-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VkKSjB1QuIZOP1WtUiqltKNeCisoPpHF/di17h3ZMkZ82L+8A9Y1NxCnY9b6xvbu mzDoSLpYSmqdIHHwor0MdQ== 0000950130-96-004762.txt : 19961217 0000950130-96-004762.hdr.sgml : 19961217 ACCESSION NUMBER: 0000950130-96-004762 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19961216 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMTECH TELECOMMUNICATIONS CORP /DE/ CENTRAL INDEX KEY: 0000023197 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 112139466 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-07928 FILM NUMBER: 96680730 BUSINESS ADDRESS: STREET 1: 105 BAYLIS RD CITY: MELVILLE STATE: NY ZIP: 11747 BUSINESS PHONE: 5167778900 MAIL ADDRESS: STREET 2: 105 BAYLIS ROAD CITY: MELVILLE STATE: NY ZIP: 11747 FORMER COMPANY: FORMER CONFORMED NAME: COMTECH INC DATE OF NAME CHANGE: 19870503 FORMER COMPANY: FORMER CONFORMED NAME: COMTECH TELECOMMUNICATIONS CORP DATE OF NAME CHANGE: 19831215 FORMER COMPANY: FORMER CONFORMED NAME: COMTECH LABORATORIES INC DATE OF NAME CHANGE: 19780425 10-Q 1 FORM 10-Q FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (As last amended in Rel. No. 34-26589, eff. 4/12/89) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20459 Form 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended October 31, 1996 ----------------------------------------------------- ( ) 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: 0-7928 ---------------------------------------------------- COMTECH TELECOMMUNICATIONS CORP. --------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 11-2139466 --------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 105 Baylis Road, Melville, New York 11747 --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (516) 777-8900 --------------------------------------------------------------------------- (Registrant's telephone number, including area code) --------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (X) Yes ( ) No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. ( ) Yes ( ) No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, Par Value $.10 Per Share - 2,637,384 shares outstanding as of 10/31/96. --------------------------------------------------------------------------- 1 COMTECH TELECOMMUNICATIONS CORP. -------------------------------- INDEX ----- Page No. ---- PART I FINANCIAL INFORMATION Consolidated Balance Sheets - 3 October 31, 1996 (unaudited) and July 31, 1996 Consolidated Statements of Operations - 4 Three Months Ended October 31, 1996 and 1995 (unaudited) Consolidated Statements of Cash Flows - 5 Three Months Ended October 31, 1996 and 1995 (unaudited) Notes to Consolidated Financial Statements (unaudited) 6-8 Management's Discussion and Analysis of Financial Condition and Results of Operations 9-11 PART II OTHER INFORMATION 12 Exhibit 11.0 Computation of Earnings (Loss) Per Common Share 13 Signature Page 14 2 PART I ------ FINANCIAL INFORMATION --------------------- COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES ------------------------------------------------- CONSOLIDATED BALANCE SHEETS ---------------------------
October 31, 1996 July 31, 1996 ----------------- -------------- (unaudited) ASSETS: Current assets: Cash and cash equivalents $ 1,118,000 $ 1,840,000 Restricted cash 69,000 220,000 Accounts receivable, less allowance for doubtful accounts of $28,000 at October 31, 1996 and July 31, 1996 4,452,000 3,467,000 Inventories, net 6,981,000 6,527,000 Prepaid expenses and other current 134,000 196,000 assets ------------ ------------ Total current assets 12,754,000 12,250,000 ------------ ------------ Property, plant and equipment, net 3,787,000 3,996,000 Other assets 365,000 383,000 ------------ ------------ Total assets $ 16,906,000 $ 16,629,000 ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Current installments of long-term debt (including payable to related party of $359,000 at October 31, 1996 and $351,000 at July 31, $ 602,000 $ 642,000 1996) Accounts payable 2,430,000 2,037,000 Accrued expenses and other current 1,736,000 1,774,000 liabilities ------------ ------------ Total current liabilities 4,768,000 4,453,000 ------------ ------------ Long-term debt, less current installments (including payable to related party of $1,504,000 at October 31, 1996 and $1,512,000 at July 31, 1996) 1,753,000 1,875,000 ------------ ------------ Total liabilities 6,521,000 6,328,000 ------------ ------------ Stockholders' equity: Preferred stock, par value $.10 per share; shares authorized and unissued 2,000,000 --- --- Common stock, par value $.10 per share; authorized 10,000,000 shares; issued and outstanding 2,637,384 shares at October 31, 1996 and 263,000 261,000 $2,605,344 at July 31, 1996 Additional paid-in capital 22,245,000 22,235,000 Accumulated deficit (11,518,000) (11,599,000) ------------ ------------ 10,990,000 10,897,000 Less: Treasury stock (15,000 shares) (180,000) (180,000) Deferred compensation expense (425,000) (416,000) ------------ ------------ 10,385,000 10,301,000 Total liabilities and stockholders' $ 16,906,000 $ 16,629,000 equity ------------ ------------
See accompanying notes to consolidated financial statements. 3 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES ------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------
Three Months Ended October 31, (Unaudited) ------------------- 1996 1995 ---- ---- Net sales $5,188,000 $4,456,000 ---------- ---------- Operating costs and expenses: Cost of sales 3,807,000 3,142,000 Selling, general and administrative 1,071,000 1,204,000 Research and development 229,000 235,000 ---------- ---------- Total operating costs and expenses 5,107,000 4,581,000 ---------- ---------- Operating income (loss) 81,000 (125,000) Other (expenses) income: Interest expense (76,000) (71,000) Interest income 9,000 17,000 Other income 72,000 ---- ---------- ---------- Income (loss) before provision for income taxes 86,000 (179,000) Provision for income taxes 5,000 7,000 ---------- ---------- Net income (loss) $ 81,000 $ (186,000) ---------- ---------- Income (loss) per share $.03 $(.07) ---------- ---------- Weighted average number of common and common equivalent shares outstanding 2,622,384 2,590,344 ---------- ----------
See accompanying notes to consolidated financial statements 4 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES ------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
Three Months Ended October 31, ------------------- (unaudited) 1996 1995 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 81,000 $ (186,000) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Gain on sale of property (72,000) Depreciation and amortization 259,000 236,000 Amortization of deferred compensation (62,000) 36,000 Changes in assets and liabilities: Accounts receivable (858,000) (69,000) Inventories (454,000) (695,000) Prepaid expenses and other current 62,000 109,000 assets Other assets (2,000) -- Accounts payable 393,000 327,000 Accrued expenses and other current (38,000) 364,000 liabilities ---------- ----------- Net cash (used in) provided by (691,000) 122,000 operating activities ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases or property, plant and (85,000) (100,000) equipment ---------- ----------- Net cash used in investing (85,000) (100,000) activities ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (162,000) (143,000) Exercise of stock options 65,000 -- ---------- ----------- Net cash used in financing (97,000) (143,000) activities Net decrease in cash and cash (873,000) (121,000) equivalents Cash and cash equivalents at beginning 2,060,000 2,044,000 of period ---------- ----------- Cash and cash equivalents at end of $1,187,000 $1,923,,000 period ---------- ----------- Supplemental cash flow disclosure: - ---------------------------------- Cash paid during the period for: Interest $ 76,000 $ 71,000 Income Taxes $ 5,000 $ 7,000
Non-cash investing activities: Sale of facility for approximately $127,000. Cash was received in subsequent period. See accompanying notes to consolidated financial statements. 5 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES ------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (1) General The accompanying consolidated financial statements for the three months ended October 31, 1996 and 1995 are unaudited. In the opinion of management, the information furnished reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the unaudited interim periods. The results of operations for the three months ended October 31, 1996 are not necessarily indicative of the results of operations to be expected for the full year. (2) Marketable Investment Securities At October 31, 1996, investments are comprised principally of commercial debt obligations and United States Treasury obligations. The Company utilizes the services of a financial institution to administer its cash management short term investment program within parameters established by the Company. The Registrant classifies its debt and marketable equity securities as available-for-sale securities that are principally being held for an unspecified period of time, as such, the Registrant may consider selling them to meet liquidity needs or as part of the Registrant's risk management program. Available-for-sale securities are recorded at fair value. Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Unrealized gains and losses are excluded from earnings and are reported as a separate component of stockholders' equity until realized. (3) Accounts Receivable Accounts receivable consist of the following:
October 31, 1996 July 31, 1996 ---------------- ------------- Accounts receivable from commercial $3,641,000 $2,079,000 customers Unbilled receivables (including retainages) on contracts-in-progress 476,000 689,000 Amounts receivable from the United States Government and its agencies 236,000 727,000 Other 127,000 -- ---------- ---------- 4,480,000 3,495,000 Less allowance for doubtful accounts 28,000 28,000 ---------- ---------- Accounts receivable, net $4,452,000 $3,467,000 ---------- ---------- (4) Inventories Inventories consist of the following: October 31, 1996 July 31, 1996 ---------------- ------------- Raw materials and components $1,933,000 $1,754,000 Work-in-process 5,919,000 5,414,000 ---------- ---------- 7,852,000 7,168,000 Less: Progress payments 374,000 151,000 Inventory reserves 497,000 490,000 ---------- ---------- Inventories - net $6,981,000 $6,527,000 ---------- ----------
6 (5) Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following:
October 31, 1996 July 31, 1996 ---------------- ------------- Customer advances and deposits $ 322,000 $ 208,000 Accrued wages and benefits 766,000 680,000 Accrued commissions 265,000 355,000 Other 383,000 531,000 ---------- ---------- $1,736,000 $1,774,000 ---------- ---------- (6) Long-Term Debt Long-term debt consists of the following: October 31, 1996 July 31, 1996 ---------------- ------------- Obligations under capital leases $2,355,000 $2,517,000 Less current installments 602,000 642,000 ---------- ---------- $1,753 000 $1,875,000 ---------- ---------- (7) Income Taxes
For the three months ended October 31, 1996 and 1995, the provision for income taxes was $5,000 and $7,000, respectively. The provision for income taxes included in the accompanying consolidated financial statements of operations consisted entirely of estimated state and local income tax. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at July 31, 1996 are presented below. There are no temporary differences that give rise to deferred tax liabilities.
Deferred tax assets: 1996 ---- Allowances for doubtful accounts $ 10,000 receivable Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax 374,000 Reform act of 1986 Plant and equipment, principally due to capitalized interest and differences in depreciation 156,000 Compensated absences, principally due to accrual for financial reporting purposes 213,000 Deferred compensation 144,000 Net operating loss carryforwards 4,294,000 Investment tax credit carryforwards 440,000 Alternative minimum tax credit 87,000 carryforwards ----------- Total gross deferred tax 5,718,000 assets Less valuation allowance (5,718,000) ----------- Net deferred tax assets $ --- -----------
The valuation allowance for deferred tax assets as of July 31, 1996 was $5,718,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. 7 The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $16,500,000. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will not realize the benefits of these deferred tax assets and has fully reserved the deferred asset. (8) Earnings Per Share Earnings per share are based on the weighted average number of common and common equivalent shares (if dilutive) outstanding during each year. 8 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES ------------------------------------------------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL --------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS ----------------------------------- COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, - ------------------------------------------------------------------------------ 1996 AND OCTOBER 31, 1995 - ------------------------- Net Sales. Net sales were $5,188,000 and $4,456,000 for the three months ended October 31, 1996 and 1995, respectively, representing an increase of $732,000, or 16.4%. This was due primarily to a higher level of sales of solid state amplifier and antenna products at the Comtech Microwave Products Corp. and Comtech Antenna Systems, Inc. subsidiaries, respectively, partially offset by lower sales at the other subsidiaries. Gross Margin. Gross profit was $1,381,000 or 26.6% of net sales for the three months ended October 31, 1996 compared to $1,314,000 or 29.5% for the same period in fiscal 1996. Higher gross profits in the fiscal 1997 period were due primarily to the higher sales volume. Lower gross margins, as a percentage of sales, in the fiscal 1997 period were due primarily to lower average sales prices on our converter product line. Selling, General and Administrative. Selling, general and administrative expenses were $1,071,000 or 20.6% of net sales for the three months ended October 31, 1996 compared to $1,204,000 or 27% of net sales for the same period in fiscal 1996. The reduction was partially due to the forefeiture of certain benefits by a former employee relating to a stock option plan, which resulted in a reduction of approximately $79,000 to the administrative expenses for this period. Additionally, there were lower marketing and advertising expenses incurred in the three months of fiscal 1997 compared to the same period in fiscal 1996. Research and Development. Research and development expenses were $229,000 and $235,000 for the three months ended October 31, 1996 and 1995, respectively. These expenses, in both periods, were primarily incurred at the Comtech Communications Corp. subsidiary as they continue selected product improvements and the development of additional products to expand their product offerings.. Operating Income. As a result of the foregoing factors, the Company had operating income of $81,000 for the three months ended October 31, 1996 compared to an operating loss of $125,000 for the comparable prior period. Interest Expense. Interest expense was $76,000 and $71,000 for the three months ended October 31, 1996 and 1995, respectively. Interest expense for both periods was attributable largely to interest associated with the Company's capital lease obligations. Interest Income. Interest income was $9,000 and $17,000 for the three months ended October 31, 1996 and 1995, respectively. This decrease was due primarily to the decrease in the amount of cash available to invest in the fiscal 1997 period. Other Income. Other income in the fiscal 1997 period was the result of a gain on the sale of a company owned storage facility. The sale resulted in a gain of $72,000 over the net book carrying value of this facility. Provision for Income Taxes. The provision for income taxes was $5,000 and $7,000 for the three months ended October 31, 1996 and 1995, respectively, which principally relates to state income taxes. The Company files on a consolidated basis for federal income tax purposes and is not expected to incur federal taxes for these periods due to losses incurred in earlier periods. The Company believes its tax benefits are subject to a 100% valuation allowance due to earnings fluctuations inherent in the Company's operations and the potential limitations on utilization of loss and credit carryforwards pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986. 9 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- For the three month period ended October 31, 1996, the Company's cash and cash equivalent position decreased by $873,000 from $2,060,000 at July 31, 1996 to $1,187,000 at October 31, 1996. Operating activities used a net of $691,000. Accounts receivable were $4,452,000 at October 31, 1996 as compared to $3,467,000 at July 31, 1996, representing an increase of $985,000. This increase was primarily the result of the timing of shipments. Included in these balances were $476,000 at October 31, 1996 and $689,000 at July 31, 1996 for unbilled accounts receivable for sales recorded on a percentage-of-completion basis. The portion of accounts receivable represented by unbilled amounts will vary at any time as a function of the volume of contracts being performed by the Company that are accounted for on a percentage-of-completion basis. The Company believes that its allowance for doubtful accounts is sufficient based on past experience and the Company's credit standards. The Company generally requires international customers to secure their obligations by letter of credit. The amount of $127,000 included at October 31, 1996 as other receivables pertains to the amount due the Company in connection with the sale of a Company owned storage facility. Inventory levels of materials and work-in-process, net of progress payments and reserves were $6,981,000 at October 31, 1996 and $6,527,000 at July 31, 1996, representing an increase of $454,000. This increase was primarily due to the additional inventory required to address the increased backlog at October 31, 1996. The Company generally operates on a job-order cost basis, that is, costs are incurred as work-in-process inventory for specific contracts or "jobs" and, accordingly, inventory levels will vary as a function of the status of the Company's order backlog. The Company does have some product lines which require a more competitive response to customers requirements and require the company to provide for a level of "off-the-shelf" equipment. The only other general inventory that the Company maintains is for basic components which are common for most of its products. Accounts payable increased by $393,000, from July 31, 1996 to October 31, 1996, primarily as a result of higher sales and the timing of the purchases. Investing activities used $97,000 of cash. The Company used $162,000 of cash for principal payments of long-term debt and the Company received $65,000 as proceeds from the exercise of employee incentive stock options. In October 1996, the Company sold a storage facility it owned for approximately $127,000. The Company determined that this facility was no longer needed. The Company recognized a $72,000 profit from the sale which is included as other income. The sales price of approximately $127,000 is included in accounts receivable as the cash was received in mid November. From time to time the Company utilizes short-term bank financing to fund its working capital requirements. At the present time, the Company has a $4.5 million credit facility with a financial institution. The line, which bears interest at 1% over the prime rate, is to be secured at the time of borrowing by collateral satisfactory to the financial institution. This credit facility expires on January 31, 1997. The Company is presently negotiating with financial institutions for a future facility. Additionally the Company has obtained a preliminary $1 million commitment from the Export-Import Bank of the United States, for a guarantee under the Working Capital Guarantee Program. This program provides to the lender, a 90% guarantee on qualifying loans made to the Company for export related contracts. This line is presently being finalized with the lender. The Company has in the past and continues to place a high emphasis on cash collections as well as seeking progress and advance payments on contracts when appropriate. The Company's cash balances may fluctuate from time to time due to the timing of contract deliveries and collection cycles. The Company believes that its current cash position, funds generated from operations and funds available from its current credit facility, collectively, would be adequate to meet the Company's cash requirements. 10 The Company's cash investments consist of highly liquid interest bearing commercial grade securities and certificates of deposit. 11 PART II ------- OTHER INFORMATION ----------------- Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibit 11.0 The following exhibit is annexed hereto: Computation of Earnings (Loss) per Common Share - Page 14 12 Exhibit 11.0 COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES ------------------------------------------------- COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE ----------------------------------------------- (Unaudited) Three Months Ended Three Months Ended October 31, October 31, 1996 1995 ---- ---- Net income (loss) $ 81,000 $ (186,000) - ---------------- ---------- ---------- Computation of weighted average number of common equivalent shares outstanding during the period: Weighted average number of common shares 2,637,384 2,605,344 Weighted average shares assumed to be issued upon exercise of common stock option --- --- Less Treasury Stock (15,000) (15,000) ---------- ---------- Weighted average number of common and common equivalent shares outstanding during the period 2,622,384 2,590,344 ---------- ---------- Income (loss) per share: $ .03 $ (.07) - ------------------------ ---------- ---------- 13 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. COMTECH TELECOMMUNICATIONS CORP. -------------------------------- (Registrant) Date: December 13, 1996 By: s/Fred Kornberg ----------------------------- Fred Kornberg Chairman of the Board Chief Executive Officer and President Date: December 13, 1996 By: s/J. Preston Windus, Jr. ---------------------------- J. Preston Windus, Jr. Chief Financial Officer Vice President and Secretary 14 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED FINANCIAL STATEMENTS FORM 10-Q 10/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS JUL-31-1997 AUG-01-1996 OCT-31-1996 1187 0 4480 28 6981 12754 14053 10266 16906 4768 0 263 0 0 10122 16906 5188 5188 3807 5107 0 0 67 86 5 81 0 0 0 81 .03 .03
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