Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) | | Amount of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income into Income (Effective Portion) (1) | |
| | | |
| | Three Months Ended September 30 | |
| | 2010 | | | 2009 | |
| | (In thousands) | |
| | | |
Interest expense | | $ | (3,441 | ) | | $ | (3,401 | ) |
(1) See Note 11 for additional information on changes to accumulated other comprehensive income (loss).
Location of Gain or (Loss) | | | Amount of Gain or (Loss) | |
Reclassified from Accumulated | | | Reclassified from | |
Other Comprehensive Income | | | Accumulated Other Comprehensive Income | |
into Income (Effective Portion) | | | into Income (Effective Portion) (1) | |
| | | Three Months | | | | Three Months | | | | Six Months | | | Six Months | |
| | | Ended | | | | Ended | | | | Ended | | | Ended | |
| | | December 31, | | | | December 31, | | | | December 31, | | | December 31, | |
| | | 2009 | | | | 2008 | | | | 2009 | | | 2008 | |
| | | (In thousands) | |
| | | | | | | | | | | | | | | |
Interest expense | | $ | (3,781 | ) | | $ | (1,192 | ) | | $ | (7,182 | ) | $ | (2,082 | ) |
| (1) | See Note 11 for additional information on changes to accumulated other comprehensive income (loss). |
The amounts of the gains and losses related to our derivative financial instruments not designated as hedging instruments for the three and six months ended December 31,September 30, 2010 and 2009 and 2008 arewere as follows:
Derivatives Not | | Location of Gain or (Loss) | | | Amount of Gain or (Loss) | |
Designated as | | Recognized in Earnings on | | | Recognized in Earnings on | |
Hedging Instruments | | Derivative | | | Derivative | |
| | | | | Three Months | | | Three Months | | | Six Months | | | Six Months | |
| | | | | Ended | | | Ended | | | Ended | | | Ended | |
| | | | | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | | | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | | | | (In thousands) | |
Foreign currency forward contracts | | Other income (expense) | | $ | (87 | ) | $ | (639 | ) | $ | 231 | | $ | (804 | ) |
| | Location of Gain or (Loss) | | | Amount of Gain or (Loss) | |
Derivatives Not Designated | | Recognized in Earnings on | | | Recognized in Earnings on | |
as Hedging Instruments | | Derivative | | | Derivative | |
| | | | | | | | | |
| | | | | Three Months Ended September 30, | |
| | | | | 2010 | | | 2009 | |
| | | | | (In thousands) | |
| | | | | | | | | |
Foreign currency forward contracts | | Other income (expense) | | $ | (40) | | $ | 318 | |
Interest Rate Swap Cash-Flow Hedges
We enter into interest rate swap contracts with counterparties that are rated investment grade to manage the effects of interest rate movements on portions of our debt. Such contracts effectively fix the borrowing rates on floating rate debt to limit the exposure against the risk of rising rates. We do not enter into interest rate swap contracts for speculative purposes and we have entered into transactions with counterparties that are rated investment grade.purposes. Our interest rate swap contracts outstanding as of September 30, 2010, all of which were entered into in fiscal 2008 for an aggregate notional amount of $475$422.7 million, have varying maturities through February 2011.
Foreign Currency Contract Derivatives
Foreign currency contracts are used to protect us from fluctuations in exchange rates. We enter into foreign currency contracts, which are not designated as hedges. The change in fair value is included in other income (expense) as it occurs, within other income (expense).occurs. As of December 31, 2009,September 30, 2010, we had $26.7$47.2 million of notional value foreign currency forward contracts maturing through JanuaryOctober 29, 2010. Notional amounts do not quantify risk or represent assets or liabilities of the Company, but are used in the calculation of cash settlements under the contracts.
8. | Fair Value Measurements |
We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring the fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
| Level 1: | Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date. |
| Level 2: | Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. |
| Level 3: | Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments’ valuation. |
The following table presents for each hierarchy level, financial assets and liabilities measured at fair value on a recurring basis:
| | | | | | | | | | | | |
| | Quoted Prices in | | | | | | | | | | |
| | Active Markets | | | Significant Other | | | Significant | | | | |
| | for Identical | | | Observable | | | Unobservable | | | | |
| | Assets | | | Inputs | | | Inputs | | | | |
As of September 30, 2010 | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | |
| | (In thousands) | | | | | | | |
Assets: | | | | | | | | | | | | |
Non-current marketable securities | | $ | - | | | $ | - | | | $ | 9,806 | | | $ | 9,806 | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Foreign currency forward contracts | | $ | - | | | $ | 333 | | | $ | - | | | $ | 333 | |
Interest rate swap contracts | | | - | | | | 3,747 | | | | - | | | | 3,747 | |
Total Liabilities | | $ | - | | | $ | 4,080 | | | $ | - | | | $ | 4,080 | |
| | Quoted Prices in | | | | | | | | | | |
| | Active Markets | | | Significant Other | | | Significant | | | | |
| | for Identical | | | Observable | | | Unobservable | | | | |
| | Assets | | | Inputs | | | Inputs | | | | |
As of June 30, 2010 | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | |
| | (In thousands) | | | | | | | |
Assets: | | | | | | | | | | | | |
Non-current marketable securities | | $ | - | | | $ | - | | | $ | 9,769 | | | $ | 9,769 | |
Liabilities: | | | | | | | | | | | | | | | | |
Foreign currency forward contracts | | $ | - | | | $ | 293 | | | $ | - | | | $ | 293 | |
Interest rate swap contracts | | | - | | | | 6,613 | | | | - | | | | 6,613 | |
Total Liabilities | | $ | - | | | $ | 6,906 | | | $ | - | | | $ | 6,906 | |
| | Quoted Prices in | | | | | | | | | | |
| | Active Markets | | | Significant Other | | | Significant | | | | |
| | for Identical | | | Observable | | | Unobservable | | | | |
| | Assets | | | Inputs | | | Inputs | | | | |
As of December 31, 2009 | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | |
| | (In thousands) | |
Assets: | | | | | | | | | | | | |
Non-current marketable securities | | $ | - | | | $ | - | | | $ | 16,899 | | | $ | 16,899 | |
Foreign currency forward contracts | | | - | | | | 36 | | | | - | | | | 36 | |
Total Assets | | $ | - | | | $ | 36 | | | $ | 16,899 | | | $ | 16,935 | |
| | | | | | | | | | | | | | | | |
Liabilities: | | | | | | | | | | | | | | | | |
Interest rate swap contracts | | $ | - | | | $ | 12,710 | | | $ | - | | | $ | 12,710 | |
| | Quoted Prices in | | | | | | | | | | |
| | Active Markets | | | Significant Other | | | Significant | | | | |
| | for Identical | | | Observable | | | Unobservable | | | | |
| | Assets | | | Inputs | | | Inputs | | | | |
As of June 30, 2009 | | (Level 1) | | | (Level 2) | | | (Level 3) | | | Total | |
| | (In thousands) | |
Assets: | | | | | | | | | | | | |
Non-current marketable securities | | $ | - | | | $ | - | | | $ | 17,677 | | | $ | 17,677 | |
Liabilities: | | | | | | | | | | | | | | | | |
Foreign currency forward contracts | | $ | - | | | $ | 195 | | | $ | - | | | $ | 195 | |
Interest rate swap contracts | | | - | | | | 15,621 | | | | - | | | | 15,621 | |
Total Liabilities | | $ | - | | | $ | 15,816 | | | $ | - | | | $ | 15,816 | |
The following table presents the changes in the carrying value of the Company’s assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the sixthree months ended December 31, 2009:September 30, 2010:
| | Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Auction Rate Securities (In thousands) | |
| | | |
Balance at June 30, 2010 | | $ | 9,769 | |
Unrealized gain (loss) in accumulated other comprehensive income (loss) | | | 37 | |
Balance at September 30, 2010 | | $ | 9,806 | |
| | Fair Value Measurements | |
| | Using Significant | |
| | Unobservable Inputs | |
| | (Level 3) | |
| | Auction | |
| | Rate | |
| | Securities | |
| | (In thousands) | |
| | | |
Balance at June 30, 2009 | | $ | 17,677 | |
Redeemed by the issuer at par | | | (1,000 | ) |
Total unrealized gain (loss) in accumulated | | | | |
other comprehensive income (loss) | | | 222 | |
Balance at December 31, 2009 | | $ | 16,899 | |
Non-Current Marketable Securities – Non-current marketable securities consist of auction rate securities that currently have no active market from which we could obtain pricing. We have classified auction rate securities as Level 3 as their valuation requires substantial judgment and estimation of factors that are not currently observable in the market due to the lack of trading in the securities. To date, we have collected all interest payments on all of our auction rate securities when due. Furthermore, we have the intent and are able to hold these securities until the credit markets recover, or until their maturities, which range from 20292037 through 2042,2041, if necessary. However, based on a discounted cash flow analysis, which considered, among other items, the collateral underlying the securities, the credit worthiness of the issuer, the timing of future cash flows and liquidity risks, at December 31, 2009September 30, 2010, we havehad a $2.0$1.3 million valuation allowance against the auction rate securities.
As fair values have continued to be below cost, we have considered various factors in determining that at December 31, 2009September 30, 2010 a credit loss did not exist and there was no requirement to recognize an other than temporary impairment charge, including the length of time and the extent to which the fair value has been below the cost basis, the timely receipt of all interest payments, the rating of the security, the relatively low volatility of the security’s fair value, the current financial condition of the issuer and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.
In July 2009, $1.0 million of our auction rate securities were redeemed by the issuer at par. In January 2010, an additional $4.0 million of our auction rate securities were redeemed by the issuer at 92% of par. The resulting $320,000 realized loss will be recorded in the statement of operations in the third quarter of fiscal 2010. The $4.0 million of auction rate securities redeemed in January 2010 are classified as non-current marketable securities as of December 31, 2009, as we were not aware at the balance sheet date that these auction rate securities would be redeemed.
Foreign Currency Forward Contracts – The fair value of our foreign currency forward contracts were valueddetermined using a pricing model with all significant inputs based on observable market data such as measurement date spot and forward rates.
Interest Rate Swap Contracts – The fair value of our outstanding interest rate swap contracts were based on valuations received from the counterparties and corroborated by measurement date equivalent swap rates.
9. | Long Term Debt and Credit Agreements |
The fair value of our debt instruments are summarized as follows:
| | September 30, 2010 | |
| | Carrying | | | Estimated | |
| | Amount | | | Fair Value | |
| | (In thousands) | |
| | | | | | |
Senior secured B-1 term loan | | $ | 372,651 | | | $ | 361,472 | |
Senior secured B-2 term loan | | | 116,454 | | | | 112,960 | |
Senior unsecured notes | | | 225,000 | | | | 244,125 | |
Senior subordinated unsecured term loan | | | 167,973 | | | | 145,297 | |
Other | | | 745 | | | | 745 | |
Total debt | | $ | 882,823 | | | $ | 864,599 | |
| | December 31, 2009 | |
| | Carrying | | | Estimated | |
| | Amount | | | Fair Value | |
| | (In thousands) | |
| | | | | | |
Senior secured B-1 term loan | | $ | 389,943 | | | $ | 352,899 | |
Senior secured B-2 term loan | | | 121,857 | | | | 105,407 | |
Senior unsecured notes | | | 225,000 | | | | 228,375 | |
Senior subordinated unsecured term loan | | | 156,308 | | | | 133,643 | |
Other | | | 1,085 | | | | 1,085 | |
Total debt | | $ | 894,193 | | | $ | 821,409 | |
TheAs of June 30, 2010, our total debt had a carrying value of debt of $889.3$901.8 million as of June 30, 2009 hadand a fair value of $661.9$877.7 million.
The estimated fair values of each of our debt instruments are based on quoted market prices for the same or similar issues. Fair value estimates related to our debt instruments are made at a specific point in time based on relevant market information. These estimates are subjective in nature and involve uncertainties and matters of significant judgments and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
As of December 31, 2009,September 30, 2010, we are in compliance with all of the covenants contained in our loan agreements.
Interest paid was $30.6$21.6 million and $21.1$22.0 million for the sixthree months ended December 31,September 30, 2010 and 2009, and 2008, respectively. Accrued interest of $14.2$9.8 million and $14.0$13.9 million was included in accrued expenses and other current liabilities at December 31, 2009September 30, 2010 and June 30, 2009,2010, respectively.
10. | Loss on Liquidation of Foreign Subsidiary |
In connection with the acquisition of one of our Wirelesswireless businesses in the U.K. in 2003, we set up a foreign partnership to finance the acquisition. We invested $19.5 million in the partnership and the partnership advanced those funds to our foreign holding company in the form of a loan, the proceeds of which was used for the acquisition.
During the quarter ended September 30, 2009, the loan was fully repaid to the partnership, with interest, and we received a return of capital and dividends. The partnership ishas been substantially liquidated.
As a result of changes in foreign currency rates, there was a cumulative translation adjustment of $7.7 million remaining after substantially all of the assets have been returned to us and substantially all of the liabilities have been satisfied. In accordance with U.S. GAAP, this remaining cumulative translation adjustment has been expensed in the period during which the substantial liquidation of the partnership occurred and presented as a non-cash loss on liquidation of foreign subsidiary in our Condensed Consolidated Statement of Operations for the six monthsquarter ended December 31,September 30, 2009. This loss is not deductible for income tax purposes.
The components of comprehensive income (loss) arewere as follows:
| | Three Months Ended September 30, | |
| | 2010 | | | 2009 | |
(In thousands) | | | | | | |
| | | | | | |
Net income (loss) | | $ | (5,817 | ) | | $ | (20,543 | ) |
Increase (decrease) in fair value of interest rate swap contracts, net of tax provision (benefit) of $1,113 and $124 | | | 1,753 | | | | 196 | |
Valuation allowance against non-current marketable securities | | | 37 | | | | 269 | |
Foreign currency translation adjustment, net of tax of $680 and $0 | | | 10,022 | | | | 5,884 | |
Total comprehensive income (loss) | | $ | 5,995 | | | $ | (14,194 | ) |
| | Three Months | | | Three Months | | | Six Months | | | Six Months | |
| | Ended | | | Ended | | | Ended | | | Ended | |
| | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | (In thousands) | |
| | | | | | | | | | | | |
Net income (loss) | | $ | (10,614 | ) | | $ | (4,107 | ) | | $ | (31,157 | ) | | $ | (11,004 | ) |
Increase (decrease) in fair value of | | | | | | | | | | | | | | | | |
interest rate swap contracts, net of tax | | | | | | | | | | | | | | | | |
provision (benefit) of $961, $(6,487), | | | | | | | | | | | | | | | | |
$1,086 and $(7,562) | | | 1,629 | | | | (11,045 | ) | | | 1,825 | | | | (12,875 | ) |
Valuation allowance against | | | | | | | | | | | | | | | | |
non-current marketable securities | | | (47 | ) | | | (1,005 | ) | | | 222 | | | | (2,203 | ) |
Foreign currency translation adjustment, | | | | | | | | | | | | | | | | |
net of tax provision of $617, $0, | | | | | | | | | | | | | | | | |
$617 and $0 | | | 129 | | | | (34,199 | ) | | | 6,013 | | | | (55,981 | ) |
Total comprehensive income (loss) | | $ | (8,903 | ) | | $ | (50,356 | ) | | $ | (23,097 | ) | | $ | (82,063 | ) |
Accumulated other comprehensive income (loss) iswas as follows:
| | Unrealized | | | | | | | | | | | | | |
| | Gain (Loss) | | | Valuation | | | Minimum | | | Foreign | | | | |
| | on Interest | | | Allowance Against | | | Pension | | | Currency | | | | |
| | Rate Swap | | | Non-Current | | | Liability | | | Translation | | | | |
| | Contracts | | | Marketable | | | Adjustment | | | Adjustment | | | Total | |
| | (net of tax) | | | Securities | | | (net of tax) | | | (net of tax) | | | (net of tax) | |
| | (In thousands) | |
| | | | | | | | | | | | | | | |
Balance, June 30, 2010 | | $ | (4,046 | ) | | $ | (1,276 | ) | | $ | (773 | ) | | $ | (47,480 | ) | | $ | (53,575 | ) |
Three months' activity | | | 1,753 | | | | 37 | | | | - | | | | 10,022 | | | | 11,812 | |
Balance, September 30, 2010 | | $ | (2,293 | ) | | $ | (1,239 | ) | | $ | (773 | ) | | $ | (37,458 | ) | | $ | (41,763 | ) |
| | Unrealized | | | | | | | | | | | | | |
| | Gain (Loss) | | | Valuation | | | Minimum | | | Foreign | | | | |
| | on Interest | | | Allowance Against | | | Pension | | | Currency | | | | |
| | Rate Swap | | | Non-Current | | | Liability | | | Translation | | | | |
| | Contracts | | | Marketable | | | Adjustment | | | Adjustment | | | Total | |
| | (net of tax) | | | Securities | | | (net of tax) | | | (net of tax) | | | (net of tax) | |
| | (In thousands) | |
| | | | | | | | | | | | | | | |
Balance, June 30, 2009 | | $ | (9,602 | ) | | $ | (2,268 | ) | | $ | (499 | ) | | $ | (42,331 | ) | | $ | (54,700 | ) |
Six months' activity | | | 1,825 | | | | 222 | | | | - | | | | 6,013 | | | | 8,060 | |
Balance, December 31, 2009 | | $ | (7,777 | ) | | $ | (2,046 | ) | | $ | (499 | ) | | $ | (36,318 | ) | | $ | (46,640 | ) |
The valuation allowance for non-current marketable securities is not adjusted for income taxes as it would create a capital loss carryforward upon realization for which we would record a valuation allowance against the related deferred tax asset.
Prior to fiscal 2009, the foreign currency translation adjustments were not adjusted for income taxes as they related to indefinite investments in non-U.S. subsidiaries. Deferred U.S. income taxes have been provided on certain undistributed foreign earnings for years subsequent to fiscal 2008 since we expect that substantially all of these earnings will be distributed to the U.S. As of December 31, 2009,September 30, 2010, we have recorded a deferred U.S. income tax on the foreign currency translation adjustment created by the post-fiscal 2008 undistributed foreign earnings.
In March 2005, we sold the net assets of our shock and vibration control device manufacturing business, (“VMC”).which we refer to as VMC. Under the terms of the sale agreements, we retained certain liabilities relating to adverse environmental conditions that existed at the premises occupied by VMC as of the date of sale andsale. We recorded a liability for the estimated remediation costs.costs related to adverse environmental conditions that existed at the VMC premises when it was sold. The accrued environmental liability at December 31, 2009 is $1.1September 30, 2010 was $1.6 million, of which $322,000 iswas expected to be paid within one year.
During the quarter ended March 31,In fiscal 2007, we became aware that certain RadHard bidirectional multipurpose transceivers sold by us since 1999 may have been subject to the licensing jurisdiction of the U.S. Department of State in accordance with the International Traffic in Arms Regulations (“ITAR”).ITAR. Accordingly, we filed a Voluntary Disclosure with the Directorate of Defense Trade Controls, Department of State, describing the details of the possible inadvertent misclassification.misclassification and identifying certain unauthorized exports from the United States to end-users in a number of countries, including China and Russia. Simultaneously, we filed a Commodity Jurisdiction request providing detailed information and data supporting our contention that the product is not subject to ITAR and requesting a determination that such product is not ITAR controlled. On November 15, 2007, we were informed that the U.S. Department of State had determined in response to our Commodity Jurisdiction request that the product is subject to the licensing jurisdiction of the U.S. Department of State in accordance with the ITAR. We requested reconsideration of this determination. On February 7, 2008, we filed an addendum to the above referenced Voluntary Disclosure advising the Directorate of Defense Trade Controls that other products sold by us, similar in nature to the transceiver described above, may also be subject to the ITAR. The Directorate of Defense Trade Controls agreed to extend our time to file such addendum to the Voluntary Disclosure until a decision was rendered with respect to our request for reconsideration of the determination in connection with the above-referenced Commodity Jurisdiction request. On August 5, 2008, we received a letter from the Office of Defense Trade Controls Compliance, (“DTCC”)or DTCC, requesting that we provide documentation and/or information relating to our compliance initiatives after November 15, 2007 as well as the results of any product reviews conducted by us, and indicating that a civil penalty against us could be warranted in connection with this matter following the review of such materials. We have provided all of the materials and documentation requested by the DTCC. Our request for reconsideration of the Commodity Jurisdiction request was denied by the Directorate of Defense Trade Controls on August 19, 2008 which determined that the product is subject to the licensing jurisdiction of the Department of State in accordance with the ITAR. Accordingly, on September 18, 2008, we filed an addendum to our Voluntary Disclosure identifying other products that may have been subject to the licensing jurisdiction of the U.S. Department of State in accordance with the ITAR but were inadvertently misclassified.misclassified and exported without a license. At this time it is not possible to determine whether any fines or other penalties will be asserted against us or the materiality of any outcome.
We are involved in varioushave also identified other ITAR relatednoncompliance in our past business activities as well as in the pre-acquisition business activities of certain recently acquired companies. These include the inadvertent export of products without a required license and the disclosure of controlled technology to certain foreign national employees. These matters including some recently identified with the prior practices of a newly acquired business, which have beenwere formally disclosed to the U.S. Department of State. Although we are in the process of addressing these matters, we cannot provide assurance that we will be able to adequately correct all possible ITAR violations.State during 2009 and 2010. At this time it is not possible to determine whether any fines or other penalties will be asserted against us related to these other ITAR matters, or the materiality of any outcome.
On October 14, 2009, BAE Systems Information and Electronic Systems (“BAE”) commenced an action against both us and one of our subsidiaries in the United States District Court for the District of Delaware. BAE essentially is alleging that under a subcontract it entered into with us in 2002, BAE provided to us certain proprietary information and know how relating to a high performance direct infrared countermeasure system for use in military aircraft and certain other platforms (“DIRCM System”), which enabled us to fabricate for BAE an assembly component of the third generation of the DIRCM System. BAE is alleging that, in violation of the provisions of the subcontract and a Proprietary Information Agreement, we fabricated or facilitated the fabrication of one or more items that were identical or substantially identical to items that we exclusively fabricated for BAE under the subcontract. BAE further claims that our actions ostensibly enabled a prime competitor of BAE to build and market, in competition with BAE, an infrared countermeasure system that included an unlawful copy of the component. Based on these allegations, BAE has asserted claims against us for patent infringement, trade secret misappropriation, breach of contract, conversion and unjust enrichment and has requested, by way of relief, unspecified damages, injunctive relief and an accounting. We have evaluated BAE’s claims and believe that there is no basis for the allegations or claims made by BAE. Nevertheless, there can be no assurance that we will prevail in the matter. We do not believe that the ultimate resolution of this matter will have a material adverse effect on our financial position, results of operations, liquidity or capital resources.
We are also involved in various other claims and legal actions that arise in the ordinary course of business. We do not believe that the ultimate resolution of any of these actions will have a material adverse effect on our financial position,business, results of operations, financial position, liquidity or capital resources.
Our business segments and major products included in each segment, are as follows:
Microelectronic Solutions
| · | Microelectronic Components, Sub-assemblies and Modules |
Test Solutions
| · | Instrument Products and Test Systems |
We are a manufacturerglobal provider of advanced technologyradio frequency, or RF, and microwave integrated circuits, components and systems used in the design, development and maintenance of technically demanding, high-performance wireless communication systems. Our solutions include highly specialized microelectronic components forand test and measurement equipment used by companies in the space, avionics, defense, commercial industry, governmentwireless communications, medical and defense contractors.other markets. Approximately 32% and 39%31% of our sales for the three months ended December 31, 2009 and 2008, and 34%September 30, 2010 and 36% of our sales for the sixthree months ended December 31,September 30, 2009 and 2008, respectively, were to agencies of the United States government or to prime defense contractors or subcontractors of the United States government. No customer constituted more than 10% of sales during any of the periods presented. Inter-segment sales were not material and have been eliminated from the tables below.
The majority of our operations are located in the United States; however, weStates. We also have operations in Europe and Asia, with our most significant foreign operations in the United Kingdom (���(“U.K.”). Net sales from facilities located in the U.K. were approximately $29.6 million and $33.4$23.1 million for the three months ended December 31, 2009September 30, 2010 and 2008 and $55.9 million and $67.8$26.3 million for the sixthree months ended December 31, 2009 and 2008, respectively.September 30, 2009. Total assets of the U.K. operations were $167.9$171.0 million as of December 31, 2009September 30, 2010 and $188.2$159.9 million as of June 30, 2009.2010.
Net sales, based on the customers’ locations, attributed to the United States and other regions arewere as follows:
| | Three Months Ended September 30, | |
| | 2010 | | | 2009 | |
| | (In thousands) | |
| | | | | | |
United States of America | | $ | 88,520 | | | $ | 80,185 | |
Europe and Middle East | | | 30,302 | | | | 28,467 | |
Asia and Australia | | | 33,111 | | | | 19,515 | |
Other regions | | | 3,998 | | | | 1,949 | |
| | $ | 155,931 | | | $ | 130,116 | |
| | | | | | | | | | | | |
| | Three Months | | | Three Months | | | Six Months | | | Six Months | |
| | Ended | | | Ended | | | Ended | | | Ended | |
| | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | (In thousands) | |
| | | | | | | | | | | | |
United States of America | | $ | 92,204 | | | $ | 97,042 | | | $ | 172,389 | | | $ | 172,057 | |
Europe and Middle East | | | 34,242 | | | | 22,777 | | | | 62,709 | | | | 59,898 | |
Asia and Australia | | | 36,590 | | | | 34,176 | | | | 56,105 | | | | 61,062 | |
Other regions | | | 3,703 | | | | 2,820 | | | | 5,652 | | | | 4,643 | |
| | $ | 166,739 | | | $ | 156,815 | | | $ | 296,855 | | | $ | 297,660 | |
Selected financial data by segment is as follows:
| | Three Months | | | Three Months | | | Six Months | | | Six Months | | | Three Months Ended September 30, | |
| | Ended | | | Ended | | | Ended | | | Ended | | | 2010 | | | 2009 | |
| | December 31, | | | December 31, | | | December 31, | | | December 31, | | | (In thousands) | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | | | | | | | |
| | (In thousands) | | |
| | | | | | | | | | | | | |
Net sales: | | | | | | | | | | | | | |
Net sales | | | | | | | |
Microelectronic solutions ("AMS") | | $ | 79,160 | | | $ | 70,752 | | | $ | 146,521 | | | $ | 138,332 | | | $ | 77,305 | | | $ | 67,361 | |
Test solutions ("ATS") | | | 87,579 | | | | 86,063 | | | | 150,334 | | | | 159,328 | | | | 78,626 | | | | 62,755 | |
Net sales | | $ | 166,739 | | | $ | 156,815 | | | $ | 296,855 | | | $ | 297,660 | | | $ | 155,931 | | | $ | 130,116 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Segment adjusted operating income: | | | | | | | | | | | | | | | | | |
Segment adjusted operating income | | | | | | | | | |
- AMS | | $ | 21,887 | | | $ | 15,371 | | | $ | 36,911 | | | $ | 29,984 | | | $ | 18,887 | | | $ | 15,024 | |
- ATS | | | 20,186 | | | | 15,974 | | | | 28,151 | | | | 25,604 | | | | 6,857 | | | | 7,965 | |
- General corporate expense | | | (2,258 | ) | | | (3,870 | ) | | | (5,189 | ) | | | (6,567 | ) | |
General corporate expense | | | | (2,414 | ) | | | (2,931 | ) |
Adjusted operating income | | | 39,815 | | | | 27,475 | | | | 59,873 | | | | 49,021 | | | | 23,330 | | | | 20,058 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of acquired intangibles | | | | | | | | | | | | | | | | | | | | | | | | |
- AMS | | | (8,743 | ) | | | (8,462 | ) | | | (17,579 | ) | | | (19,139 | ) | | | (9,260 | ) | | | (8,836 | ) |
- ATS | | | (6,771 | ) | | | (6,160 | ) | | | (13,540 | ) | | | (13,451 | ) | | | (6,703 | ) | | | (6,769 | ) |
Share based compensation | | | | | | | | | | | | | | | | | |
Business acquisition costs | | | | | | | | | |
- Corporate | | | | (190 | ) | | | - | |
Share-based compensation | | | | | | | | | |
- Corporate | | | (556 | ) | | | (489 | ) | | | (1,045 | ) | | | (977 | ) | | | (513 | ) | | | (489 | ) |
Restructuring charges | | | | | | | | | | | | | | | | | | | | | | | | |
- AMS | | | | (576 | ) | | | - | |
- ATS | | | (64 | ) | | | (1,808 | ) | | | (251 | ) | | | (2,210 | ) | | | (1,223 | ) | | | (187 | ) |
Merger related expenses - Corporate | | | (771 | ) | | | (2,172 | ) | | | (1,464 | ) | | | (2,806 | ) | | | (715 | ) | | | (693 | ) |
Loss on liquidation of foreign | | | | | | | | | | | | | | | | | |
subsidiary - ATS | | | - | | | | - | | | | (7,696 | ) | | | - | | |
Current period impact of acquisition | | | | | | | | | | | | | | | | | |
related adjustments: | | | | | | | | | | | | | | | | | |
Loss on liquidation of foreign subsidiary - ATS | | | | - | | | | (7,696 | ) |
Current period impact of acquisition related adjustments: | | | | | | | | | |
Inventory - AMS | | | - | | | | - | | | | (246 | ) | | | - | | | | (183 | ) | | | (246 | ) |
Inventory - ATS | | | | (447 | ) | | | - | |
Depreciation - AMS | | | (265 | ) | | | (286 | ) | | | (540 | ) | | | (572 | ) | | | (117 | ) | | | (275 | ) |
Depreciation - ATS | | | (311 | ) | | | (676 | ) | | | (817 | ) | | | (1,414 | ) | | | (120 | ) | | | (506 | ) |
Depreciation - Corporate | | | (55 | ) | | | (55 | ) | | | (110 | ) | | | (110 | ) | | | (55 | ) | | | (55 | ) |
Deferred revenue - ATS | | | (33 | ) | | | (79 | ) | | | (65 | ) | | | (176 | ) | | | (25 | ) | | | (32 | ) |
Operating income (GAAP) | | | 22,246 | | | | 7,288 | | | | 16,520 | | | | 8,166 | | |
Operating income (loss) (GAAP) | | | | 3,203 | | | | (5,726 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (21,418 | ) | | | (21,250 | ) | | | (42,457 | ) | | | (42,465 | ) | | | (21,238 | ) | | | (21,039 | ) |
Other income (expense), net | | | 422 | | | | 9,327 | | | | 479 | | | | 12,413 | | | | (29 | ) | | | 57 | |
Income (loss) before income taxes | | $ | 1,250 | | | $ | (4,635 | ) | | $ | (25,458 | ) | | $ | (21,886 | ) | | $ | (18,064 | ) | | $ | (26,708 | ) |
Management evaluates the operating results of theour two segments based upon adjusted operating income, which is pre-tax operating income before costs related to restructuring, amortization of acquired intangibles, share-based compensation, restructuring expenses, business acquisition and merger related expenses, loss on liquidation of foreign subsidiary costs, merger related expenses and the impact of any acquisition related adjustments. We have set out above our adjusted operating income by segment and in the aggregate, and have provided a reconciliation of adjusted operating income to operating income (loss) on a GAAP basis and income (loss) before income taxes for the periods presented.
14. | Guarantor/Non-Guarantor Financial Information |
The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the balance sheets at December 31, 2009September 30, 2010 and June 30, 2009,2010 and the statements of operations for the three and six months ended December 31, 2009 and 2008 and the statements of cash flows for the sixthree months ended December 31,September 30, 2010 and 2009 and 2008 for Aeroflex Incorporated (the “Parent Company”(”Parent”), the guarantor subsidiariesGuarantor Subsidiaries and, on a combined basis, the non-guarantor subsidiaries.Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects for all fiscal periods presented, the investments of the Parent Company in the guarantor subsidiariesGuarantor Subsidiaries as well as the investments of the Parent Company and the guarantor subsidiariesGuarantor Subsidiaries in the non-guarantor subsidiaries,Non-Guarantor Subsidiaries, in all cases using the equity method. For purposes of this footnote, guarantor subsidiariesnote, Guarantor Subsidiaries refer to the subsidiaries of the Parent Company that have guaranteed principal debt obligations of the Parent Company.Parent. The Parent Company’s purchase price allocation adjustments, including applicable intangible assets, arising from business acquisitions have been pushed down to the applicable subsidiary columns (see Note 3).
Condensed Consolidating StatementEach of Operations
For the Three Months Ended December 31, 2009
(In thousands)
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Net sales | | $ | - | | | $ | 120,120 | | | $ | 47,969 | | | $ | (1,350 | ) | | $ | 166,739 | |
Cost of sales | | | - | | | | 60,394 | | | | 20,974 | | | | (1,223 | ) | | | 80,145 | |
Gross profit | | | - | | | | 59,726 | | | | 26,995 | | | | (127 | ) | | | 86,594 | |
Selling, general and administrative costs | | | 3,640 | | | | 18,942 | | | | 8,991 | | | | - | | | | 31,573 | |
Research and development costs | | | - | | | | 11,460 | | | | 5,801 | | | | - | | | | 17,261 | |
Amortization of acquired intangibles | | | - | | | | 13,276 | | | | 2,238 | | | | - | | | | 15,514 | |
Operating income (loss) | | | (3,640 | ) | | | 16,048 | | | | 9,965 | | | | (127 | ) | | | 22,246 | |
| | | | | | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (21,399 | ) | | | (17 | ) | | | (2 | ) | | | - | | | | (21,418 | ) |
Other income (expense), net | | | (40 | ) | | | 480 | | | | (18 | ) | | | - | | | | 422 | |
Intercompany charges | | | 19,797 | | | | (19,318 | ) | | | (479 | ) | | | - | | | | - | |
Income (loss) before income taxes | | | (5,282 | ) | | | (2,807 | ) | | | 9,466 | | | | (127 | ) | | | 1,250 | |
Provision (benefit) for income taxes | | | (364 | ) | | | 2,199 | | | | 2,046 | | | | 7,983 | | | | 11,864 | |
Equity income (loss) of subsidiaries | | | (5,696 | ) | | | 6,932 | | | | - | | | | (1,236 | ) | | | - | |
Net income (loss) | | $ | (10,614 | ) | | $ | 1,926 | | | $ | 7,420 | | | $ | (9,346 | ) | | $ | (10,614 | ) |
- 21 - -
Guarantor Subsidiaries is 100% owned by the Parent Company and guarantees the debt on an unconditional and joint and several basis.
Condensed Consolidating Statement of Operations
For the Three Months Ended December 31, 2008September 30, 2010
(In thousands)
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Net sales | | $ | - | | | $ | 109,597 | | | $ | 47,935 | | | $ | (1,601 | ) | | $ | 155,931 | |
Cost of sales | | | - | | | | 55,723 | | | | 22,448 | | | | (1,657 | ) | | | 76,514 | |
Gross profit | | | - | | | | 53,874 | | | | 25,487 | | | | 56 | | | | 79,417 | |
Selling, general and administrative costs | | | 3,887 | | | | 21,737 | | | | 11,885 | | | | - | | | | 37,509 | |
Research and development costs | | | - | | | | 13,647 | | | | 9,095 | | | | - | | | | 22,742 | |
Amortization of acquired intangibles | | | - | | | | 13,685 | | | | 2,278 | | | | - | | | | 15,963 | |
Operating income (loss) | | | (3,887 | ) | | | 4,805 | | | | 2,229 | | | | 56 | | | | 3,203 | |
| | | | | | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (21,226 | ) | | | (12 | ) | | | - | | | | - | | | | (21,238 | ) |
Other income (expense), net | | | 7 | | | | 98 | | | | (134 | ) | | | - | | | | (29 | ) |
Intercompany charges | | | 19,878 | | | | (19,279 | ) | | | (599 | ) | | | - | | | | - | |
Income (loss) before income taxes | | | (5,228 | ) | | | (14,388 | ) | | | 1,496 | | | | 56 | | | | (18,064 | ) |
Provision (benefit) for income taxes | | | (237 | ) | | | (2,954 | ) | | | 372 | | | | (9,428 | ) | | | (12,247 | ) |
Equity income (loss) of subsidiaries | | | (826 | ) | | | 1,199 | | | | - | | | | (373 | ) | | | - | |
Net income (loss) | | $ | (5,817 | ) | | $ | (10,235 | ) | | $ | 1,124 | | | $ | 9,111 | | | $ | (5,817 | ) |
Condensed Consolidating Statement of Operations |
For the Three Months Ended September 30, 2009 |
(In thousands) |
| | | | | | | | | | | | | | | |
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Net sales | | $ | - | | | $ | 97,895 | | | $ | 33,390 | | | $ | (1,169 | ) | | $ | 130,116 | |
Cost of sales | | | - | | | | 51,320 | | | | 14,993 | | | | (1,191 | ) | | | 65,122 | |
Gross profit | | | - | | | | 46,575 | | | | 18,397 | | | | 22 | | | | 64,994 | |
Selling, general and administrative costs | | | 4,169 | | | | 18,213 | | | | 7,856 | | | | - | | | | 30,238 | |
Research and development costs | | | - | | | | 10,686 | | | | 6,495 | | | | - | | | | 17,181 | |
Amortization of acquired intangibles | | | - | | | | 13,383 | | | | 2,222 | | | | - | | | | 15,605 | |
Loss on liquidation of foreign subsidiary | | | - | | | | 7,696 | | | | - | | | | - | | | | 7,696 | |
Operating income (loss) | | | (4,169 | ) | | | (3,403 | ) | | | 1,824 | | | | 22 | | | | (5,726 | ) |
| | | | | | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (21,022 | ) | | | (17 | ) | | | - | | | | - | | | | (21,039 | ) |
Other income (expense), net | | | 381 | | | | (106 | ) | | | (218 | ) | | | - | | | | 57 | |
Intercompany charges | | | 19,794 | | | | (19,318 | ) | | | (476 | ) | | | - | | | | - | |
Income (loss) before income taxes | | | (5,016 | ) | | | (22,844 | ) | | | 1,130 | | | | 22 | | | | (26,708 | ) |
Provision (benefit) for income taxes | | | (4,436 | ) | | | (2,690 | ) | | | 219 | | | | 742 | | | | (6,165 | ) |
Equity income (loss) of subsidiaries | | | (19,963 | ) | | | 702 | | | | - | | | | 19,261 | | | | - | |
Net income (loss) | | $ | (20,543 | ) | | $ | (19,452 | ) | | $ | 911 | | | $ | 18,541 | | | $ | (20,543 | ) |
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Net sales | | $ | - | | | $ | 112,157 | | | $ | 45,852 | | | $ | (1,194 | ) | | $ | 156,815 | |
Cost of sales | | | - | | | | 58,298 | | | | 26,554 | | | | (1,196 | ) | | | 83,656 | |
Gross profit | | | - | | | | 53,859 | | | | 19,298 | | | | 2 | | | | 73,159 | |
Selling, general and administrative costs | | | 6,586 | | | | 18,345 | | | | 9,243 | | | | - | | | | 34,174 | |
Research and development costs | | | - | | | | 11,275 | | | | 5,800 | | | | - | | | | 17,075 | |
Amortization of acquired intangibles | | | - | | | | 12,563 | | | | 2,059 | | | | - | | | | 14,622 | |
Operating income (loss) | | | (6,586 | ) | | | 11,676 | | | | 2,196 | | | | 2 | | | | 7,288 | |
| | | | | | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (21,227 | ) | | | (23 | ) | | | - | | | | - | | | | (21,250 | ) |
Other income (expense), net | | | (725 | ) | | | 123 | | | | 9,929 | | | | - | | | | 9,327 | |
Intercompany charges | | | 14,726 | | | | (14,653 | ) | | | (73 | ) | | | - | | | | - | |
Income (loss) before income taxes | | | (13,812 | ) | | | (2,877 | ) | | | 12,052 | | | | 2 | | | | (4,635 | ) |
Provision (benefit) for income taxes | | | (4,387 | ) | | | (218 | ) | | | 1,507 | | | | 2,570 | | | | (528 | ) |
Equity income (loss) of subsidiaries | | | 5,318 | | | | 10,663 | | | | - | | | | (15,981 | ) | | | - | |
Net income (loss) | | $ | (4,107 | ) | | $ | 8,004 | | | $ | 10,545 | | | $ | (18,549 | ) | | $ | (4,107 | ) |
Condensed Consolidating Balance Sheet |
As of September 30, 2010 |
(In thousands) |
| | | | | | | | | | | | | | | |
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 29,289 | | | $ | (2,109 | ) | | $ | 37,950 | | | $ | - | | | $ | 65,130 | |
Accounts receivable, net | | | - | | | | 75,810 | | | | 53,496 | | | | - | | | | 129,306 | |
Inventories | | | - | | | | 103,767 | | | | 40,039 | | | | (1,253 | ) | | | 142,553 | |
Deferred income taxes | | | 3,827 | | | | 23,114 | | | | (3 | ) | | | - | | | | 26,938 | |
Prepaid expenses and other current assets | | | 3,672 | | | | 5,368 | | | | 4,641 | | | | - | | | | 13,681 | |
Total current assets | | | 36,788 | | | | 205,950 | | | | 136,123 | | | | (1,253 | ) | | | 377,608 | |
| | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | 12,417 | | | | 69,483 | | | | 21,498 | | | | - | | | | 103,398 | |
Non-current marketable securities, net | | | 9,806 | | | | - | | | | - | | | | - | | | | 9,806 | |
Deferred financing costs, net | | | 19,790 | | | | - | | | | - | | | | - | | | | 19,790 | |
Other assets | | | 13,935 | | | | 6,645 | | | | 2,308 | | | | - | | | | 22,888 | |
Intangible assets with definite lives, net | | | - | | | | 199,874 | | | | 30,428 | | | | - | | | | 230,302 | |
Intangible assets with indefinite lives | | | - | | | | 88,414 | | | | 25,754 | | | | - | | | | 114,168 | |
Goodwill | | | (10 | ) | | | 415,200 | | | | 44,304 | | | | - | | | | 459,494 | |
Total assets | | $ | 92,726 | | | $ | 985,566 | | | $ | 260,415 | | | $ | (1,253 | ) | | $ | 1,337,454 | |
| | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholder's Equity | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | - | | | $ | 360 | | | $ | - | | | $ | - | | | $ | 360 | |
Accounts payable | | | 4 | | | | 18,817 | | | | 19,030 | | | | - | | | | 37,851 | |
Advance payments by customers and deferred revenue | | | - | | | | 17,910 | | | | 12,308 | | | | - | | | | 30,218 | |
Income taxes payable | | | 528 | | | | 259 | | | | 1,688 | | | | - | | | | 2,475 | |
Accrued payroll expenses | | | 2,758 | | | | 17,778 | | | | 2,054 | | | | - | | | | 22,590 | |
Accrued expenses and other current liabilities | | | 25,940 | | | | 13,308 | | | | 14,526 | | | | - | | | | 53,774 | |
Total current liabilities | | | 29,230 | | | | 68,432 | | | | 49,606 | | | | - | | | | 147,268 | |
| | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | 882,078 | | | | 385 | | | | - | | | | - | | | | 882,463 | |
Deferred income taxes | | | 15,598 | | | | 110,083 | | | | 14,529 | | | | (9,428 | ) | | | 130,782 | |
Defined benefit plan obligations | | | 5,684 | | | | - | | | | - | | | | - | | | | 5,684 | |
Other long-term liabilities | | | 1,537 | | | | 8,281 | | | | 4,285 | | | | - | | | | 14,103 | |
Intercompany investment | | | (308,715 | ) | | | 79,354 | | | | 229,361 | | | | - | | | | - | |
Intercompany receivable/payable | | | (839,214 | ) | | | 873,971 | | | | (34,273 | ) | | | (484 | ) | | | - | |
Total liabilities | | | (213,802 | ) | | | 1,140,506 | | | | 263,508 | | | | (9,912 | ) | | | 1,180,300 | |
| | | | | | | | | | | | | | | | | | | | |
Stockholder's equity | | | 306,528 | | | | (154,940 | ) | | | (3,093 | ) | | | 8,659 | | | | 157,154 | |
Total liabilities and stockholder's equity | | $ | 92,726 | | | $ | 985,566 | | | $ | 260,415 | | | $ | (1,253 | ) | | $ | 1,337,454 | |
Condensed Consolidating Balance Sheet |
As of June 30, 2010 |
(In thousands) |
| | | | | | | | | | | | | | | |
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 75,187 | | | $ | (3,821 | ) | | $ | 29,297 | | | $ | - | | | $ | 100,663 | |
Accounts receivable, net | | | - | | | | 88,051 | | | | 53,544 | | | | - | | | | 141,595 | |
Inventories | | | - | | | | 94,669 | | | | 33,209 | | | | (1,310 | ) | | | 126,568 | |
Deferred income taxes | | | 4,939 | | | | 23,224 | | | | (145 | ) | | | - | | | | 28,018 | |
Prepaid expenses and other current assets | | | 3,046 | | | | 2,840 | | | | 5,097 | | | | - | | | | 10,983 | |
Total current assets | | | 83,172 | | | | 204,963 | | | | 121,002 | | | | (1,310 | ) | | | 407,827 | |
| | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | 12,491 | | | | 69,150 | | | | 20,021 | | | | - | | | | 101,662 | |
Non-current marketable securities, net | | | 9,769 | | | | - | | | | - | | | | - | | | | 9,769 | |
Deferred financing costs, net | | | 20,983 | | | | - | | | | - | | | | - | | | | 20,983 | |
Other assets | | | 13,634 | | | | 6,385 | | | | 1,799 | | | | - | | | | 21,818 | |
Intangible assets with definite lives, net | | | - | | | | 207,849 | | | | 30,464 | | | | - | | | | 238,313 | |
Intangible assets with indefinite lives | | | - | | | | 85,404 | | | | 24,490 | | | | - | | | | 109,894 | |
Goodwill | | | (10 | ) | | | 404,632 | | | | 41,252 | | | | - | | | | 445,874 | |
Total assets | | $ | 140,039 | | | $ | 978,383 | | | $ | 239,028 | | | $ | (1,310 | ) | | $ | 1,356,140 | |
| | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholder's Equity | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 21,457 | | | $ | 360 | | | $ | - | | | $ | - | | | $ | 21,817 | |
Accounts payable | | | 4 | | | | 14,376 | | | | 14,423 | | | | - | | | | 28,803 | |
Advanced payments by customers and deferred revenue | | | - | | | | 19,091 | | | | 11,650 | | | | - | | | | 30,741 | |
Income taxes payable | | | 969 | | | | 43 | | | | 3,603 | | | | - | | | | 4,615 | |
Accrued payroll expenses | | | 2,198 | | | | 18,834 | | | | 2,050 | | | | - | | | | 23,082 | |
Accrued expenses and other current liabilities | | | 33,904 | | | | 12,598 | | | | 12,315 | | | | - | | | | 58,817 | |
Total current liabilities | | | 58,532 | | | | 65,302 | | | | 44,041 | | | | - | | | | 167,875 | |
| | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | 879,645 | | | | 385 | | | | - | | | | - | | | | 880,030 | |
Deferred income taxes | | | 15,835 | | | | 109,570 | | | | 13,444 | | | | - | | | | 138,849 | |
Defined benefit plan obligations | | | 5,763 | | | | - | | | | - | | | | - | | | | 5,763 | |
Other long-term liabilities | | | 1,595 | | | | 8,303 | | | | 2,741 | | | | - | | | | 12,639 | |
Intercompany investment | | | (287,515 | ) | | | 60,154 | | | | 227,361 | | | | - | | | | - | |
Intercompany receivable/payable | | | (842,950 | ) | | | 878,174 | | | | (34,740 | ) | | | (484 | ) | | | - | |
Total liabilities | | | (169,095 | ) | | | 1,121,888 | | | | 252,847 | | | | (484 | ) | | | 1,205,156 | |
| | | | | | | | | | | | | | | | | | | | |
Stockholder's equity: | | | 309,134 | | | | (143,505 | ) | | | (13,819 | ) | | | (826 | ) | | | 150,984 | |
Total liabilities and stockholder's equity | | $ | 140,039 | | | $ | 978,383 | | | $ | 239,028 | | | $ | (1,310 | ) | | $ | 1,356,140 | |
Condensed Consolidating Statement of Cash Flows |
For the Three Months Ended September 30, 2010 |
(In thousands) |
| | | | | | | | | | | | | | | |
| | | | | | | | Non- | | | | | | | |
| | | | | Guarantor | | | Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (5,817 | ) | | $ | (10,235 | ) | | $ | 1,124 | | | $ | 9,111 | | | $ | (5,817 | ) |
Changes in operating assets and liabilities and non-cash items included in net income (loss) | | | (18,514 | ) | | | 33,651 | | | | 7,223 | | | | (9,111 | ) | | | 13,249 | |
Net cash provided by (used in) operating activities | | | (24,331 | ) | | | 23,416 | | | | 8,347 | | | | - | | | | 7,432 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Payment for purchase of business, net of cash acquired | | | - | | | | (19,185 | ) | | | - | | | | - | | | | (19,185 | ) |
Capital expenditures | | | (109 | ) | | | (2,746 | ) | | | (1,853 | ) | | | - | | | | (4,708 | ) |
Other, net | | | - | | | | 227 | | | | 211 | | | | - | | | | 438 | |
Net cash provided by (used in) investing activities | | | (109 | ) | | | (21,704 | ) | | | (1,642 | ) | | | - | | | | (23,455 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Debt repayments | | | (21,458 | ) | | | - | | | | - | | | | - | | | | (21,458 | ) |
Net cash provided by (used in) financing activities | | | (21,458 | ) | | | - | | | | - | | | | - | | | | (21,458 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | - | | | | - | | | | 1,948 | | | | - | | | | 1,948 | |
Net increase (decrease) in cash and cash equivalents | | | (45,898 | ) | | | 1,712 | | | | 8,653 | | | | - | | | | (35,533 | ) |
Cash and cash equivalents at beginning of period | | | 75,187 | | | | (3,821 | ) | | | 29,297 | | | | - | | | | 100,663 | |
Cash and cash equivalents at end of period | | $ | 29,289 | | | $ | (2,109 | ) | | $ | 37,950 | | | $ | - | | | $ | 65,130 | |
Condensed Consolidating Statement of OperationsCondensed Consolidating Statement of Cash Flows |
For the Three Months Ended September 30, 2009 |
(In thousands) |
| | | | | | | | | | | | | | | |
| | | | | | | | Non- | | | | | | | |
| | | | | Guarantor | | | Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (20,543 | ) | | $ | (19,452 | ) | | $ | 911 | | | $ | 18,541 | | | $ | (20,543 | ) |
Changes in operating assets and liabilities and non-cash items included in net income (loss) | | | 38,477 | | | | 21,245 | | | | (7,418 | ) | | | (18,541 | ) | | | 33,763 | |
Net cash provided by (used in) operating activities | | | 17,934 | | | | 1,793 | | | | (6,507 | ) | | | - | | | | 13,220 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (171 | ) | | | (2,195 | ) | | | (858 | ) | | | - | | | | (3,224 | ) |
Proceeds from sale of marketable securities | | | 1,000 | | | | - | | | | - | | | | - | | | | 1,000 | |
Other, net | | | (355 | ) | | | 47 | | | | 72 | | | | - | | | | (236 | ) |
Net cash provided by (used in) investing activities | | | 474 | | | | (2,148 | ) | | | (786 | ) | | | - | | | | (2,460 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Debt repayments | | | (1,313 | ) | | | - | | | | - | | | | - | | | | (1,313 | ) |
Net cash provided by (used in) financing activities | | | (1,313 | ) | | | - | | | | - | | | | - | | | | (1,313 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | - | | | | - | | | | (191 | ) | | | - | | | | (191 | ) |
Net increase (decrease) in cash and cash equivalents | | | 17,095 | | | | (355 | ) | | | (7,484 | ) | | | - | | | | 9,256 | |
Cash and cash equivalents at beginning of period | | | 31,221 | | | | (15 | ) | | | 26,542 | | | | - | | | | 57,748 | |
Cash and cash equivalents at end of period | | $ | 48,316 | | | $ | (370 | ) | | $ | 19,058 | | | $ | - | | | $ | 67,004 | |
For the Six Months Ended December 31, 2009
(In thousands)
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Net sales | | $ | - | | | $ | 218,015 | | | $ | 81,359 | | | $ | (2,519 | ) | | $ | 296,855 | |
Cost of sales | | | - | | | | 111,714 | | | | 35,967 | | | | (2,414 | ) | | | 145,267 | |
Gross profit | | | - | | | | 106,301 | | | | 45,392 | | | | (105 | ) | | | 151,588 | |
Selling, general and administrative costs | | | 7,808 | | | | 37,156 | | | | 16,847 | | | | - | | | | 61,811 | |
Research and development costs | | | - | | | | 22,146 | | | | 12,296 | | | | - | | | | 34,442 | |
Amortization of acquired intangibles | | | - | | | | 26,659 | | | | 4,460 | | | | - | | | | 31,119 | |
Loss on liquidation of foreign subsidiary | | | - | | | | 7,696 | | | | - | | | | - | | | | 7,696 | |
Operating income (loss) | | | (7,808 | ) | | | 12,644 | | | | 11,789 | | | | (105 | ) | | | 16,520 | |
| | | | | | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (42,421 | ) | | | (34 | ) | | | (2 | ) | | | - | | | | (42,457 | ) |
Other income (expense), net | | | 341 | | | | 374 | | | | (236 | ) | | | - | | | | 479 | |
Intercompany charges | | | 39,591 | | | | (38,636 | ) | | | (955 | ) | | | - | | | | - | |
Income (loss) before income taxes | | | (10,297 | ) | | | (25,652 | ) | | | 10,596 | | | | (105 | ) | | | (25,458 | ) |
Provision (benefit) for income taxes | | | (4,799 | ) | | | (492 | ) | | | 2,265 | | | | 8,725 | | | | 5,699 | |
Equity income (loss) of subsidiaries | | | (25,659 | ) | | | 7,634 | | | | - | | | | 18,025 | | | | - | |
Net income (loss) | | $ | (31,157 | ) | | $ | (17,526 | ) | | $ | 8,331 | | | $ | 9,195 | | | $ | (31,157 | ) |
Condensed Consolidating Statement of Operations
For the Six Months Ended December 31, 2008
(In thousands)
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Net sales | | $ | - | | | $ | 207,798 | | | $ | 92,659 | | | $ | (2,797 | ) | | $ | 297,660 | |
Cost of sales | | | - | | | | 108,752 | | | | 51,240 | | | | (2,850 | ) | | | 157,142 | |
Gross profit | | | - | | | | 99,046 | | | | 41,419 | | | | 53 | | | | 140,518 | |
Selling, general and administrative costs | | | 10,459 | | | | 36,330 | | | | 18,869 | | | | - | | | | 65,658 | |
Research and development costs | | | - | | | | 22,442 | | | | 11,662 | | | | - | | | | 34,104 | |
Amortization of acquired intangibles | | | - | | | | 27,876 | | | | 4,714 | | | | - | | | | 32,590 | |
Operating income (loss) | | | (10,459 | ) | | | 12,398 | | | | 6,174 | | | | 53 | | | | 8,166 | |
| | | | | | | | | | | | | | | | | | | | |
Other income (expense): | | | | | | | | | | | | | | | | | | | | |
Interest expense | | | (42,410 | ) | | | (45 | ) | | | (10 | ) | | | - | | | | (42,465 | ) |
Other income (expense), net | | | (662 | ) | | | 365 | | | | 12,710 | | | | - | | | | 12,413 | |
Intercompany charges | | | 36,912 | | | | (36,226 | ) | | | (686 | ) | | | - | | | | - | |
Income (loss) before income taxes | | | (16,619 | ) | | | (23,508 | ) | | | 18,188 | | | | 53 | | | | (21,886 | ) |
Provision (benefit) for income taxes | | | (5,434 | ) | | | (8,061 | ) | | | 2,703 | | | | (90 | ) | | | (10,882 | ) |
Equity income (loss) of subsidiaries | | | 181 | | | | 15,891 | | | | - | | | | (16,072 | ) | | | - | |
Net income (loss) | | $ | (11,004 | ) | | $ | 444 | | | $ | 15,485 | | | $ | (15,929 | ) | | $ | (11,004 | ) |
Condensed Consolidating Balance Sheet
As of December 31, 2009
(In thousands)
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 53,071 | | | $ | (640 | ) | | $ | 16,368 | | | $ | - | | | $ | 68,799 | |
Accounts receivable, net | | | - | | | | 74,068 | | | | 43,213 | | | | - | | | | 117,281 | |
Inventories | | | - | | | | 101,847 | | | | 34,057 | | | | (1,003 | ) | | | 134,901 | |
Deferred income taxes | | | 5,365 | | | | 25,706 | | | | 5,951 | | | | - | | | | 37,022 | |
Prepaid expenses and other current assets | | | 2,742 | | | | 5,285 | | | | 3,536 | | | | - | | | | 11,563 | |
Total current assets | | | 61,178 | | | | 206,266 | | | | 103,125 | | | | (1,003 | ) | | | 369,566 | |
| | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | 12,561 | | | | 66,118 | | | | 19,524 | | | | - | | | | 98,203 | |
Non-current marketable securities, net | | | 16,899 | | | | - | | | | - | | | | - | | | | 16,899 | |
Deferred financing costs, net | | | 23,369 | | | | - | | | | - | | | | - | | | | 23,369 | |
Other assets | | | 13,256 | | | | 4,417 | | | | 338 | | | | - | | | | 18,011 | |
Intangible assets with definite lives, net | | | - | | | | 226,566 | | | | 35,135 | | | | - | | | | 261,701 | |
Intangible assets with indefinite lives | | | - | | | | 85,404 | | | | 26,490 | | | | - | | | | 111,894 | |
Goodwill | | | (10 | ) | | | 389,422 | | | | 39,474 | | | | - | | | | 428,886 | |
Total assets | | $ | 127,253 | | | $ | 978,193 | | | $ | 224,086 | | | $ | (1,003 | ) | | $ | 1,328,529 | |
| | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholder's Equity | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 3,863 | | | $ | 340 | | | $ | - | | | $ | - | | | $ | 4,203 | |
Accounts payable | | | 32 | | | | 13,877 | | | | 13,229 | | | | - | | | | 27,138 | |
Advance payments by customers and deferred revenue | | | - | | | | 17,110 | | | | 15,380 | | | | - | | | | 32,490 | |
Income taxes payable | | | (591 | ) | | | (98 | ) | | | 4,824 | | | | - | | | | 4,135 | |
Accrued payroll expenses | | | 958 | | | | 13,716 | | | | 1,342 | | | | - | | | | 16,016 | |
Accrued expenses and other current liabilities | | | 25,885 | | | | 11,176 | | | | 12,944 | | | | - | | | | 50,005 | |
Total current liabilities | | | 30,147 | | | | 56,121 | | | | 47,719 | | | | - | | | | 133,987 | |
| | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | 889,245 | | | | 745 | | | | - | | | | - | | | | 889,990 | |
Deferred income taxes | | | (13,219 | ) | | | 138,492 | | | | 15,135 | | | | 8,725 | | | | 149,133 | |
Defined benefit plan obligations | | | 5,988 | | | | - | | | | - | | | | - | | | | 5,988 | |
Other long-term liabilities | | | 8,776 | | | | 1,300 | | | | 1,506 | | | | - | | | | 11,582 | |
Intercompany investment | | | (268,858 | ) | | | 46,154 | | | | 222,704 | | | | - | | | | - | |
Intercompany receivable/payable | | | (847,317 | ) | | | 882,523 | | | | (34,723 | ) | | | (483 | ) | | | - | |
Total liabilities | | | (195,238 | ) | | | 1,125,335 | | | | 252,341 | | | | 8,242 | | | | 1,190,680 | |
| | | | | | | | | | | | | | | | | | | | |
Stockholder's equity | | | 322,491 | | | | (147,142 | ) | | | (28,255 | ) | | | (9,245 | ) | | | 137,849 | |
Total liabilities and stockholder's equity | | $ | 127,253 | | | $ | 978,193 | | | $ | 224,086 | | | $ | (1,003 | ) | | $ | 1,328,529 | |
Condensed Consolidating Balance Sheet
As of June 30, 2009
(In thousands)
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 31,221 | | | $ | (15 | ) | | $ | 26,542 | | | $ | - | | | $ | 57,748 | |
Accounts receivable, net | | | - | | | | 86,530 | | | | 43,899 | | | | - | | | | 130,429 | |
Inventories | | | - | | | | 103,674 | | | | 32,827 | | | | (898 | ) | | | 135,603 | |
Deferred income taxes | | | 3,452 | | | | 25,681 | | | | 6,031 | | | | - | | | | 35,164 | |
Prepaid expenses and other current assets | | | 2,623 | | | | 2,542 | | | | 4,773 | | | | - | | | | 9,938 | |
Total current assets | | | 37,296 | | | | 218,412 | | | | 114,072 | | | | (898 | ) | | | 368,882 | |
| | | | | | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | 12,720 | | | | 67,624 | | | | 20,563 | | | | - | | | | 100,907 | |
Non-current marketable securities, net | | | 17,677 | | | | - | | | | - | | | | - | | | | 17,677 | |
Deferred financing costs, net | | | 25,754 | | | | - | | | | - | | | | - | | | | 25,754 | |
Other assets | | | 12,551 | | | | 2,243 | | | | 631 | | | | - | | | | 15,425 | |
Intangible assets with definite lives, net | | | - | | | | 253,225 | | | | 39,328 | | | | - | | | | 292,553 | |
Intangible assets with indefinite lives | | | - | | | | 85,404 | | | | 26,862 | | | | - | | | | 112,266 | |
Goodwill | | | (10 | ) | | | 388,913 | | | | 39,230 | | | | - | | | | 428,133 | |
Total assets | | $ | 105,988 | | | $ | 1,015,821 | | | $ | 240,686 | | | $ | (898 | ) | | $ | 1,361,597 | |
| | | | | | | | | | | | | | | | | | | | |
Liabilities and Stockholder's Equity | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | |
Current portion of long-term debt | | $ | 5,250 | | | $ | 340 | | | $ | - | | | $ | - | | | $ | 5,590 | |
Accounts payable | | | 285 | | | | 20,553 | | | | 15,736 | | | | - | | | | 36,574 | |
Advance payments by customers and deferred revenue | | | - | | | | 17,433 | | | | 15,985 | | | | - | | | | 33,418 | |
Income taxes payable | | | 587 | | | | - | | | | 4,493 | | | | - | | | | 5,080 | |
Accrued payroll expenses | | | 1,600 | | | | 15,148 | | | | 2,128 | | | | - | | | | 18,876 | |
Accrued expenses and other current liabilities | | | 25,418 | | | | 11,079 | | | | 11,441 | | | | - | | | | 47,938 | |
Total current liabilities | | | 33,140 | | | | 64,553 | | | | 49,783 | | | | - | | | | 147,476 | |
| | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | 883,013 | | | | 745 | | | | - | | | | - | | | | 883,758 | |
Deferred income taxes | | | (11,453 | ) | | | 138,725 | | | | 15,776 | | | | - | | | | 143,048 | |
Defined benefit plan obligations | | | 6,079 | | | | - | | | | - | | | | - | | | | 6,079 | |
Other long-term liabilities | | | 16,825 | | | | 1,271 | | | | 3,380 | | | | - | | | | 21,476 | |
Intercompany investment | | | (268,635 | ) | | | 41,022 | | | | 227,613 | | | | - | | | | - | |
Intercompany receivable/payable | | | (880,752 | ) | | | 902,126 | | | | (20,891 | ) | | | (483 | ) | | | - | |
Total liabilities | | | (221,783 | ) | | | 1,148,442 | | | | 275,661 | | | | (483 | ) | | | 1,201,837 | |
| | | | | | | | | | | | | | | | | | | | |
Stockholder's equity | | | 327,771 | | | | (132,621 | ) | | | (34,975 | ) | | | (415 | ) | | | 159,760 | |
Total liabilities and stockholder's equity | | $ | 105,988 | | | $ | 1,015,821 | | | $ | 240,686 | | | $ | (898 | ) | | $ | 1,361,597 | |
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended December 31, 2009
(In thousands)
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (31,157 | ) | | $ | (17,526 | ) | | $ | 8,331 | | | $ | 9,195 | | | $ | (31,157 | ) |
Changes in operating assets and liabilities and | | | | | | | | | | | | | | | | | | | | |
non-cash items included in net income (loss) | | | 56,201 | | | | 22,336 | | | | (16,072 | ) | | | (9,195 | ) | | | 53,270 | |
Net cash provided by (used in) operating activities | | | 25,044 | | | | 4,810 | | | | (7,741 | ) | | | - | | | | 22,113 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (171 | ) | | | (6,172 | ) | | | (2,058 | ) | | | - | | | | (8,401 | ) |
Proceeds from sale of marketable securities | | | 1,000 | | | | - | | | | - | | | | - | | | | 1,000 | |
Proceeds from the sale of property, plant and equipment | | | - | | | | 737 | | | | 108 | | | | - | | | | 845 | |
Other, net | | | (11 | ) | | | - | | | | - | | | | - | | | | (11 | ) |
Net cash provided by (used in) investing activities | | | 818 | | | | (5,435 | ) | | | (1,950 | ) | | | - | | | | (6,567 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Debt repayments | | | (4,012 | ) | | | - | | | | - | | | | - | | | | (4,012 | ) |
Net cash provided by (used in) financing activities | | | (4,012 | ) | | | - | | | | - | | | | - | | | | (4,012 | ) |
Effect of exchange rate changes on cash and cash | | | | | | | | | | | | | | | | | | | | |
equivalents | | | - | | | | - | | | | (483 | ) | | | - | | | | (483 | ) |
Net increase (decrease) in cash and cash equivalents | | | 21,850 | | | | (625 | ) | | | (10,174 | ) | | | - | | | | 11,051 | |
Cash and cash equivalents at beginning of period | | | 31,221 | | | | (15 | ) | | | 26,542 | | | | - | | | | 57,748 | |
Cash and cash equivalents at end of period | | $ | 53,071 | | | $ | (640 | ) | | $ | 16,368 | | | $ | - | | | $ | 68,799 | |
Condensed Consolidating Statement of Cash Flows
For the Six Months Ended December 31, 2008
(In thousands)
| | | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Parent | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | | | | |
Net income (loss) | | $ | (11,004 | ) | | $ | 444 | | | $ | 15,485 | | | $ | (15,929 | ) | | $ | (11,004 | ) |
Changes in operating assets and liabilities and | | | | | | | | | | | | | | | | | | | | |
non-cash items included in net income (loss) | | | 23,477 | | | | 5,928 | | | | 7,330 | | | | 15,929 | | | | 52,664 | |
Net cash provided by (used in) operating activities | | | 12,473 | | | | 6,372 | | | | 22,815 | | | | - | | | | 41,660 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (11 | ) | | | (5,041 | ) | | | (3,301 | ) | | | - | | | | (8,353 | ) |
Proceeds from the sale of property, plant and | | | | | | | | | | | | | | | | | | | | |
equipment | | | - | | | | 687 | | | | 179 | | | | - | | | | 866 | |
Other, net | | | (12 | ) | | | - | | | | - | | | | - | | | | (12 | ) |
Net cash provided by (used in) investing activities | | | (23 | ) | | | (4,354 | ) | | | (3,122 | ) | | | - | | | | (7,499 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | |
Debt repayments | | | (4,125 | ) | | | (4 | ) | | | - | | | | - | | | | (4,129 | ) |
Debt financing costs | | | (340 | ) | | | - | | | | - | | | | - | | | | (340 | ) |
Net cash provided by (used in) financing activities | | | (4,465 | ) | | | (4 | ) | | | - | | | | - | | | | (4,469 | ) |
Effect of exchange rate changes on cash and | | | | | | | | | | | | | | | | | | | | |
cash equivalents | | | - | | | | - | | | | (10,177 | ) | | | - | | | | (10,177 | ) |
Net increase in cash and cash equivalents | | | 7,985 | | | | 2,014 | | | | 9,516 | | | | - | | | | 19,515 | |
Cash and cash equivalents at beginning of period | | | 39,285 | | | | (2,379 | ) | | | 17,243 | | | | - | | | | 54,149 | |
Cash and cash equivalents at end of period | | $ | 47,270 | | | $ | (365 | ) | | $ | 26,759 | | | $ | - | | | $ | 73,664 | |
The Company evaluated all events or transactions that occurred after December 31, 2009 up through February 11,Registration Statement Filing
On November 5, 2010, our parent corporation, Aeroflex Holding Corp., filed an amended registration statement with the dateSEC relating to the proposed initial public offering of its common stock. Aeroflex Holding Corp. is offering to sell 17,250,000 shares at a price per share between $13.50 and $15.50.
Debt Tender Offer
In connection with the initial public offering, a portion of the net proceeds will be used to make a capital contribution to the Company issued these consolidated financial statements. Basedto enable us to, among other things, tender for a portion of our senior notes and offer to purchase a portion of our senior subordinated unsecured term loans. On November 5, 2010 we commenced the tender offer, which is conditional upon, among other things, the closing of Aeroflex Holding Corp.’s initial public offering of its common stock. We expect to purchase an aggregate of approximately $175 million of senior notes and term loans at a premium to face value, which is anticipated to result in a loss on that evaluation,partial extinguishment of debt and the write-off of the related deferred financing costs.
Amendment to Senior Secured Credit Agreement
On November 4, 2010, we have determined no material events or transactions occurred after December 31, 2009 up through February 11, 2010 that would affectentered into an agreement with the December 31, 2009 consolidated financial statements.lenders of our senior secured credit facility, for which we paid a $3.3 million fee, to amend our credit agreement to, among other things:
| · | increase the amount of cash we can spend for acquisitions of businesses from $20 million per year and a $100 million aggregate amount, to $200 million in the aggregate, from the effective date of the amendment to the credit facility maturity date, August 15, 2014, with no annual cap; |
| · | permit us to pay, upon the completion of the Aeroflex Holding Corp. initial public offering, a $2.5 million transaction fee and a $16.9 million termination fee for the termination of the Advisory Agreement, in lieu of future advisory fees, and; |
| · | set our interest rate margin, based on our current credit rating. Our current credit rating would increase our interest rate margin by 75 basis points for all tranches of debt within the secured credit facility. |
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements
This Report contains "forward-looking statements." All statements other than statements of historical fact are forward-looking"forward-looking" statements for purposes of the U.S. federal and state securities laws. These statements may be identified by the use of forward looking terminology such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "should" or "will" or the negative thereof or other variations thereon or comparable terminology.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Some of the key factors that could cause actual results to differ from our expectations include:
adverse developments in general business, economic and political conditions domestically or internationally;our ability to make payments on our significant indebtedness;
our ability to remain competitive in the markets we serve;
our failure to comply with regulations such as ITAR and any changes in regulations;
our inability to continue to develop, manufacture and market innovative products and services that meet customer requirements for performance and reliability;
our exposure to foreign currency exchange rate risks;
our exposure to auction rate securities and the impact this exposure has on our liquidity;
our failure to realize anticipated benefits from completed acquisitions, divestitures or restructurings, or the possibility that such acquisitions, divestitures or restructurings could adversely affect us;
the loss of key employees;
| • · | adverse developments in the global economy; |
| · | our inability to make payments on our significant indebtedness; |
| · | our dependence on growth in our customers' businesses; |
| · | our inability to remain competitive in the markets we serve; |
| · | our inability to continue to develop, manufacture and market innovative, customized products and services that meet customer requirements for performance and reliability; |
| · | any failure of our suppliers to provide us with raw materials and/or properly functioning component parts; |
| · | termination of our key contracts, including technology license agreements, or loss of our key customers; |
| · | our inability to protect our intellectual property; |
| · | our failure to comply with regulations such as ITAR and any changes in regulations; |
| · | our exposure to auction rate securities and the impact this exposure has on our liquidity; |
| · | our failure to realize anticipated benefits from completed acquisitions, divestitures or restructurings, or the possibility that such acquisitions, divestitures or restructurings could adversely affect us; |
| · | the loss of key employees; |
| · | our exposure to foreign currency exchange rate risks; |
| · | terrorist acts or acts of war; and |
| · | other risks and uncertainties, including those listed under the caption "Risk Factors" disclosed in our Fiscal 2010 Form 10-K. |
otherGiven these risks and uncertainties, including those listed underyou are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this Form 10-Q are made only as of the caption "Risk Factors" discloseddate hereof. We undertake no obligation to update or revise any forward-looking statements, either to reflect new developments, or for any other reason, except as required by law.
Overview
We are a leading global provider of RF and microwave integrated circuits, components and systems used in the design, development and maintenance of technically demanding, high-performance wireless communication systems. Our solutions include highly specialized microelectronic components and test and measurement equipment used by companies in the space, avionics, defense, commercial wireless communications, medical and other markets. We have targeted customers in these end markets because we believe our Fiscal 2009 Form 10-K.
solutions address their technically demanding requirements. We were founded in 1937 and have proprietary technology that is based on extensive know-how and a long history of research and development focused on specialized technologies, often in collaboration with our customers.
Overview
We are a leading provider of highly specialized microelectronics and test and measurement equipment, primarily to the global aerospace and defense and broadband communications markets. We also design application specific integrated circuits (“ASICs”) for CT scan equipment for the medical industry. Founded in 1937, we have developed a substantial intellectual property portfolio that includes more than 150 patents, extensive know-how, years of collaborative research and development with our customers and a demonstrated history in space, validating the high quality performance of our products. We believe that the combination of our leading market positions, complementary portfolio of products, years of experience and engineering capabilities provides us with a competitive advantage and enables us to deliver high performance, high value products to our customers.
Results of Operations
The following table sets forth our historical results of operations as a percentage of net sales for the periods indicated below:
| | Three Months Ended September 30, | |
| | 2010 | | | 2009 | |
| | | | | | |
Net sales | | | 100.0 | % | | | 100.0 | % |
Costs of sales | | | 49.1 | | | | 50.0 | |
Gross profit | | | 50.9 | | | | 50.0 | |
| | | | | | | | |
Operating expenses: | | | | | | | | |
Selling, general and administrative costs | | | 24.1 | | | | 23.3 | |
Research and development costs | | | 14.6 | | | | 13.2 | |
Amortization of acquired intangibles | | | 10.2 | | | | 12.0 | |
Loss on liquidation of foreign subsidiary | | | - | | | | 5.9 | |
Total operating expenses | | | 48.9 | | | | 54.4 | |
| | | | | | | | |
Operating income (loss) | | | 2.0 | | | | (4.4 | ) |
| | | | | | | | |
Interest expense | | | (13.6 | ) | | | (16.1 | ) |
Other income (expense), net | | | - | | | | - | |
Income (loss) before income taxes | | | (11.6 | ) | | | (20.5 | ) |
Provision (benefit) for income taxes | | | (7.9 | ) | | | (4.7 | ) |
| | | | | | | | |
Net income (loss) | | | (3.7 | ) % | | | (15.8 | )% |
| | Three Months | | | Three Months | | | Six Months | | | Six Months | |
| | Ended | | | Ended | | | Ended | | | Ended | |
| | December 31, 2009 | | | December 31, 2008 | | | December 31, 2009 | | | December 31, 2008 | |
| | | | | | | | | | | | |
Net sales | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
Costs of sales | | | 48.1 | | | | 53.3 | | | | 48.9 | | | | 52.8 | |
Gross profit | | | 51.9 | | | | 46.7 | | | | 51.1 | | | | 47.2 | |
| | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | |
Selling, general and administrative costs | | | 18.9 | | | | 21.8 | | | | 20.8 | | | | 22.0 | |
Research and development costs | | | 10.4 | | | | 10.9 | | | | 11.6 | | | | 11.5 | |
Amortization of acquired intangibles | | | 9.3 | | | | 9.3 | | | | 10.5 | | | | 11.0 | |
Loss on liquidation of foreign subsidiary | | | - | | | | - | | | | 2.6 | | | | - | |
Total operating expenses | | | 38.6 | | | | 42.0 | | | | 45.5 | | | | 44.5 | |
| | | | | | | | | | | | | | | | |
Operating income (loss) | | | 13.3 | | | | 4.7 | | | | 5.6 | | | | 2.7 | |
| | | | | | | | | | | | | | | | |
Interest expense | | | (12.9 | ) | | | (13.6 | ) | | | (14.3 | ) | | | (14.3 | ) |
Other income (expense), net | | | 0.3 | | | | 6.0 | | | | 0.1 | | | | 4.2 | |
Income (loss) before income taxes | | | 0.7 | | | | (2.9 | ) | | | (8.6 | ) | | | (7.4 | ) |
Provision (benefit) for income taxes | | | 7.1 | | | | (0.3 | ) | | | 1.9 | | | | (3.7 | ) |
| | | | | | | | | | | | | | | | |
Net income (loss) | | | (6.4 | )% | | | (2.6 | )% | | | (10.5 | )% | | | (3.7 | )% |
Statements of Operations
Management evaluates the operating results of the Company’sour two segments based upon adjusted operating income, which is pre-tax operating income before costs related to restructuring, amortization of acquired intangibles, share-based compensation, restructuring expenses, business acquisition and merger related expenses, loss on liquidation of foreign subsidiary merger related expenses and the impact of any acquisition related adjustments.
We have set out below our adjusted operating income by segment and in the aggregate, and have provided a reconciliation of adjusted operating income to operating income (loss) on a GAAP basis and income (loss) before income taxes for the periods presented.
| | Three Months Ended September 30, | |
| | 2010 | | | 2009 | |
| | (In thousands) | |
| | | | | | |
Net sales | | | | | | |
Microelectronic solutions ("AMS") | | $ | 77,305 | | | $ | 67,361 | |
Test solutions ("ATS") | | | 78,626 | | | | 62,755 | |
Net sales | | $ | 155,931 | | | $ | 130,116 | |
| | | | | | | | |
Segment adjusted operating income | | | | | | | | |
- AMS | | $ | 18,887 | | | $ | 15,024 | |
- ATS | | | 6,857 | | | | 7,965 | |
General corporate expense | | | (2,414 | ) | | | (2,931 | ) |
Adjusted operating income | | | 23,330 | | | | 20,058 | |
| | | | | | | | |
Amortization of acquired intangibles | | | | | | | | |
- AMS | | | (9,260 | ) | | | (8,836 | ) |
- ATS | | | (6,703 | ) | | | (6,769 | ) |
Business acquisition costs | | | | | | | | |
- Corporate | | | (190 | ) | | | - | |
Share-based compensation | | | | | | | | |
- Corporate | | | (513 | ) | | | (489 | ) |
Restructuring charges | | | | | | | | |
- AMS | | | (576 | ) | | | - | |
- ATS | | | (1,223 | ) | | | (187 | ) |
Merger related expenses - Corporate | | | (715 | ) | | | (693 | ) |
Loss on liquidation of foreign subsidiary - ATS | | | - | | | | (7,696 | ) |
Current period impact of acquisition related adjustments: | | | | | | | | |
Inventory - AMS | | | (183 | ) | | | (246 | ) |
Inventory - ATS | | | (447 | ) | | | - | |
Depreciation - AMS | | | (117 | ) | | | (275 | ) |
Depreciation - ATS | | | (120 | ) | | | (506 | ) |
Depreciation - Corporate | | | (55 | ) | | | (55 | ) |
Deferred revenue - ATS | | | (25 | ) | | | (32 | ) |
Operating income (loss) (GAAP) | | | 3,203 | | | | (5,726 | ) |
| | | | | | | | |
Interest expense | | | (21,238 | ) | | | (21,039 | ) |
Other income (expense), net | | | (29 | ) | | | 57 | |
Income (loss) before income taxes | | $ | (18,064 | ) | | $ | (26,708 | ) |
| | Three Months | | | Three Months | | | Six Months | | | Six Months | |
| | Ended | | | Ended | | | Ended | | | Ended | |
| | December 31, | | | December 31, | | | December 31, | | | December 31, | |
| | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | (In thousands) | |
| | | | | | | | | | | | |
Net sales: | | | | | | | | | | | | |
Microelectronic solutions ("AMS") | | $ | 79,160 | | | $ | 70,752 | | | $ | 146,521 | | | $ | 138,332 | |
Test solutions ("ATS") | | | 87,579 | | | | 86,063 | | | | 150,334 | | | | 159,328 | |
Net sales | | $ | 166,739 | | | $ | 156,815 | | | $ | 296,855 | | | $ | 297,660 | |
| | | | | | | | | | | | | | | | |
Segment adjusted operating income: | | | | | | | | | | | | | | | | |
- AMS | | $ | 21,887 | | | $ | 15,371 | | | $ | 36,911 | | | $ | 29,984 | |
- ATS | | | 20,186 | | | | 15,974 | | | | 28,151 | | | | 25,604 | |
- General corporate expense | | | (2,258 | ) | | | (3,870 | ) | | | (5,189 | ) | | | (6,567 | ) |
Adjusted operating income | | | 39,815 | | | | 27,475 | | | | 59,873 | | | | 49,021 | |
| | | | | | | | | | | | | | | | |
Amortization of acquired intangibles | | | | | | | | | | | | | | | | |
- AMS | | | (8,743 | ) | | | (8,462 | ) | | | (17,579 | ) | | | (19,139 | ) |
- ATS | | | (6,771 | ) | | | (6,160 | ) | | | (13,540 | ) | | | (13,451 | ) |
Share based compensation | | | | | | | | | | | | | | | | |
- Corporate | | | (556 | ) | | | (489 | ) | | | (1,045 | ) | | | (977 | ) |
Restructuring charges | | | | | | | | | | | | | | | | |
- ATS | | | (64 | ) | | | (1,808 | ) | | | (251 | ) | | | (2,210 | ) |
Merger related expenses - Corporate | | | (771 | ) | | | (2,172 | ) | | | (1,464 | ) | | | (2,806 | ) |
Loss on liquidation of foreign | | | | | | | | | | | | | | | | |
subsidiary - ATS | | | - | | | | - | | | | (7,696 | ) | | | - | |
Current period impact of acquisition | | | | | | | | | | | | | | | | |
related adjustments: | | | | | | | | | | | | | | | | |
Inventory - AMS | | | - | | | | - | | | | (246 | ) | | | - | |
Depreciation - AMS | | | (265 | ) | | | (286 | ) | | | (540 | ) | | | (572 | ) |
Depreciation - ATS | | | (311 | ) | | | (676 | ) | | | (817 | ) | | | (1,414 | ) |
Depreciation - Corporate | | | (55 | ) | | | (55 | ) | | | (110 | ) | | | (110 | ) |
Deferred revenue - ATS | | | (33 | ) | | | (79 | ) | | | (65 | ) | | | (176 | ) |
Operating income (GAAP) | | | 22,246 | | | | 7,288 | | | | 16,520 | | | | 8,166 | |
| | | | | | | | | | | | | | | | |
Interest expense | | | (21,418 | ) | | | (21,250 | ) | | | (42,457 | ) | | | (42,465 | ) |
Other income (expense), net | | | 422 | | | | 9,327 | | | | 479 | | | | 12,413 | |
Income (loss) before income taxes | | $ | 1,250 | | | $ | (4,635 | ) | | $ | (25,458 | ) | | $ | (21,886 | ) |
Three Months Ended December 31, 2009September 30, 2010 Compared to Three Months Ended December 31, 2008September 30, 2009
Net Sales. Net sales increased 6%$25.8 million, or 20%, to $166.7$155.9 million for the three months ended December 31, 2009September 30, 2010 from $156.8$130.1 million for the three months ended December 31, 2008.September 30, 2009. Businesses acquired since September 30, 2009 contributed $6.9 million to sales, or 5% in the current quarter.
Net sales in the microelectronic solutions (“AMS”)AMS segment increased 12%15% to $79.2$77.3 million for the three months ended December 31, 2009September 30, 2010 from $70.8$67.4 million for the three months ended December 31, 2008. Increases in sales volumes of integrated circuits ($4.0 million) and microelectronic modules ($3.8 million), combined with sales of $2.7September 30, 2009. Specific variances include a volume driven $5.9 million from Airflyte Electronics, acquired in June 2009, were offset by the reduction of $2.0 millionincrease in sales of components, due to decreasedincluding $1.5 million from ACC, acquired in August 2010, a volume driven $4.1 million increase in sales volumesof integrated circuits; and price concessions createdadditional sales of $1.3 million from Radiation Assured Devices, Inc., or RAD, acquired in June 2010. The increases in sales were partially offset by industry competition.volume driven reductions of $913,000 in sales of motion control products and $399,000 in sales of microelectronics modules.
Net sales in the test solutions (“ATS”)ATS segment increased 2%25% to $87.6$78.6 million for the three months ended December 31, 2009September 30, 2010 from $86.1$62.8 million for the three months ended December 31, 2008. TheSeptember 30, 2009. Specific variances include a volume driven $7.9 million increase was primarily due to additionalin sales of wireless products of $7.4test products; a volume driven $3.2 million combined withincrease in sales from avionic products; and a volume driven $3.0 million increase in sales of $3.8radio test sets. In addition, there were additional wireless test products sales of $4.0 million from VI Technology,Willtek Communications, or Willtek, acquired in March 2009, and was largelyMay 2010. The increases in net sales were partially offset by a volume driven reduction of $2.2 million in sales of PXI and othergeneral purpose test equipment products.
Gross Profit. Gross profit equals net sales less cost of sales. Cost of sales includes materials, direct labor, amortization of capitalized software development costs and overhead expenses such as engineering labor, fringe benefits, depreciation, allocable occupancy costs and manufacturing supplies.
On a consolidated basis, gross marginprofit was 51.9%$79.4 million, or 50.9% of net sales, for the three months ended December 31, 2009September 30, 2010 and 46.7%$65.0 million, or 50.0% of net sales, for the three months ended December 31, 2008. Gross margin was adversely affected by purchase accounting adjustments aggregating $402,000 in 2009 and $572,000 in 2008.September 30, 2009.
| | Gross Profit | | | Gross Profit | |
Three Months | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ended | | | | | % of | | | | | | % of | | | | | | % of | | | | | | % of | | | | | | % of | | | | | | % of | |
December 31, | | AMS | | | Net Sales | | | ATS | | | Net Sales | | | Total | | | Net Sales | | |
September 30, | | | AMS | | | Net Sales | | | ATS | | | Net Sales | | | Total | | | Net Sales | |
| | (In thousands, except percentages) | | | (In thousands, except percentages) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2009 | | $ | 39,202 | | | | 49.5 | % | | $ | 47,392 | | | | 54.1 | % | | $ | 86,594 | | | | 51.9 | % | | $ | 30,999 | | | | 46.0 | % | | $ | 33,995 | | | | 54.2 | % | | $ | 64,994 | | | | 50.0 | % |
2008 | | $ | 33,076 | | | | 46.7 | % | | $ | 40,083 | | | | 46.6 | % | | $ | 73,159 | | | | 46.7 | % | |
2010 | | | $ | 38,321 | | | | 49.6 | % | | $ | 41,096 | | | | 52.3 | % | | $ | 79,417 | | | | 50.9 | % |
Gross margins in the AMS segment were 49.5% in 200949.6% for the three months ended September 30, 2010 and 46.7% in 2008.46.0% for the three months ended September 30, 2009. The increase in gross margins is principally attributable to (i) favorable product mix and volume efficiencies in components; and (ii) favorable product mix and increased sales of integrated circuits, and microelectronics modulescombined with the additional sales of RAD services, acquired in June 2010 (which have margins higher than the segment average) and decreased sales of components and motion control products (which have margins lower than the segment average).
Gross margins in the ATS segment were 54.1% in 200952.3% for the three months ended September 30, 2010 and 46.6% in 2008.54.2% for the three months ended September 30, 2009. The increasedecrease in gross margins iswas principally attributable to increasedwireless product sales, ofwhich included more hardware products than software products as compared to the prior year. While wireless testhardware products which have higher gross margins higher than the segment average.average, they are not as high as the gross margins of wireless software products. Despite the reduction in margins, gross profit increased $7.1 million for the three months ended September 30, 2010 as compared to the three months ended September 30, 2009 due to increased sales.
Selling, General and Administrative Costs. Selling, general and administrative costs include office and management salaries, fringe benefits, commissions, insurance and professional fees.
On a consolidated basis SG&A costs decreased $2.6 million.increased $7.3 million, or 24%, to $37.5 million for the three months ended September 30, 2010. As a percentage of sales, SG&A costs decreased 290 basis pointsincreased from 23.2% to 24.1% from the three months ended December 31, 2008September 30, 2009 to the three months ended December 31, 2009.September 30, 2010. The SG&A of the acquired businesses increased SG&A by $2.0 million.
| | Selling, General and Administrative Costs | | | Selling, General and Administrative Costs | |
Three Months | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Ended | | | | | % of | | | | | | % of | | | | | | | | | % of | | | | | | % of | | | | | | % of | | | | | | | | | % of | |
December 31, | | AMS | | | Net Sales | | | ATS | | | Net Sales | | | Corporate | | | Total | | | Net Sales | | |
September 30, | | | AMS | | | Net Sales | | | ATS | | | Net Sales | | | Corporate | | | Total | | | Net Sales | |
| | (In thousands, except percentages) | | | (In thousands, except percentages) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2009 | | $ | 10,595 | | | | 13.4 | % | | $ | 17,338 | | | | 19.8 | % | | $ | 3,640 | | | $ | 31,573 | | | | 18.9 | % | | $ | 9,988 | | | | 14.8 | % | | $ | 16,082 | | | | 25.6 | % | | $ | 4,168 | | | $ | 30,238 | | | | 23.3 | % |
2008 | | $ | 10,723 | | | | 15.2 | % | | $ | 16,865 | | | | 19.6 | % | | $ | 6,586 | | | $ | 34,174 | | | | 21.8 | % | |
2010 | | | $ | 12,562 | | | | 16.2 | % | | $ | 21,060 | | | | 26.8 | % | | $ | 3,887 | | | $ | 37,509 | | | | 24.1 | % |
In the AMS segment, SG&A costs decreased $128,000increased $2.6 million, or 1%. As26%, to $12.6 million for the three months ended September 30, 2010. This increase is primarily due to additional costs of $859,000 related to RAD, acquired in June 2010, and ACC, acquired in August 2010; general increases in our existing businesses, primarily due to increased employee related expenses of $714,000 and commissions of $271,000; and increased restructuring costs of $178,000. SG&A costs in the AMS segment increased from 14.8% to 16.2%, as a percentage of sales, SG&A costs decreased 180 basis points for AMS. The components product group reduced SG&A costs by $799,000, as comparedfrom the three months ended September 30, 2009 to the prior year, primarily due to cost savings initiatives. These savings, in the AMS segment, are partially offset by additional costs of $408,000 related to Airflyte Electronics, acquired in June 2009.three months ended September 30, 2010.
In the ATS segment, SG&A costs increased $473,000$5.0 million, or 3%.31%, to $21.1 million for the three months ended September 30, 2010, primarily due to increased commissions of $2.2 million, due to the increase in sales volume and a change in product mix; increased employee related expenses of $1.2 million; additional costs of $1.1 million related to Willtek, acquired in May 2010; and a net increase in restructuring costs of $520,000. As a percentage of sales, SG&A costs in the ATS segment increased 20 basis points for ATS. The increase primarily relatesfrom 25.6% to additional costs of $684,000 related26.8% from the three months ended September 30, 2009 to VI Technology, acquired in March 2009.the three months ended September 30, 2010.
Corporate general and administrative expensescosts decreased $2.9 million, primarily due to reductions in merger related expenses ($1.4 million) and various other expenses including professional fees and employee related expenses.$282,000.
Research and Development Costs. Research and development costs include materials, engineering labor and allocated overhead.
On a consolidated basis, research and development costs decreased 50 basis points as a percentage of sales.
| | Research and Development Costs | |
Three Months | | | | | | | | | | | | | | | | | | |
Ended | | | | | % of | | | | | | % of | | | | | | % of | |
December 31, | | AMS | | | Net Sales | | | ATS | | | Net Sales | | | Total | | | Net Sales | |
| | (In thousands, except percentages) | |
| | | | | | | | | | | | | | | | | | |
2009 | | $ | 6,986 | | | | 8.8 | % | | $ | 10,275 | | | | 11.7 | % | | $ | 17,261 | | | | 10.4 | % |
2008 | | $ | 7,268 | | | | 10.3 | % | | $ | 9,807 | | | | 11.4 | % | | $ | 17,075 | | | | 10.9 | % |
AMS segment self-funded research and development costs decreased $282,000,increased by $5.6 million, or 4%32%, primarily due to lower spending on components. As a percentage of sales, research and development costs decreased 150 basis points.
ATS segment self-funded research and development costs increased $468,000, or 5%, primarily due to efforts aimed at enhancing existing next generation radio test products.$22.7 million for the three months ended September 30, 2010. As a percentage of sales, research and development costs increased from 13.2% to 14.6% from the three months ended September 30, basis points.2009 to the three months ended September 30, 2010.
| | Research and Development Costs | |
Three Months | | | | | | | | | | | | | | | | | | |
Ended | | | | | % of | | | | | | % of | | | | | | % of | |
September 30, | | AMS | | | Net Sales | | | ATS | | | Net Sales | | | Total | | | Net Sales | |
| | (In thousands, except percentages) | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
2009 | | $ | 6,508 | | | | 9.7 | % | | $ | 10,673 | | | | 17.0 | % | | $ | 17,181 | | | | 13.2 | % |
2010 | | $ | 7,747 | | | | 10.0 | % | | $ | 14,995 | | | | 19.1 | % | | $ | 22,742 | | | | 14.6 | % |
AMS segment self-funded research and development costs increased $1.2 million, or 19%, to $7.7 million for the three months ended September 30, 2010 primarily due to the increased efforts in the development of next generation component products and additional spending on projects within integrated circuits. As a percentage of sales, AMS segment research and development costs increased from 9.7% for the three months ended September 30, 2009 to 10.0% for the three months ended September 30, 2010.
ATS segment self-funded research and development costs increased $4.3 million, or 40%, to $15.0 million for the three months ended September 30, 2010 primarily due to increases in our radio test and avionics divisions, for the development of a common platform technology, and additional costs of $871,000 related to Willtek, acquired in May 2010.
Restructuring Costs. The AMS segment incurred total restructuring costs of $576,000 ($398,000 in cost of sales and $178,000 in SG&A), for the three months ended September 30, 2010 which primarily relate to consolidation and reorganization efforts in one of our components facilities in connection with the ACC acquisition. There were no comparable charges for the three months ended September 30, 2009.
The ATS segment incurred restructuring costs of $1.2 million for the three months ended September 30, 2010 ($10,000 in cost of sales, $628,000 in SG&A and $585,000 in R&D). In comparison, for the three months ended September 30, 2009, the ATS segment incurred restructuring costs of $187,000 ($79,000 in cost of sales and $108,000 in SG&A). In both periods, the costs related to consolidation and reorganization efforts in our U.K. operations.
Amortization of Acquired Intangibles. Amortization of acquired intangibles increased $892,000 in$358,000 for the three months ended December 31, 2009 primarily due to increases for recently acquired businesses. By segment, amortization increased $281,000 in the AMS segmentSeptember 30, 2010 primarily due to additional amortization of $290,000 for Airflyte Electronics, acquiredrelated to various acquisitions; Willtek, in May 2010; RAD, in June 2009. Amortization2010; and ACC, in August 2010. The increases in amortization were partially offset by certain intangibles becoming fully amortized during fiscal 2010. By segment, the amortization increased $611,000$424,000 in the AMS segment and decreased $66,000 in the ATS segment, primarily due to additional amortizationsegment.
Loss on Liquidation of $594,000Foreign Subsidiary. During the three months ended September 30, 2009, we recognized a $7.7 million non-cash loss on liquidation of a foreign subsidiary. There was no similar charge recorded for VI Technology, acquired in March 2009.the three months ended September 30, 2010.
Other Income (Expense). Interest expense was $21.4$21.2 million in 2009 and $21.3 million in 2008. Other income (expense) of $422,000 for the three months ended December 31,September 30, 2010 and $21.0 million for the three months ended September 30, 2009. Other income (expense) of ($29,000) for the three months ended September 30, 2010 consisted primarily of ($202,000) of foreign currency transaction losses, offset by $173,000 of interest and miscellaneous income. Other income (expense) of $57,000 for the three months ended September 30, 2009 consisted primarily of $768,000$296,000 of interest and miscellaneous income, offset by $346,000($239,000) of foreign currency transaction losses. Other income (expense) of $9.3 million for the three months ended December 31, 2008 consisted primarily of $8.8 million of foreign currency transaction gains and $506,000 of interest and miscellaneous income.
Provision for Income Taxes. The income tax provisionbenefit was $11.9$12.2 million for the three months ended December 31, 2009 on pre-taxSeptember 30, 2010, an effective income tax rate of $1.3 million.67.8%. We had an income tax benefit for the three months ended December 31, 2008September 30, 2009 of $528,000,$6.2 million, an effective income tax rate of 11.4%23.1%. The effective income tax rate for both periods differed from the amount computed by applying the U.S. Federal income tax rate to income before income taxes primarily due to foreign, state and local income taxes. The combinationtaxes, including U.S. income tax on certain foreign net income, since we anticipate that we will be repatriating these earnings to the U.S. During the three months ended September 30, 2010, we identified an overstatement of deferred income tax liabilities established in the fourth quarter of fiscal 2009 and throughout fiscal 2010 related to U.S. tax benefits on domestic losses and foreign and domesticincome taxes provided on foreign earnings (assource income. After consideration of both quantitative and qualitative factors, we expect that substantially all these earnings will be distributeddetermined the amounts were not material to any of those prior period financial statements or the U.S.) distortsfiscal 2011 estimated results and thus corrected the balance in the three months ended September 30, 2010. Accordingly, the consolidated balance sheet at September 30, 2010 presented in this Form 10-Q has been adjusted to reduce deferred income tax liabilities by $3.7 million, with a corresponding increase in income tax benefit in the statement of operations for the three months ended September 30, 2010. The adjustment did not impact the statement of cash flows. The tax benefit of $6.2 million for the three months ended September 30, 2009 was also affected by the unfavorable impact of a $7.7 million nondeductible loss on the liquidation of a foreign subsidiary, and the favorable impact of a $10.3 million loss for tax purposes on the write off of our investment in a foreign subsidiary in fiscal 2009. For financial statement purposes, the loss had been recognized in the prior periods, however, for tax purposes the loss was recognized at the time of divesture, effective tax rate.September 2009.
In the three months ended December 31, 2009,September 30, 2010, we paid income taxes of $1.5$3.7 million and received tax refunds of $29,000$20,000 related to federal, state and foreign income taxes. In the three months ended December 31, 2008,September 30, 2009, we paid income taxes of $372,000.$3.1 million and received refunds of $603,000.
Net income (loss). The net loss was $10.6$5.8 million for the three months ended December 31, 2009September 30, 2010 and $4.1$20.5 million for the three months ended December 31, 2008.
Six Months Ended December 31, 2009 Compared to Six Months Ended December 31, 2008
Net Sales. Net sales were $296.9 million for the six months ended December 31, 2009 and $297.7 million for the six months ended December 31, 2008.
Net sales in the AMS segment increased 6% to $146.5 million for the six months ended December 31, 2009 from $138.3 million for the six months ended December 31, 2008. Increases in sales volumes of $6.4 million of integrated circuits and $6.0 million of microelectronic modules, combined with sales of $5.3 million from Airflyte Electronics, acquired in June 2009, were partially offset by a reduction of $7.1 million in sales of components, due to decreased sales volumes and price concessions created by industry competition, and a $2.6 million reduction in motion control products.
Net sales in the ATS segment decreased 6% to $150.3 million for the six months ended December 31, 2009 from $159.3 million for the six months ended December 31, 2008. Increases in wireless test products, synthetic test products and additional sales of $7.3 million from VI Technology, acquired in March 2009, were more than offset by the decrease in sales volumes of PXI and other test equipment products.
Gross Profit. On a consolidated basis, gross margin was 51.1% for the six months ended December 31, 2009 and 47.2% for the six months ended December 31, 2008.
| | Gross Profit | |
Six Months | | | | | | | | | | | | | | | | | | |
Ended | | | | | % of | | | | | | % of | | | | | | % of | |
December 31, | | AMS | | | Net Sales | | | ATS | | | Net Sales | | | Total | | | Net Sales | |
| | (In thousands, except percentages) | |
| | | | | | | | | | | | | | | | | | |
2009 | | $ | 70,201 | | | | 47.9 | % | | $ | 81,387 | | | | 54.1 | % | | $ | 151,588 | | | | 51.1 | % |
2008 | | $ | 65,096 | | | | 47.1 | % | | $ | 75,422 | | | | 47.3 | % | | $ | 140,518 | | | | 47.2 | % |
Gross margins in the AMS segment were 47.9% in 2009 and 47.1% in 2008. Margins were favorably impacted by increased sales of microelectronic modules and integrated circuits (which have margins higher than the segment average), offset by unfavorable product mix and sale price reductions for certain products in components.
Gross margins in the ATS segment were 54.1% in 2009 and 47.3% in 2008. The increase in gross margins is principally attributable to increased sales of wireless products, which have margins higher than the segment average.
Selling, General and Administrative Costs. On a consolidated basis SG&A costs decreased $3.8 million. As a percentage of sales, SG&A costs decreased 120 basis points from the six months ended December 31, 2008 to the six months ended December 31,September 30, 2009.
| | Selling, General and Administrative Costs | |
Six Months | | | | | | | | | | | | | | | | | | | | | |
Ended | | | | | % of | | | | | | % of | | | | | | | | | % of | |
December 31, | | AMS | | | Net Sales | | | ATS | | | Net Sales | | | Corporate | | | Total | | | Net Sales | |
| | (In thousands, except percentages) | |
| | | | | | | | | | | | | | | | | | | | | |
2009 | | $ | 20,583 | | | | 14.0 | % | | $ | 33,420 | | | | 22.2 | % | | $ | 7,808 | | | $ | 61,811 | | | | 20.8 | % |
2008 | | $ | 21,085 | | | | 15.2 | % | | $ | 34,114 | | | | 21.4 | % | | $ | 10,459 | | | $ | 65,658 | | | | 22.0 | % |
In the AMS segment, SG&A costs decreased $502,000, or 2%. As a percentage of sales, SG&A costs decreased 120 basis points for AMS. The components group reduced SG&A costs by $1.6 million, primarily due to cost savings initiatives. These savings, in the AMS segment, are partially offset by additional costs of $779,000 related to Airflyte Electronics, acquired in June 2009.
In the ATS segment, SG&A costs decreased $694,000, or 2%. This was primarily the result of a decrease of $1.7 million due to cost savings initiatives and efforts to consolidate and reorganize our various European locations, partially offset by additional costs of $1.4 million related to VI Technology, acquired in March 2009. As a percentage of sales, SG&A costs increased 80 basis points for ATS.
Corporate general and administrative expenses decreased $2.7 million, primarily due to reductions in merger related expenses and other professional fees.
Research and Development Costs. On a consolidated basis, research and development costs increased 10 basis points as a percentage of sales.
| | | |
| | Research and Development Costs | |
Six Months | | | | | | | | | | | | | | | | | | |
Ended | | | | | % of | | | | | | % of | | | | | | % of | |
December 31, | | AMS | | | Net Sales | | | ATS | | | Net Sales | | | Total | | | Net Sales | |
| | (In thousands, except percentages) | |
| | | | | | | | | | | | | | | | | | |
2009 | | $ | 13,493 | | | | 9.2 | % | | $ | 20,949 | | | | 13.9 | % | | $ | 34,442 | | | | 11.6 | % |
2008 | | $ | 14,599 | | | | 10.6 | % | | $ | 19,505 | | | | 12.2 | % | | $ | 34,104 | | | | 11.5 | % |
AMS segment self-funded research and development costs decreased $1.1 million, or 8%, primarily due to lower spending on microelectronic modules and components. As a percentage of sales, research and development costs decreased 140 basis points.
ATS segment self-funded research and development costs increased $1.4 million, or 7%, primarily due to the development of products within our radio and avionics test division and PXI-related products in wireless. As a percentage of sales, research and development costs increased 170 basis points.
Amortization of Acquired Intangibles. Amortization of acquired intangibles decreased $1.5 million in the six months ended December 31, 2009 primarily due to certain intangibles becoming fully amortized during the first quarter of fiscal 2009. The decrease is offset by additional amortization related to VI Technology, acquired in March 2009, of $1.2 million and Airflyte, acquired in June 2009, of $581,000. By segment, the amortization decreased $1.6 million in the AMS segment and increased $89,000 in the ATS segment.
Loss on Liquidation of Foreign Subsidiary. During the six months ended December 31, 2009, we recognized a $7.7 million non-cash loss on liquidation of a foreign subsidiary. There was no similar charge recorded in the six months ended December 31, 2008.
Other Income (Expense). Interest expense was $42.5 million in both 2009 and 2008. Other income (expense) was $479,000 for the six months ended December 31, 2009 consisting primarily of $1.1 million of interest and miscellaneous income, offset by $584,000 of foreign currency transaction losses. Other income (expense) of $12.4 million for the six months ended December 31, 2008 consisted primarily of $11.2 million of foreign currency transaction gains and $1.2 million of interest and miscellaneous income.
Provision for Income Taxes. The income tax provision was $5.7 million for the six months ended December 31, 2009, on pre-tax loss of $25.5 million. We had an income tax benefit for the six months ended December 31, 2008 of $10.9 million, an effective income tax rate of 49.7%. The effective income tax rate for both periods differed from the amount computed by applying the U.S. Federal income tax rate to income before income taxes primarily due to foreign, state and local income taxes. The provisions are a combination of U.S. tax benefits on domestic losses and foreign and domestic taxes provided on foreign earnings as we expect that substantially all these earnings will be distributed to the U.S. The projected provision of U.S. taxes on foreign source income for fiscal 2010 in relation to the fiscal 2010 pre-tax projected amounts resulted in a negative effective tax rate for fiscal 2010, which when applied to the pre-tax loss for the six months ended December 31, 2009, resulted in a tax expense of $5.7 million.
In the six months ended December 31, 2009, we paid income taxes of $4.5 million and received tax refunds of $631,000 related to federal, state and foreign income taxes. In the six months ended December 31, 2008, we paid income taxes of $2.4 million.
Net income (loss). The net loss was $31.2 million for the six months ended December 31, 2009 and $11.0 million for the six months ended December 31, 2008.
Liquidity and Capital Resources
As of December 31, 2009,September 30, 2010, we had $68.8$65.1 million of cash and cash equivalents, $235.6230.3 million in working capital and our current ratio was 2.8 to 1. As of June 30, 2009, we had $57.7 million of cash and cash equivalents, $221.4 million in working capital and our current ratio was 2.52.56 to 1.
At December 31, 2009,In early February 2008, when auctions for auction rate securities began to fail, our gross investment in marketable securities consisted of $18.9$46.5 million of auction rate securities. Auction rate securities represent long-term (generallyvariable rate bonds that generally carry maturities of ten years to thirty-five years from the date of issuance) variable rate bondsissuance, and whose rates are tied to short-term interest rates that are reset through an auction process every seven to thirty-five days, and are classified as available for sale securities. From early February 2008 to September 2010, $35.4 million of our auction rate securities were redeemed by the issuers of the auction rate securities at an average of 99.1% of par. The $11.1 million of auction rate securities that we currently hold are partially offset by a valuation allowance of $1.3 million.
All but one (with the one security having a carrying value of $1.7 million and an A rating)a rating of A-) of our remaining auction rate securities retain a triple-A rating by at least one nationally recognized statistical rating organization. In addition, certain of our auction rate securities are backed by student loans whose principal and interest are federally guaranteed by the Family Federal Education Loan Program.
Since many auctions are failing and given that there is currently no active secondary market for our investment in auction rate securities, the determination of fair value was based on the following factors:
| · | lack of action by the issuers to establish different forms of financing to replace or redeem these securities; and |
| · | the credit quality of the underlying securities. |
In July 2009, $1.0 million of our auction rate securities were redeemed by the issuer at par. In January 2010, an additional $4.0 million of our auction rate securities were redeemed by the issuer at 92% of par. The resulting $320,000 realized loss will be recorded in the statement of operations in the third quarter of fiscal 2010. Since February 2008, when auctions began to fail, through February 2010, $31.5 million of auction rate securities were redeemed at par, except for the January 2010 redemption discussed above. Given the high credit quality of our auction rate securities and our intent and ability to hold these securities until liquidity returns to the market or maturity, we believe we will recover the full remaining principal amount in the future. However, at December 31, 2009, we concluded that the fair value of our auction rate securities was $16.9 million, which reflects a $2.0 million valuation allowance.
Should credit market disruptions continue or increase in magnitude, we may be required to record a further impairment on our investments or consider that an ultimate liquidity event may take longer than currently anticipated.
Our principal liquidity requirements are to service our debt and interest and meet our working capital and capital expenditure needs. As of December 31, 2009,September 30, 2010, we had $894.2$882.8 million of debt outstanding (of which $890.0$882.5 million was long-term), including approximately $511.8$489.1 million under our senior secured credit facility, $225.0 million of senior unsecured notes and $156.3$168.0 million under our senior subordinated unsecured credit facility, including paid-in-kind interest. Additionally, at December 31, 2009September 30, 2010 we were able to borrow an additional $50.0 million under the revolving portion of our senior secured credit facility.
The following is a summary of required principal repayments of our debt for the next five years and thereafter as of December 31, 2009:
September 30, 2010:
Twelve Months Ended September 30, | | (In thousands) | |
2011 | | $ | 360 | |
2012 | | | 385 | |
2013 | | | - | |
2014 | | | 489,105 | |
2015 | | | 392,973 | |
Thereafter | | | - | |
Total | | $ | 882,823 | |