-----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, Qvg+IiwP0vbyiofBgfuOlG/w+jESgx7C3HY9SnGfuZs91s1g/TGv/s3QpmNKAHZz ERuOpXDcANrXICwPuNtzVQ== 0000950134-99-003623.txt : 19990507 0000950134-99-003623.hdr.sgml : 19990507 ACCESSION NUMBER: 0000950134-99-003623 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990402 FILED AS OF DATE: 19990506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VERTEX COMMUNICATIONS CORP /TX/ CENTRAL INDEX KEY: 0000780416 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 751982974 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14899 FILM NUMBER: 99612070 BUSINESS ADDRESS: STREET 1: 2600 N LONGVIEW ST STREET 2: PO BOX 1277 CITY: KILGORE STATE: TX ZIP: 75662 BUSINESS PHONE: 9039840555 10-Q 1 FORM 10-Q FOR QUARTER END APRIL 2, 1999 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 2, 1999 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: 0-15277 VERTEX COMMUNICATIONS CORPORATION (Exact name of Registrant as specified in its charter) TEXAS 75-1982974 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2600 N. LONGVIEW STREET, KILGORE, TEXAS 75662 (Address of principal executive offices and zip code) (903) 984-0555 (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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. AS OF APRIL 2, 1999, THERE WERE 5,065,984 SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK $.10 PAR VALUE. ================================================================================ 2 VERTEX COMMUNICATIONS CORPORATION TABLE OF CONTENTS TO FORM 10-Q FOR THE THREE MONTHS ENDED APRIL 2, 1999 PART I - FINANCIAL INFORMATION Item 1. Financial Statements - (Unaudited) Condensed Consolidated Balance Sheets - April 2, 1999 and September 30, 1998 Condensed Consolidated Statements of Income - Three months ended April 2, 1999 and April 3, 1998 Condensed Consolidated Statements of Income - Six Months Ended April 2, 1999 and April 3, 1998 Condensed Consolidated Statements of Cash Flows - Six months ended April 2, 1999 and April 3, 1998 Notes to Condensed Consolidated Financial Statements - April 2, 1999 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K SIGNATURE 3 VERTEX COMMUNICATONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
APRIL 2, 1999 SEPTEMBER 30, 1998 ------------- ------------------- ASSETS (Unaudited) * CURRENT ASSETS: Cash and equivalents $ 11,632 $ 11,239 Accounts receivable, net 36,690 39,239 Inventories 32,303 30,946 Deferred income taxes 296 270 --------- --------- 80,921 81,694 PROPERTY AND EQUIPMENT, AT COST 33,173 32,033 Less accumulated depreciation (18,050) (16,560) --------- --------- 15,123 15,473 GOODWILL, less accumulated amortization of $2,564 and $2,063 12,243 12,744 OTHER ASSETS 837 860 --------- --------- TOTAL ASSETS $ 109,124 $ 110,771 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,180 $ 5,987 Accrued liabilities 10,213 15,729 Customers' advances 5,001 3,286 Current portion of long-term debt 97 674 --------- --------- 21,491 25,676 LONG-TERM DEBT - less current portion 52 59 DEFERRED INCOME TAXES 826 826 COMMITMENTS AND CONTINGENCIES -- -- SHAREHOLDERS' EQUITY: Common stock, $.10 par value, 20,000,000 shares authorized, 5,235,751 shares issued 524 524 Capital in excess of par value 35,004 35,030 Retained earnings 53,735 50,119 Treasury stock, at cost, 169,767 shares and 118,073 shares (2,421) (1,491) Translation adjustment (87) 28 --------- --------- 86,755 84,210 --------- --------- TOTAL LIABILITIES AND EQUITY $ 109,124 $ 110,771 ========= =========
* The balance sheet at September 30, 1998 has been taken from audited financial statements at that date and condensed. 1 4 VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except share amounts)
THREE MONTHS ENDED APRIL 2, 1999 APRIL 3, 1998 ------------- ------------- SALES $ 30,926 $ 31,500 COSTS AND EXPENSES: Cost of sales 22,244 21,946 Research and development 1,754 1,598 Marketing 2,681 1,768 General and administrative 2,568 2,727 -------- -------- 29,247 28,039 -------- -------- OPERATING INCOME 1,679 3,461 OTHER INCOME (EXPENSE): Income from investments 123 130 Interest expense (12) (16) -------- -------- INCOME BEFORE INCOME TAXES 1,790 3,575 Provision for income taxes 495 1,128 -------- -------- NET INCOME $ 1,295 $ 2,447 ======== ======== EARNINGS PER SHARE Basic $ .25 $ .48 Diluted .25 .46 ======== ======== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic 5,101 5,100 Diluted 5,208 5,335 ======== ========
2 5 VERTEX COMMUNICATONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITIED) (In thousands, except share amounts)
SIX MONTHS ENDED APRIL 2, 1999 APRIL 3, 1998 ------------- ------------- SALES $ 62,931 $ 62,279 COSTS AND EXPENSES: Cost of sales 44,738 43,606 Research and development 3,059 3,038 Marketing 5,287 3,437 General and administrative 5,001 5,315 -------- -------- 58,085 55,396 -------- -------- OPERATING INCOME 4,846 6,883 OTHER INCOME (EXPENSE): Income from investments 222 207 Interest expense (52) (47) -------- -------- INCOME BEFORE INCOME TAXES 5,016 7,043 Provision for income taxes 1,400 2,243 -------- -------- NET INCOME $ 3,616 $ 4,800 ======== ======== EARNINGS PER SHARE Basic $ .71 $ .94 Diluted .69 .90 ======== ======== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING Basic 5,102 5,095 Diluted 5,231 5,331 ======== ========
3 6 VERTEX COMMUNICATONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS CASH FLOWS (UNAUDITIED) (In thousands)
SIX MONTHS ENDED APRIL 2, 1999 APRIL 3, 1998 ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES $ 3,952 $ 6,881 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (1,140) (1,351) CASH FLOWS FROM FINANCING ACTIVITIES: Payment for business purchased in fiscal 1995 (1,181) (302) Purchase of treasury stock (1,136) -- Repayment of debt (282) (730) Proceeds from exercise of stock options 53 141 Other 127 -- -------- -------- (2,419) (891) INCREASE IN CASH AND EQUIVALENTS 393 4,639 CASH AND EQUIVALENTS: At beginning of period 11,239 5,407 -------- -------- At end of period $ 11,632 $ 10,046 ======== ========
4 7 VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying 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. In the opinion of management, all the adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended September 30, 1998. NOTE B - INVENTORIES (IN THOUSANDS) The components of inventory consist of the following:
April 2 September 30 1999 1998 ------- ------------ Raw Materials $10,901 $ 8,638 Work-In-Process 16,152 15,427 Finished Goods 5,250 6,881 ------- ------- $32,303 $30,946 ======= =======
NOTE C - ACCOUNTS RECEIVABLE (IN THOUSANDS) Accounts Receivable were comprised of the following items:
April 2 September 30 1999 1998 ------- ------------ Accounts Receivable - Customers $26,273 $24,987 Unbilled costs and related profits 10,417 14,252 ------- ------- $36,690 $39,239 ======= =======
5 8 NOTE D - EARNINGS PER SHARE Basic earnings per share were computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share were computed by dividing net income by the sum of the weighted average number of shares outstanding and the number of equivalent shares assumed outstanding under the Company's stock-based compensation plans. The number of equivalent shares assumed outstanding were 107,000 and 235,000 during the second quarter of fiscal 1999 and 1998, respectively. The number of equivalent shares assumed outstanding were 129,000 and 236,000 during the first six months of fiscal 1999 and 1998, respectively. NOTE E - COMPREHENSIVE INCOME (IN THOUSANDS) In October, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income". This new accounting standard establishes standards for reporting and the display of "comprehensive income" which, for the Company, is the total of net income and foreign currency translation adjustments. Comprehensive income for the periods presented was as follows:
Six Months Ended April 2 April 3 1999 1998 ------- ------- Net income $ 3,616 $ 4,800 Foreign currency translation adjustment (115) 14 ------- ------- Comprehensive income $ 3,501 $ 4,814 ======= =======
6 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS In each of the past three fiscal years export sales were over 55 percent of total sales which illustrates the Company's reliance on business generated from foreign sources. The Company has been experiencing more intense competition internationally as customers delay, revise or even cancel projects that could normally provide added sales volume. Management expects this unfavorable trend to continue for at least over the near term or until such time when the international marketplace returns to more normal levels. The economic downturn has affected the Company by causing lower profit margins and loss of product orders. Sales for the three months and the six months ended April 2, 1999, were 2 percent lower and 1 percent higher, respectively, compared to the same periods last year. The Company has been able to maintain its sales volume by discounting products even though portions of the telecommunications market are somewhat depressed. Cost of sales in the second quarter of fiscal 1999 when expressed as a percent of sales increased by 2.2 percentage points over the comparable period principally due to sales price reductions of certain products. The six month period ended April 2, 1999 was also unfavorably impacted by these sales price reductions where cost of sales increased by 1.1 percentage points from the comparable period. The Company has been investing considerable amounts in the development of three separate size bolt-together antennas. These antennas are designed to eliminate the need for field optical alignment and thus offers customers a more cost effective product. In addition, the Company is developing a wide-band feed system specifically designed for use with the next generation satellites. Research and development spending during the second quarter of fiscal 1999 increased by 10 percent over the comparable period because of stepped-up product development. R & D spending for the six month period was flat as compared to last year's spending. The total of general & administrative and marketing expenses incurred during the second quarter and six month period ended April 2, 1999 increased by 17 percent and 18 percent over the same periods one year ago, respectively. This higher spending reflects the incremental costs associated with the Company's new U.S. operating division that was organized near the end of fiscal 1998 and the movement of expenses related to employees who were transferred from engineering in order to intensify the Company's marketing efforts. The effective tax rate for fiscal 1999 is lower than the prescribed statutory rates principally due tax incentives available from export shipments. 7 10 FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION GENERAL The Company's future operating results and financial condition may be affected by various trends and factors including general economic conditions, technology changes, product demand, product development, volume and mix of products sold, size and timing of individual orders booked, competition, market acceptance, availability of certain raw materials, rising costs for or unavailability of selected components, domestic and foreign government regulations and spending, or fluctuation in certain foreign currency exchange rates as related to the U.S. dollar. Due to the factors noted above, the Company's future earnings and stock price may be subject to fluctuation, particularly on a quarterly basis. Past business trends should not be used to anticipate future trends and historical performance should not be considered as a reliable indicator of future performance. Additionally, any shortfall in revenue or earnings from levels anticipated by securities analysts could have an immediate and significant adverse effect on the trading price of the Company's common stock. FORWARD-LOOKING STATEMENTS With the exception of historical information, certain matters discussed in this quarterly report are forward-looking statements that involve risks and uncertainties, including but not limited to, economic conditions, trends in the telecommunications industry, product acceptance and demand, competitive products and pricing, new product development, availability of competitive components and other risks indicated in this filing and prior filings of the Company with the Securities and Exchange Commission. FINANCIAL CONDITION Operating activities generated $4 million of cash during the first half of fiscal 1999 mainly due to net income of $3.6 million and lower accounts receivable, but partially offset by lower current liabilities and increased inventories. Financing activities consumed $2.4 million of cash in the first half of fiscal 1999. The Company used $1.1 million to repurchase 66,534 shares of the Company's common stock from the public market and $1.2 million was used for the final payment to the selling shareholders of Maxtech Inc. in accordance with the 1995 purchase agreement. Management believes that forecasted cash flows combined with the Company's favorable financial condition and available credit lines, will be sufficient to fund operations over the foreseeable future. The Company is not aware of any demands which are likely to affect liquidity in an adverse manner. 8 11 YEAR 2000 COMPLIANCE The Company is assessing and correcting the potential impact of the problem with computer software programs, operating systems, and equipment containing computer processing chips that are unable to properly interpret the upcoming calendar year 2000 and beyond. As this problem pertains to internal concerns, this process has involved identification, review, testing, and updating or replacing, in-house systems and equipment, beginning with the most significant through the least important. The costs associated with this effort have not been material and additional costs not yet incurred are expected to be immaterial to the Company. Management believes that the Company's significant systems and equipment that can be affected by improperly recognizing the date of the year 2000 and beyond are capable of operating properly and are year 2000 date compliant. A substantial portion of the Company's products sold over the past years and those products currently being offered for sale are earth station antennas which include drive motors, feed assemblies, and other mechanical components. The function of these products is not directly affected by the changing of a calendar date. Certain other of the Company's products, such as antenna controllers, operate by the use of embedded software and vendor-supplied electronic components that may be date sensitive. The majority of these products were designed so that the calendar date changing to 2000 and beyond will not hinder or affect their performance. There are, however, a limited number of products sold in prior years that could be affected by the year 2000 problem. The Company is in the process of contacting such customers and now offers an upgrade package to properly recognize the date and remedy the problem. The Company has sent questionnaires to certain third parties whose lack of readiness as related to year 2000 compliance could have a material adverse effect on the Company or its products. Management has been collecting and evaluating the questionnaires received. Based upon such responses to date, respondents assert that they are year 2000 compliant or they believe they will be timely compliant. The Company continues to receive and evaluate third party responses and follow-up with those third parties who have not responded. Management has been and is still expending efforts towards developing a contingency plan which contemplates temporary measures to alleviate disruption from year 2000 related failures, either from internal or by external sources. Central to development of a contingency plan is the identification of risks and related potential impact. The Company has not yet identified any such significant risks and consequently has not yet developed a comprehensive year 2000 contingency plan. In addition, the Company does not believe it is possible to ascertain all aspects of the year 2000 problem that may affect it, including those relating to efforts of customers, suppliers, or other third parties. Management, however, is committed to pursuing reasonable means to minimize exposure. Should the Company identify a significant risk related to a year 2000 perceived failure, management intends to develop a contingency plan. The foregoing discussion regarding year 2000 compliance, the Company's assessment, and the Company's state of readiness represent management's best estimate as to the reasonable steps it has taken and should take to achieve year 2000 compliance and minimize or eliminate possible related disruptions to operations. However, there can be no assurance that management's assessment 9 12 of the risks and potential problems is accurate, or that its actions and planned actions will timely resolve the problems inherent with year 2000 compliance. Therefore, the Company cannot be assured that the year 2000 problem will not materially affect operations or perhaps expose the Company to third party liability. Certain of the preceding statements related to year 2000 compliance issues are forward-looking and actual results could vary significantly from the Company's planned and anticipated results. The Company is relying on analyses and recommendations of informed employees and third parties in making the above forward-looking statements, which may prove to be inadequate or incomplete. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company maintains two foreign sales offices and operates a foreign subsidiary which are subject to the effects of fluctuations in foreign currency exchange rates. The sales offices are located in England and Singapore. Should the British pound currency or the Singapore dollar currency as related to the U.S. dollar turn materially unfavorable, the Company's marketing expenses could increase accordingly. The Company's operations located in Duisburg, Germany involve a complete operating entity. Daily operations (sales, costs and expenses, and income taxes) are conducted in its functional currency, the German mark. Should this currency as related to the U.S. dollar change in a material adverse manner, consolidated results of operations could be materially impacted. In addition, to the extent taxable income is generated by the German operations, the consolidated effective tax rate can be unfavorably impacted. The German statutory tax rate is approximately 50 percent compared to the present U.S. statutory tax rate of 34 percent on taxable income up to $10 million. The Company's general policy is to sell products manufactured or supplied by its domestic operations in the U.S. dollar currency. Products supplied by its German operations are sold in its functional currency. The Company has one sales contract that will be performed by a domestic subsidiary where payment will be made in the European Currency Unit. The Company has in place a forward exchange hedge contract equal to approximately U.S. $.6 million. The hedge contract should minimize exposure to an unfavorable foreign currency rate change. Should the exchange rate between the currencies suffer an adverse change of 10 percent, the effect on net income would not be material. The Company has not suffered any material losses or adverse effects due to currency rate changes in the British pound, the Singapore dollar, or the German mark relative to the U.S. dollar. 10 13 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders was held on January 26, 1999 in Kilgore, Texas. Of the 5,095,578 total shares entitled to vote, 4,483,575 shares or 88 percent were represented in person or by proxy at the meeting. The following matters were submitted to the shareholders in the meeting and approved by more than the requisite majority as shown below: (1) Election of seven directors to serve until the next annual shareholders meeting:
Votes Votes For Withheld --------- -------- J. Rex Vardeman 4,472,175 11,400 A. Don Branum 4,471,875 11,700 James D. Carter 4,472,575 11,000 Bill R. Womble 4,463,324 20,251 Donald E. Heitzman, Sr 4,464,170 19,405 Rein Luik 4,367,582 115,993 John G. Farmer 4,463,320 20,255
(2) Approval of an amendment to the 1995 Stock Compensation Plan. Voting on this matter was adjourned to and reconvened on until February 1, 1999. The results of voting to approve the proposed amendment to the 1995 Stock Compensation Plan were as follows: Shares Voted For: 2,866,296 Shares Voted Against: 1,271,710 Shares Abstaining: 25,010
(3) Ratification of the appointment of Arthur Andersen LLP as independent public accountants of the Company for the fiscal year ending September 30, 1999. Shares Voted For: 4,464,382 Shares Voted Against: 2,601 Shares Abstaining: 16,592
11 14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 27 - Financial Data Schedule (b) Form 8-K: The Company filed no reports on Form 8-K and none were required to be filed during the three months ended April 2, 1999. 12 15 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. VERTEX COMMUNICATIONS CORPORATION (Registrant) Date: May 6, 1999 /s/ J. D. Carter -------------------------------------------- J. D. Carter Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) 13 16 INDEX TO EXHIBITS
Exhibit No. Description - ----------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED APRIL 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS SEP-30-1999 APR-02-1999 11,632 0 36,690 0 32,303 80,921 33,173 18,050 109,124 21,491 0 0 0 524 86,231 109,124 62,931 62,931 44,738 58,085 0 0 52 5,016 1,400 3,616 0 0 0 3,616 .71 .69
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