<PAGE>
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, 1995
( ) 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.
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(Exact name of registrant as specified in its charter)
Delaware 11-2139466
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
105 Baylis Road, Melville, New York 11747
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(Address of principal executive offices) (Zip Code)
(516) 777-8900
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(Registrant's telephone number, including area code)
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(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 - 2,605,344 shares outstanding as
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of 10/31/95.
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<PAGE>
-2-
COMTECH TELECOMMUNICATIONS CORP.
--------------------------------
INDEX
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Page
No.
----
PART I FINANCIAL INFORMATION
Consolidated Balance Sheets - 3
October 31, 1995 (unaudited) and
July 31, 1995
Consolidated Statements of Operations - 4
Three Months Ended October 31, 1995 and 1994
(unaudited)
Consolidated Statements of Cash Flows 5
Three Months Ended October 31, 1995 and 1994
(unaudited)
Notes to Consolidated Financial Statements 6-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II OTHER INFORMATION 12
Signature Page 13
Exhibit 11.0 Computation of Loss Per Common Share 14
<PAGE>
-3-
PART I
------
FINANCIAL INFORMATION
---------------------
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
October 31, July 31,
1995 1995
------------ ----------
(unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,686,000 $ 2,019,000
Restricted cash 237,000 25,000
Marketable investment securities 275,000 275,000
Accounts receivable, less allowance
for doubtful accounts of $58,000 at
October 31, 1995 and $137,000 at
July 31, 1995 4,559,000 4,490,000
Inventories, net 5,706,000 5,011,000
Prepaid expenses and other current
assets 177,000 286,000
------------ ------------
Total current assets 12,640,000 12,106,000
Property, plant and equipment, net 4,166,000 4,212,000
Other assets 445,000 465,000
------------ ------------
Total Assets $ 17,251,000 $ 16,783,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt
(including payable to related party of
$326,000 at October 31, 1995 and $319,000
at July 31, 1995) $ 587,000 $ 591,000
Notes payable 250,000 250,000
Accounts payable 2,221,000 1,894,000
Accrued expenses and other current
liabilities 2,054,000 1,690,000
------------ ------------
Total current liabilities 5,112,000 4,425,000
------------ ------------
Long-term debt, less current installments
(including payable to related party of
$1,778,000 at October 31, 1995 and
$1,862,000 at July 31, 1995) 2,208,000 2,277,000
------------ ------------
Total Liabilities 7,320,000 6,702,000
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, 2,605,344 shares at October
31, 1995 and July 31, 1995 261,000 261,000
Additional paid-in capital 22,230,000 22,230,000
Accumulated deficit (11,857,000) (11,671,000)
------------ ------------
10,634,000 10,820,000
Less:
Treasury stock (15,000 shares) (180,000) (180,000)
Deferred compensation expense (517,000) (553,000)
Unrealized loss on securities (6,000) (6,000)
------------ ------------
9,931,000 10,081,000
------------ ------------
Commitments and contingencies
$ 17,251,000 $ 16,783,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
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COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
October 31,
(Unaudited)
--------------------------
<S> <C> <C>
1995 1994
---------- ----------
Net sales $4,456,000 $2,942,000
---------- ----------
Operating costs and expenses:
Cost of sales 3,142,000 2,091,000
Selling, general and
administrative 1,204,000 1,136,000
Research and development 235,000 185,000
---------- ----------
Total operating costs and
expenses 4,581,000 3,412,000
---------- ----------
Operating loss (125,000) (470,000)
Other expenses (income):
Interest expense 71,000 70,000
Interest income (17,000) (50,000)
---------- ----------
Loss before provision for income
taxes (179,000) (490,000)
Provision for income taxes 7,000 4,000
---------- ----------
Net loss $ (186,000) $ (494,000)
========== ===========
Loss per share $ (.07) $ (.19)
========== ===========
Weighted average number of common and
common equivalent shares outstanding 2,590,344 2,590,344
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
-5-
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-------------------------
(unaudited)
<S> <C> <C>
1995 1994
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (186,000) $ (494,000)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 236,000 211,000
Amortization of deferred compensation 36,000 36,000
Changes in assets and liabilities:
Accounts receivable (69,000) 1,022,000
Inventories (695,000) (831,000)
Prepaid expenses and other current
assets 109,000 83,000
Other assets - (30,000)
Accounts payable 327,000 (336,000)
Accrued expenses and other current
liabilities 364,000 (117,000)
---------- ----------
Net cash provided by (used in)
operating activities 122,000 (456,000)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (100,000) (79,000)
Net proceeds of sales (purchases) of
marketable securities - 338,000
---------- ----------
Net cash (used in) provided by
investing activities (100,000) 259,000
---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt (143,000) (119,000)
---------- ----------
Net cash used in financing activities (143,000) (119,000)
---------- ----------
Net decrease in cash and cash equivalents (121,000) (316,000)
Cash and cash equivalents at beginning of
period 2,044,000 505,000
---------- ----------
Cash and cash equivalents at end of period $1,923,000 $ 189,000
========== ==========
Supplemental cash flow disclosure:
- ---------------------------------
Cash paid during the period for:
Interest $ 71,000 $ 70,000
Income taxes $ 7,000 $ 0
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
-6-
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) General
The accompanying consolidated financial statements for the three months ended
October 31, 1995 and 1994 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, 1995 are not necessarily indicative of the results of operations to
be expected for the full year.
(2) Marketable Investment Securities
At October 31, 1995, 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:
<TABLE>
<CAPTION>
October 31, July 31,
1995 1995
---------- ----------
<S> <C> <C>
Accounts receivable from commercial
customers $3,709,000 $3,368,000
Unbilled receivables (including
retainages) on contracts-in-progress 746,000 920,000
Amounts receivable from the United
States Government and its agencies 162,000 339,000
---------- ----------
4,617,000 4,627,000
Less allowance for doubtful accounts 58,000 137,000
---------- ----------
Accounts receivable, net $4,559,000 $4,490,000
========== ==========
</TABLE>
<PAGE>
-7-
(4) Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1995 1995
----------- ----------
<S> <C> <C>
Raw materials and components $1,398,000 $1,437,000
Work-in-process 5,254,000 4,234,000
---------- ----------
6,652,000 5,671,000
Less:
Progress payments 355,000 93,000
Inventory reserves 591,000 567,000
---------- ----------
Inventories - net $5,706,000 $5,011,000
========== ==========
</TABLE>
(5) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the
following:
<TABLE>
<CAPTION>
October 31, July 31,
1995 1995
---------- ----------
<S> <C> <C>
Customer advances and deposits $ 497,000 $ 321,000
Accrued wages and benefits 560,000 461,000
Accrued commissions 585,000 401,000
Other 412,000 $ 507,000
---------- ----------
$2,054,000 $1,690,000
========== ==========
</TABLE>
(6) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
October 31, July 31,
1995 1995
----------- ----------
<S> <C> <C>
Obligations under capital leases $2,795,000 $2,868,000
Less current installments 587,000 591,000
---------- ----------
$2,208,000 $2,277,000
========== ==========
</TABLE>
(7) Income Taxes
For the three months ended October 31, 1995 and 1994, the provision for income
taxes was $7,000 and $4,000, respectively.
The provision for income taxes included in the accompanying consolidated
financial statements of operations consisted entirely of estimated state and
local income tax.
<PAGE>
-8-
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at July 31, 1995 are presented below. There
are no temporary differences that give rise to deferred tax liabilities.
<TABLE>
<CAPTION>
Deferred tax asset:
<S> <C>
Allowances for doubtful accounts receivable $ 47,000
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax
Reform Act of 1986 452,000
Plant and equipment, principally due to capitalized
interest and differences in depreciation 186,000
Compensated absences, principally due to accrual
for financial reporting purposes 195,000
Deferred compensation 94,000
Net operating loss carryforwards 4,294,000
Investment tax credit carryforwards 440,000
Alternative minimum tax credit carryforwards 87,000
----------
Total gross deferred tax assets 5,795,000
Less valuation allowance (5,795,000)
----------
Net deferred tax assets $ -
==========
</TABLE>
The valuation allowance for deferred tax assets as of July 31, 1995 was
$5,795,000. 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.
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. Taxable loss for the quarter ended October
31, 1995 was approximately $250,000. 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.
<PAGE>
-9-
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,
- ------------------------------------------------------------------------------
1995 AND OCTOBER 31, 1994
- -------------------------
Net Sales. Net sales were $4,456,000 and $2,942,000 for the three months ended
October 31, 1995 and 1994, respectively, representing an increase of $1,514,000,
or 51.5%. This was due primarily to the higher level of sales at the Comtech
Communication Corp. subsidiary which was formed in February 1994 and which had
not commenced significant levels of shipments of products until the latter part
of fiscal 1995.
Gross Margin. Gross profit was $1,314,000 or 29.5% of net sales for the three
month period of fiscal 1996 compared to $851,000 or 28.9% for the same period in
fiscal 1995. The increase in gross profits of $463,000 was due primarily to the
increase in sales.
Selling, General and Administrative. Selling, general and administrative
expenses were $1,204,000 or 27% of net sales for the three month period in
fiscal 1996 compared to $1,136,000 or 38.6% of net sales for the same period in
fiscal 1995, representing an increase of $68,000 and a decrease of 11.6% as a
percentage of these expenses to net sales. This decreased percentage was due
primarily to the higher level of sales at the Comtech Communication Corp.
subsidiary, without a proportional increase in selling, general and
administrative expenses.
Research and Development. Research and development expenses were $235,000 and
$185,000 for the three months ended October 31, 1995 and 1994, respectively,
representing an increase of $50,000, or 27%. This increase was due to higher
product development costs at the Comtech Communications Corp. subsidiary and
continued product improvements on our antenna products.
Operating Loss. As a result of the foregoing factors, the Company had an
operating loss of $125,000 for the three months ended October 31, 1995 compared
to a $470,000 operating loss for the comparable prior period.
Interest Expense. Interest expense was $71,000 and $70,000 for the three months
ended October 31, 1995 and 1994, respectively. Interest expense for both years
was attributable largely to interest associated with the Company's capital lease
obligations. There was no borrowing against the Company's bank line of credit
in either period.
Interest Income. Interest income was $17,000 and $50,000 for the three months
ended October 31, 1995 and 1994, respectively. This decrease was due primarily
to the decrease in the amount of cash available to invest in the fiscal 1996
period.
<PAGE>
-10-
Provision for Income Taxes. The provision for income taxes was $7,000 and
$4,000 for the three months ended October 31, 1995 and 1994, 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 the losses incurred. 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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the three month period ended October 31, 1995, the Company's cash and cash
equivalent position decreased by $121,000 from $2,044,000 at July 31, 1995 to
$1,923,000 at October 31, 1995.
Operating activities provided $122,000 as a result of a net loss as adjusted for
depreciation and other non-cash charges, an increase in accounts receivable and
inventories offset by a decrease in prepaid expenses and other current assets
and an increase in accounts payable and other current liabilities.
Accounts receivable were $4,559,000 at October 31, 1995 as compared to
$4,490,000 at July 31, 1995 net of an allowance for doubtful accounts of $58,000
at October 31, 1995 and $137,000 at July 31, 1995. Of these amounts $3,813,000
and $3,570,000 represented net amounts due from customers for products and
services rendered as of October 31, 1995 and July 31, 1995, respectively, and
the balances of $746,000 and $920,000, respectively, represented unbilled
amounts for sales recorded on a percentage-of-completion basis as of such dates.
The portion of accounts receivable represented by unbilled accounts receivable
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.
Inventory levels of materials and components and work-in-process, net of
progress payments and reserves were $5,706,000 and $5,011,000 at October 31,
1995 and July 31, 1995, respectively. This increase was due primarily to the
additional inventory required to address the increased backlog at October 31,
1995 which was $11,713,000 as compared to $10,242,000 at July 31, 1995. 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
<PAGE>
-11-
basic components which are common for most of its products.
Accounts payable increased by $327,000, primarily as a result of the increased
purchases needed for the higher inventory level.
Accrued expenses and other current liabilities increased by $364,000 as a result
of increased advances and deposits received from customers, additional accrued
wages and benefits and increased commissions, which were partially offset by a
decrease in other expenses.
Investing activities used $100,000 of cash due to the purchase of capital
equipment needed to respond to increased operating levels.
Financing activities used $143,000 of cash for principal payments of long term
debt.
From time to time the Company utilizes short-term bank financing to fund its
working capital requirements. The Company has a $4.5 million credit facility
which expires on January 31, 1996. The facility is to finance working capital
requirements and is available for direct borrowing and standby letters of
credit. Direct borrowings under the line will bear interest at 1% over the
prime rate and is secured at the time of borrowing with collateral satisfactory
to the financial institution. There were no borrowings under the Company's
credit facility during the three months ended October 31, 1995. At October 31,
1995, the Company had letters of credit outstanding, secured by short-term
certificates of deposit in the amount of $237,000, representing the amount of
restricted cash.
The Company believes that its current cash position, funds generated from
operations and funds available from its current credit facility, collectively,
are adequate to meet the Company's cash requirements.
The Company's cash investments consist of highly liquid interest bearing
commercial debt obligations and U.S. Treasury obligations.
<PAGE>
-12-
PART II
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OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 11.
The following exhibit is annexed hereto:
Computation of Loss per Common Share
<PAGE>
-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 14, 1995 By: s/Fred Kornberg
--------------------------------
Fred Kornberg
Chairman of the Board
Chief Executive Officer
and President
Date: December 14, 1995 By: s/J. Preston Windus, Jr.
--------------------------------
J. Preston Windus, Jr.
Vice President, Chief Financial
Officer and Secretary
<PAGE>
-14-
EXHIBIT 11.0
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
-------------------------------------------------
COMPUTATION OF LOSS PER SHARE
-----------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------------------
1995 1994
---- ----
<S> <C> <C>
Net Loss $ (186,000) $ (494,000)
- -------- ========== ==========
Computation of weighted average
number of common equivalent
shares outstanding during the period:
Weighted average number of common
shares 2,605,344 2,605,344
Weighted average shares assumed
to be issued upon exercise of
common stock options - -
Less Treasury Stock (15,000) (15,000)
---------- ----------
Weighted average number of
common and common equivalent
shares outstanding during the
period 2,590,344 2,590,344
========== ==========
Loss per share: $ (.07) $ (.19)
- --------------- ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS 10-Q 10/31/95 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 1923
<SECURITIES> 275
<RECEIVABLES> 4617
<ALLOWANCES> 58
<INVENTORY> 5706
<CURRENT-ASSETS> 12640
<PP&E> 13809
<DEPRECIATION> 9643
<TOTAL-ASSETS> 17251
<CURRENT-LIABILITIES> 5112
<BONDS> 0
<COMMON> 261
0
0
<OTHER-SE> 9670
<TOTAL-LIABILITY-AND-EQUITY> 17251
<SALES> 4456
<TOTAL-REVENUES> 4456
<CGS> 3142
<TOTAL-COSTS> 4581
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> (179)
<INCOME-TAX> 7
<INCOME-CONTINUING> (186)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (186)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
