-----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, Dn6XJKA2tWhqFDuMw7KBBiLoUgEcVqfPfMCw0v33FkYAuHP5dK/0VlFIfPX2Q4Hy 6bjtdBifkHeuygt2K/vFmQ== 0000950134-97-005589.txt : 19970801 0000950134-97-005589.hdr.sgml : 19970801 ACCESSION NUMBER: 0000950134-97-005589 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970627 FILED AS OF DATE: 19970731 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-15277 FILM NUMBER: 97648808 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 ENDED JUNE 27, 1997 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 June 27, 1997 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 JUNE 27, 1997, THERE WERE 5,062,538 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 JUNE 27, 1997 PART I - FINANCIAL INFORMATION Item 1. Financial Statements - (Unaudited) Condensed Consolidated Balance Sheets - June 27, 1997 and September 30, 1996 Condensed Consolidated Statements of Income - Three months ended June 27, 1997 and June 28, 1996 Condensed Consolidated Statements of Income - Nine months ended June 27, 1997 and June 28, 1996 Condensed Consolidated Statements of Cash Flows - Nine months ended June 27, 1997 and June 28, 1996 Notes to Condensed Consolidated Financial Statements - June 27, 1997 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K SIGNATURE 3 VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts)
June 27 September 30 1997 1996 ----------- ------------ ASSETS (Unaudited) * CURRENT ASSETS: Cash and equivalents $ 1,847 $ 17,396 Accounts receivable, net 41,199 21,136 Inventories 24,160 15,626 -------- -------- 67,206 54,158 PROPERTY AND EQUIPMENT, at cost 28,626 22,947 Less accumulated depreciation (12,304) (10,520) -------- -------- 16,322 12,427 GOODWILL, less accumulated amortization of $902 and $632 12,493 4,785 OTHER ASSETS 1,494 604 -------- -------- TOTAL ASSETS $ 97,515 $ 71,974 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 7,544 $ 4,615 Accrued compensation 2,196 3,024 Other accrued liabilities 8,273 4,017 Customers' advances 2,898 1,737 Income taxes payable 574 1,281 Current portion of long-term debt 2,093 -- -------- -------- 23,578 14,674 ACQUISITION INDEBTEDNESS 303 875 LONG-TERM DEBT - less current portion 1,183 -- DEFERRED INCOME TAXES 1,004 951 COMMITMENTS AND CONTINGENCIES -- -- SHAREHOLDERS' EQUITY: Common stock, $.10 par value, 20,000,000 shares authorized, 5,235,751 and 4,661,402 shares issued 524 466 Capital in excess of par value 35,148 24,806 Retained earnings 37,938 32,858 Treasury stock, at cost, 173,213 shares and 222,346 shares (2,119) (2,733) Translation adjustment (44) 77 -------- -------- 71,447 55,474 -------- -------- TOTAL LIABILITIES AND EQUITY $ 97,515 $ 71,974 ======== ========
* The balance sheet at September 30, 1996 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 per share amounts)
Three Months Ended June 27 June 28 1997 1996 -------- -------- SALES $ 23,266 $ 19,109 COSTS AND EXPENSES: Cost of sales 16,640 13,997 Research and development 964 705 Marketing 1,181 1,007 General and administrative 1,929 1,364 -------- -------- 20,714 17,073 -------- -------- OPERATING INCOME 2,552 2,036 OTHER INCOME (EXPENSE): Income from investments 208 160 Interest expense (36) (26) -------- -------- INCOME BEFORE INCOME TAXES 2,724 2,170 Provision for income taxes 863 586 -------- -------- NET INCOME $ 1,861 $ 1,584 ======== ======== EARNINGS PER SHARE $ .38 $ .34 ======== ======== AVERAGE SHARES AND EQUIVALENT SHARES OUTSTANDING 4,902 4,650 ======== ========
2 5 VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except per share amounts)
Nine Months Ended June 27 June 28 1997 1996 -------- -------- SALES $ 63,382 $ 57,306 COSTS AND EXPENSES: Cost of sales 45,431 41,898 Research and development 2,412 2,374 Marketing 3,454 2,982 General and administrative 5,224 4,221 -------- -------- 56,521 51,475 -------- -------- OPERATING INCOME 6,861 5,831 OTHER INCOME (EXPENSE): Income from investments 614 494 Interest expense (85) (78) -------- -------- INCOME BEFORE INCOME TAXES 7,390 6,247 Provision for income taxes 2,310 1,810 -------- -------- NET INCOME $ 5,080 $ 4,437 ======== ======== EARNINGS PER SHARE $ 1.07 $ .96 ======== ======== AVERAGE SHARES AND EQUIVALENT SHARES OUTSTANDING 4,741 4,642 ======== ========
3 6 VERTEX COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Nine Months Ended June 27 June 28 1997 1996 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES $ 536 $ 875 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (3,425) (2,110) Acquisition of TIW Systems Inc., net of cash acquired (7,621) -- -------- -------- (11,046) (2,110) CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock -- (436) Payment for business purchased in fiscal 1995 (709) (438) Proceeds from long-term debt 2,128 -- Repayment of debt (6,945) -- Proceeds from exercise of stock options 487 131 -------- -------- (5,039) (743) DECREASE IN CASH AND EQUIVALENTS (15,549) (1,978) CASH AND EQUIVALENTS: At beginning of period 17,396 14,870 -------- -------- AT END OF PERIOD $ 1,847 $ 12,892 ======== ========
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, 1996. NOTE B - ACCOUNTS RECEIVABLE (IN THOUSANDS) Accounts receivable consist of the following elements:
June 27 September 30 1997 1996 ------- ------------ Accounts Receivable $26,647 $18,266 Unbilled Costs and Related Profits 14,552 2,870 ------- ------- $41,199 $21,136 ======= =======
NOTE C - INVENTORIES (IN THOUSANDS) The components of inventory consist of the following:
June 27 September 30 1997 1996 ------- ------------ Raw Materials $ 8,852 $ 5,854 Work-In-Process 11,953 7,979 Finished Goods 3,355 1,793 ------- ------- $24,160 $15,626 ======= =======
NOTE D - LONG-TERM DEBT In December 1996, the Company initiated a credit line through its German subsidiary and borrowed 2 million German marks (approximately $1.2 million) from a bank. The debt is to be repaid in 24 monthly installments with accrued interest charged at 4.7 percent per annum. Repayment began in January 1997. Management subsequently increased the credit facility to 2.5 million German marks. 5 8 In June 1997, the Company established an unsecured bank line of credit for $15 million which includes a $5 million sub-limit for issuance of stand-by letters of credit. Terms of the credit line, which matures in June 1999, require the Company to maintain certain financial ratios. Principal advances bear interest at LIBOR plus 1.5 percent and unused credit line fees are .25 percent. As of June 27, 1997, principal advances were $1 million and issued stand-by letters of credit totaled $266,000. The Company intends to repay the principal advanced within the next twelve months and therefore has classified the advance as a current liability. In connection with the acquisition of TIW Systems, Inc. (see note F), the Company assumed a bank note payable in the amount of $510,000 that is secured by certain real property. The note is payable in monthly installments of $7,300, plus interest at 9.5 percent, with the balance due November 2000. NOTE E - NEW ACCOUNTING STANDARD In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 "Earnings per Share" which is effective for the Company's fiscal 1998 financial statements. This new standard simplifies the method for computing earnings per share ("EPS") whereas the Company will report basic EPS without the effect of any outstanding potentially dilutive stock options and diluted EPS with the effect of those outstanding stock options that are potentially dilutive. Had the Company adopted the provisions of SFAS No. 128 beginning with the first quarter of fiscal 1997, basic EPS for the nine months ended June 27, 1997 would have been $1.13 per share and diluted EPS would have been $1.07. NOTE F - ACQUISITION Effective June 11, 1997, the Company acquired all of the outstanding common stock of TIW Systems, Inc. ("TIW"), a California corporation, for cash of $7.9 million, 574,349 shares of the Company's common stock and approximately $.5 million of direct acquisition costs. TIW designs and manufactures products principally used in the satellite communications industry. The acquisition was accounted for under the purchase method of accounting. The excess of the purchase price over the fair value of assets acquired of approximately $8 million will be amortized over 15 years using the straight-line method. The purchase price was allocated on the basis of the estimated fair value of the assets acquired and liabilities assumed as follows:
(In thousands) Assets Acquired Fair value of tangible assets acquired $ 26,173 Goodwill 7,978 Purchase Consideration Cash paid to selling shareholders (7,893) Fair value of Vertex's stock exchanged (10,528) -------- Liabilities assumed $ 15,730 ========
TIW's results of operations are included in the Company's consolidated financial statements from the effective date of the acquisition. 6 9 The following unaudited pro forma information presents the consolidated results of operations as if the effective date of the acquisition occurred on the beginning of each of the periods presented after giving effect to certain adjustments which include amortization of goodwill, reduction of investment income, issuance of common stock, and the related tax effects. The pro forma information does not purport to be indicative of the results that would have been obtained if the acquisition had been effected as of the date indicated above or that may be obtained in the future.
(In thousands, except per share amounts) Nine Months Ended June 27 June 28 1997 1996 ------- ------- Sales $86,512 $92,699 Net income 2,943 3,599 Earnings per share .56 .69
7 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS The Company completed the acquisition of TIW Systems, Inc. ("TIW"), headquartered in Santa Clara, California, effective June 11, 1997. TIW is engaged in the design, manufacture, and support of telecommunications equipment and systems used in satellite and deep space communications, including receiving telemetry from, tracking, commanding and monitoring of satellites. As a result of the acquisition, management expects fiscal 1997 consolidated sales to increase by approximately $8 to $10 million. Sales increased by 22 percent and 11 percent in the third quarter and the nine-month period ended June 27, 1997 as compared to the same periods one year earlier, respectively. The third quarter sales increase was caused by the inclusion of TIW's operations as of the effective date of the acquisition and increased product demand, while higher sales for the nine-month period were largely due to increased product demand. Spending on research and development in the third quarter of fiscal 1997 was up 37 percent over the comparable period, and during the nine-month period of fiscal 1997, spending increased only 2 percent over the same period in fiscal 1996. The increased spending experienced in the third quarter reflects efforts associated with development work on certain new products in the small antenna category and the inclusion of TIW's operating results. General & administrative and marketing expenses increased 31 percent and 20 percent over the comparable quarter and nine-month period, respectively, because of increased staffing levels and the addition of TIW's operating results. The effective tax rate for fiscal 1997 is lower than the prescribed statutory rates mainly due to tax incentives available from export shipments and the favorable impact of interest income from certain investments exempt from federal taxation. 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 of products, 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. 8 11 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 Since September 30, 1996, the balance of cash and equivalents declined by $15.5 million primarily due to the TIW acquisition. Cash of $7.6 million was used in June for the purchase acquisition and subsequent to the purchase date, the Company repaid approximately $6.6 million of debt previously incurred by TIW. Cash of $3.4 million was used during the first nine months of fiscal 1997 to purchase property and equipment. Part of this expenditure was for a building containing 37,000 square feet of manufacturing and office space situated on 3 acres of land located near the Company's Kilgore, Texas facility. Including renovation, total cost of the facility amounted to $800,000. The facility accommodates the manufacturing of certain antenna components that were previously purchased and allows for expanded production capacity of the Company's DMK (Deployable Mobile Ku-Band) antenna product line. During the nine months ended June 27, 1997, the Company established two separate bank credit lines: (1) in December 1996, the Company borrowed 2 million German marks (approximately $1.2 million) from a German bank and, in June 1997, revised the credit line to allow for working capital principal advances of up to 2.5 million German marks; and, (2) in June 1997, the Company established a $15 million credit facility through a domestic bank which allows for up to $10 million of working capital financing and $5 million for issuance of stand-by letters of credit. As of the end of the third quarter, $1 million was advanced under this credit line. 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. 9 12 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit 27 - Financial Data Schedule (b) Form 8-K: The Company filed a current report on Form 8-K, dated May 9, 1997, regarding the then pending acquisition of TIW Systems, Inc. covering Items 2 and 7 therein. This report was subsequently amended on Form 8-K/A, dated June 26, 1997, amending Item 2 and confirming the consummation of the acquisition of TIW Systems on June 11, 1997. 10 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. VERTEX COMMUNICATIONS CORPORATION (Registrant) Date: July 31, 1997 /s/ J. D. Carter ------------------ ---------------------------------- J. D. Carter Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) 11 14 INDEX TO EXHIBITS EXHIBIT NUMBER 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 NINE MONTHS ENDED JUNE 27, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1997 OCT-01-1996 JUN-27-1997 1,847 0 41,610 411 24,160 67,206 28,626 12,304 97,515 23,578 0 0 0 524 70,923 97,515 63,382 63,382 45,431 56,521 0 0 85 7,390 2,310 5,080 0 0 0 5,080 1.07 1.07
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