UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                   FORM 10-Q

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

For the quarterly period ended December 31, 1994

                                      OR

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

For the transition period from ________ to ________

Commission File Number:  1-6620


                        INSTRUMENT SYSTEMS CORPORATION
            (Exact name of registrant as specified in its charter)


           DELAWARE                                        11-1893410
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                         Identification No.)


100 JERICHO QUADRANGLE, JERICHO, NEW YORK                    11753
(Address of principal executive offices)                   (Zip Code)


                                  (516) 938-5544
             (Registrant's telephone number, including area code)


      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.

                                                   X   Yes                 No
                                                 -----               -----

      Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.  30,767,392 shares of Common
Stock as of January 31, 1995.



                                   FORM 10-Q

                                   CONTENTS




PART I -  FINANCIAL INFORMATION (Unaudited)

          Condensed Consolidated Balance Sheets at December 31, 1994
          and September 30, 1994

          Condensed Consolidated Statements of Income for the Three
          Months Ended December 31, 1994 and 1993

          Condensed Consolidated Statements of Cash Flows for the Three
          Months Ended December 31, 1994 and 1993

          Notes to Condensed Consolidated Financial Statements

          Management's Discussion and Analysis of Financial Condition and
          Results of Operations


PART II - OTHER INFORMATION

          Item 1:  Legal Proceedings

          Item 2:  Changes in Securities

          Item 3:  Defaults upon Senior Securities

          Item 4:  Submission of Matters to a Vote of Security Holders

          Item 5:  Other Information

          Item 6:  Exhibits and Reports on Form 8-K

          Signature


                INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30, 1994 1994 (Unaudited) (Note 1) ------------ ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 14,861,000 $ 28,659,000 Marketable securities 4,142,000 29,727,000 Accounts receivable, less allowance for doubtful accounts 57,159,000 59,191,000 Contract costs and recognized income not yet billed 27,680,000 29,194,000 Inventories (Note 2) 75,526,000 68,918,000 Prepaid expenses and other current assets 7,767,000 6,987,000 ------------ ------------ Total current assets 187,135,000 222,676,000 PROPERTY, PLANT AND EQUIPMENT at cost, less accumulated depreciation and amortization of $46,682,000 at December 31, 1994 and $44,843,000 at September 30, 1994 49,787,000 49,890,000 OTHER ASSETS 24,156,000 20,649,000 ------------ ------------ $261,078,000 $293,215,000 ============ ============ See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, September 30, 1994 1994 (Unaudited) (Note 1) ------------ ------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES (Note 4): Accounts and notes payable $ 37,328,000 $ 33,704,000 Other current liabilities 52,028,000 67,924,000 ------------ ------------ Total current liabilities 89,356,000 101,628,000 ------------ ------------ LONG-TERM DEBT 15,971,000 15,538,000 ------------ ------------ SHAREHOLDERS' EQUITY (Note 5): Preferred stock, par value $.25 per share, authorized 3,000,000 shares -- Second Preferred Stock, Series I, authorized 1,950,000 shares, issued 1,673,903 shares at December 31, 1994 and 1,677,129 shares at September 30, 1994 (liquidation value $16,739,000 and $16,771,000, respectively) 418,000 419,000 Common Stock, par value $.25 per share, authorized 85,000,000 shares, issued 30,890,095 shares at December 31, 1994 and 33,887,739 shares at September 30, 1994, and 151,700 shares and 34,500 shares in treasury at December 31, 1994 and September 30, 1994, respectively 7,722,000 8,472,000 Other shareholders' equity 147,611,000 167,158,000 ------------ ------------ Total shareholders' equity 155,751,000 176,049,000 ------------ ------------ $261,078,000 $293,215,000 ============ ============ See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
THREE MONTHS ENDED DECEMBER 31, ------------------------------- 1994 1993 ------------ ------------ Net sales $133,562,000 $116,155,000 Cost of sales 95,216,000 81,788,000 ------------ ------------ Gross profit 38,346,000 34,367,000 Selling, general and administrative expenses 25,611,000 22,917,000 ------------ ------------ Income from operations 12,735,000 11,450,000 ------------ ------------ Other income (expense): Interest expense (515,000) (461,000) Interest income 619,000 452,000 Other, net 31,000 92,000 ------------ ------------ 135,000 83,000 ------------ ------------ Income before income taxes 12,870,000 11,533,000 ------------ ------------ Provision for income taxes: Federal 4,250,000 3,892,000 State and other 898,000 836,000 ------------ ------------ 5,148,000 4,728,000 ------------ ------------ Net income $ 7,722,000 $ 6,805,000 ============ ============ Net income per share of common stock (Note 3) $ .22 $ .18 ============ ============ See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
THREE MONTHS ENDED DECEMBER 31, ------------------------------- 1994 1993 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,722,000 $ 6,805,000 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,068,000 2,359,000 Provision for losses on accounts receivable 302,000 191,000 Change in assets and liabilities: Decrease in accounts receivable and contract costs and recognized income not yet billed 6,741,000 13,901,000 Increase in inventories (3,134,000) (3,112,000) Increase in prepaid expenses and other assets (779,000) (541,000) Decrease in accounts payable and accrued liabilities (15,425,000) (11,043,000) Other changes, net 684,000 (8,000) ------------ ------------ Total adjustments (9,543,000) 1,747,000 ------------ ------------ Net cash provided by (used in) operating activities (1,821,000) 8,552,000 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase) decrease in marketable securities 25,585,000 (13,075,000) Acquisition of property, plant and equipment (1,498,000) (804,000) Proceeds from sale of stock of affiliate --- 11,615,000 Acquired businesses (7,758,000) --- (Increase) decrease in equipment lease deposits and other (17,000) 1,219,000 ------------ ------------ Net cash provided by (used in) investing activities 16,312,000 (1,045,000) ------------ ------------
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (Unaudited)
THREE MONTHS ENDED DECEMBER 31, ------------------------------- 1994 1993 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of common shares (28,166,000) (3,338,000) Payment of long-term debt (9,127,000) (3,249,000) Short-term borrowings 9,000,000 --- Other, net 4,000 164,000 ------------ ------------ Net cash used in financing activities (28,289,000) (6,423,000) ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,798,000) 1,084,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,659,000 26,466,000 ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,861,000 $ 27,550,000 ============ ============ See notes to condensed consolidated financial statements.
INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) Basis of Presentation - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The balance sheet at September 30, 1994 has been derived from the audited financial statements at that date. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended December 31, 1994 are not necessarily indicative of the results that may be expected for the year ended September 30, 1995. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report to shareholders for the year ended September 30, 1994. The Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," for the year beginning October 1, 1994. Adoption of this standard did not have a material effect on the Company's financial position or results of operations. At the February 8, 1995 Annual Meeting of Stockholders, the stockholders approved changing the Company's name to "Griffon Corporation." The name change will become effective in March 1995. (2) Inventories - Inventories, stated at the lower of cost (first-in, first-out or average) or market, are comprised of the following:
December 31, September 30, 1994 1994 ------------ ------------- Finished goods . . . . . . . . . . $20,321,000 $16,664,000 Work in process . . . . . . . . . 26,933,000 26,674,000 Raw materials and supplies . . . . 28,272,000 25,580,000 ----------- ----------- $75,526,000 $68,918,000 =========== ===========
(3) Net Income Per Share - Net income per share is calculated using the weighted average number of shares of common stock, and where dilutive, common stock equivalents outstanding during each period. Shares used in computing per share results were 35,294,000 and 37,928,000 for the three months ended December 31, 1994 and 1993, respectively. (4) Notes Payable - In December 1994, $9,000,000 which was outstanding under a long-term debt agreement was refinanced under a short-term line of credit. Interest on this obligation is at approximately the prime rate. (5) Self-Tender Offer - In December 1994, the Company completed a self-tender offer for 3,002,840 shares of the Company's Common Stock, which were then retired, at a price of $8.75 per share. During the quarter, approximately $28,200,000 was expended to purchase a total of 3,120,040 shares of Common Stock. (6) Acquisitions - During the quarter ended December 31, 1994, the Company acquired two companies for the building products business for an aggregate price of $7,758,000. The acquisitions have been accounted for as purchases. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Net sales were $133.6 million in the three-month period ended December 31, 1994, an increase of $17.4 million or 15.0% over last year. Net sales of the building products business were $79.9 million, an increase of $18.8 million or 30.8% over last year. Acquired businesses accounted for $7.3 million of the higher sales; the remainder of the increase was principally due to increased unit sales of garage doors ($8.5 million), improved product mix and increased prices. Net sales of the specialty plastic films business were $26.6 million compared to $26.9 million last year. As previously reported, a major customer of the specialty plastic films business has made a design change which will phase out the specialty plastic's thin laminate program through the first half of 1995. During the quarter, increased unit sales ($2.9 million) of health care and film products other than thin laminate to this and other customers and the effect of higher selling prices ($1.2 million) were offset by decreased thin laminate sales. Net sales of the electronic information and communication systems business were $17.5 million, decreasing $1.7 million or 8.7% compared to last year. The lower sales were principally due to decreased revenues on certain military programs that are nearing completion, partially offset by increased commercial business and increased funding of continuing programs. Income from operations for the three-month period ended December 31, 1994 was $12.7 million, an increase of $1.3 million or 11.2% over last year. Operating income of the building products business increased $2.8 million over last year primarily due to the increased sales. Operating income of the specialty plastic films business decreased by $1.2 million compared to last year primarily due to the phase-out of the thin laminate program and raw material price increases for polyethylene resin used in its business in excess of selling price increases. It is expected that prices for this material will increase further in fiscal 1995. The Company has been able to pass on such increases to its customers in the past, although there is no assurance as to the timing or extent that it will be able to do so during fiscal 1995. Operating income of the electronic information and communication systems business decreased by $.4 million principally due to the sales decrease partially offset by slightly lower G&A expenses. Liquidity and Capital Resources Cash flow used by operations was $1.8 million, reflecting a reduction of current liabilities of approximately $15.4 million. In December 1994, the Company completed a self-tender offer for 3,002,840 shares of its Common Stock at a price of $8.75 per share. During the quarter, a total of $28.2 million was used to acquire 3,120,040 shares of Common Stock. These purchases were funded by existing cash and marketable securities, which decreased due to the stock purchases and $7.8 million used for two acquisitions for the building products business. Anticipated cash flows from operations, together with existing cash and lease line availability, should be adequate to finance presently anticipated working capital and capital expenditure requirements. INSTRUMENT SYSTEMS CORPORATION AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1 Legal Proceedings There are no material changes in the information previously reported under this item. Item 2 Changes in Securities Amendment to Rights Agreement dated as of November 8, 1994 between Registrant and American Stock Transfer Company (Exhibit 4.1 of Current Report on Form 8-K dated November 8, 1994). Item 3 Defaults upon Senior Securities None Item 4 Submission of Matters to a Vote of Security Holders (a) The Registrant held its Annual Meeting of Stockholders on February 8, 1995. (b) Not applicable. (c) (i) A proposal to amend the Certificate of Incorporation to change the name of the Company to "Griffon Corporation" was approved at the Annual Meeting. Votes cast at this meeting were 24,457,471 shares for, 532,622 shares against and 253,621 shares abstaining. (ii) A proposal to adopt a 1995 Stock Option Plan was approved at the Annual Meeting. Votes cast at this meeting were 23,585,433 shares for, 1,344,880 shares against and 313,401 shares abstaining. (iii) Four directors were elected at the Annual Meeting of Stockholders to serve until the Annual Meeting of Stockholders in 1998 or until their successors are chosen and qualified. The names of these Directors and votes cast in favor of their election and shares withheld are as follows:
NAME VOTES FOR VOTES WITHHELD ---- --------- -------------- Abraham M. Buchman 24,911,830 331,884 Rear Admiral Clarence A. Hill, Jr. (Ret.) 24,913,080 330,634 William H. Waldorf 24,914,623 329,091 Henry A. Alpert 24,912,968 330,746
Item 5 Other Information None Item 6 Exhibits and Reports on Form 8-K 27 -- Financial Data Schedule (for electronic submission only) Report on Form 8-K dated November 8, 1994 covering Item 5 -- Other Events and Item 7 -- Financial Statements and Exhibits. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INSTRUMENT SYSTEMS CORPORATION By Robert Balemian --------------------------- Robert Balemian President (Principal Financial Officer) Date February 8, 1995
 

5 The schedule contains summary financial information extracted from the condensed consolidated financial statements for the quarter ended December 31, 1994 and is qualified in its entirety by reference to such statements. 3-MOS SEP-30-1995 DEC-31-1994 14,861,000 4,142,000 88,954,000 4,115,000 75,526,000 187,135,000 96,469,000 46,682,000 261,078,000 89,356,000 15,971,000 7,722,000 0 418,000 147,611,000 261,078,000 133,562,000 133,562,000 95,216,000 95,216,000 0 302,000 515,000 12,870,000 5,148,000 7,722,000 0 0 0 7,722,000 .22 0