agreement, dated as of February 5, 1998, among IFR Systems, Inc., The First National Bank of Chicago, and various lenders (Exhibit 10.01 to the Form 8-K, dated February 6, 1998, previously filed by Registrant).*
10.14		Form of Security Agreement executed by Registrants and its United States subsidiaries (Exhibit 10.02 to Form 8-K, dated February 6, 1998, previously filed by Registrant).*
10.15		Form of Guaranty executed by each of Registrants United States subsidiaries (Exhibit 10.03 to Form 8-K, dated February 6, 1998, previously filed by Registrant).*
10.16		Pledge Agreement between Registrant and First National Bank of Chicago (Exhibit 10.04 to Form 8-K, dated February 6, 1998, previously filed by Registrant).*
10.17		Equitable Share Change by Registrant to First National Bank of Chicago (Exhibit 10.05 to Form 8-K, dated February 6, 1998, previously filed by Registrant).*
10.18		Form of Copyright Security Agreement executed by Registrant and each of its United States subsidiaries (Exhibit 10.06 to Form 8-K, dated February 6, 1998, previously filed by Registrant).*
10.19		Form of Patent Security Agreement executed by Registrant and each of its United States subsidiaries (Exhibit 10.07 to Form 8-K, dated February 6, 1998, previously filed by Registrant).*

10.20		Form of Trademark Security Agreement Security Agreement executed by Registrant and each of its United States subsidiaries (Exhibit 10.08 to Form 8-K, dated February 6, 1998, previously filed by Registrant).*
10.21		Amendment No. 1 to Credit Agreement, dated as of November 3, 1998, among IFR Systems, Inc., The First National Bank of Chicago, and various lenders. (Exhibit 10.0 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, previously filed by Registrant).*
10.22		Amendment No. 2 to Credit Agreement, dated as of March 31, 1999, among IFR Systems, Inc., The First National Bank of Chicago, and various lenders. (Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, previously filed by Registrant).*
10.23		Amendment No. 3 to Credit Agreement, dated as of June 28, 1999, among IFR Systems, Inc., The First National Bank of Chicago, and various lenders. (Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1999, previously filed by Registrant).*
10.24		Amendment No. 4 to Credit Agreement, dated as of October 15, 1999, among IFR Systems, Inc., the First National Bank of Chicago, and various lenders. (Exhibit 10.24 to the Company's Annual Report on Form 10-K for the year ended March 31, 2000, previously filed by Registrant).*
10.25		Amendment No. 5 to Credit Agreement, dated as of June 15, 2000, among IFR Systems, Inc., The First National Bank of Chicago, and various lenders. (Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended March 31, 2000, previously filed by Registrant).*
21.0		Subsidiaries of the Registrant
23.0		Consent of Ernst & Young LLP

*: Document has been previously filed with the Securities and Exchange Commission and is incorporated by reference and made a part hereof.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the under signed, thereunto duly authorized.

		IFR SYSTEMS, INC.
July 3, 2001		By:		/s/ JEFFREY A. BLOOMER Jeffrey A. Bloomer President and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Date	Title	Signature
July 3, 2001	Chairman of the Board of Directors	/s/ ALFRED H. HUNT, III Alfred H. Hunt
July 3, 2001	President and Chief Executive Officer (Principal Executive Officer)	/s/ JEFFREY A. BLOOMER Jeffrey A. Bloomer
July 3, 2001	Director	/s/ FREDERICK R. HUME Frederick R. Hume
July 3, 2001	Director	/s/ DONALD L. GRAF Donald L. Graf
July 3, 2001	Director	/s/ JOHN V. GROSE John V. Grose
July 3, 2001	Director	/s/ OSCAR L. TANG Oscar L. Tang
July 3, 2001	Director	/s/ RALPH R. WHITNEY, JR. Ralph R. Whitney, Jr.
July 3, 2001	Vice President,Treasurer And Chief Financial Officer (Principal Accounting Officer)	/s/ DENNIS H. COLEY Dennis H. Coley

IFR SYSTEMS, INC

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

COL. A		COL. B	COL. C		COL. D	COL. E
			ADDITIONS
DESCRIPTION		Balance at Beginning of Period	Charged to Costs and Expenses	Charged to Other Accounts— Describe	Deductions— Describe(1)	Balance at End of Year
Year ended March 31, 2001:
	Allowance for doubtful accounts (deducted in balance sheet from accounts receivable)	599,644	151,000	—	185,795	564,849
Year ended March 31, 2000:
	Allowance for doubtful accounts (deducted in balance sheet from accounts receivable)	730,767	91,000	—	222,123	599,644
Nine Months ended March 31, 1999:
	Allowance for doubtful accounts (deducted in balance sheet from accounts receivable)	773,173	122,000	—	164,406	730,767