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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended July 31, 1995 Commission file number 0-7928
COMTECH TELECOMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Delaware 3665 11-2139466
(State of Incorporation) Primary Standard Industrial (IRS Employer
(Classification Code) Identification No.)
105 Baylis Road, Melville, New York 11747
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (516) 777-8900
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share Shares Outstanding
Title of each class as of October 17, 1995
2,605,344
--------------------------------------------------
The Registrant hereby indicates by check mark whether it (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ____
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant (based upon the closing bid price quoted on NASDAQ) is approximately
$6,187,692 (as of October 17, 1995).
--------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the document listed below has been incorporated by
reference into the indicated Part of this Annual Report on Form 10-K:
Proxy Statement for Annual Part III
Meeting of Shareholders to be held
December 19, 1995
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PART I
ITEM 1. BUSINESS
GENERAL
Comtech Telecommunications Corp. (the "Company"), a Delaware corporation,
is principally engaged in the design, development, manufacture and installation
of high technology electronic products and systems. The Company's
communications products are used worldwide for voice, data, facsimile and video
transmissions at microwave frequencies in satellite, tropospheric scatter,
terrestrial line-of-sight and wireless telecommunications. The Company's solid
state high power amplifiers are used in electronic defense, electromagnetic
compatibility and susceptibility testing, wireless communications, and high
power test instrumentation applications. The Company sells its products
directly to end-users, as well as to subcontractors and prime contractors which
incorporate such products in full system installations.
The Company has been in operation since 1967 and currently has a product
line of over 200 products. It sells its products to many of the world's
providers of telecommunication services and users of high power electronic test
systems, including domestic and foreign common carriers and telephone companies,
defense systems, medical and automotive equipment producers, electromagnetic
compatibility and susceptibility system suppliers, oil and gas companies (for
communicating with offshore platforms) private and wireless networks,
broadcasters, cable television operators, utilities and municipal, state and
national governments. The Company works closely with customers and potential
customers to develop product lines in market niches where it believes that it
can become a leading supplier. It believes that this strategy is best effected
through decentralized subsidiaries and operating units that can respond quickly
to changing market and customer requirements.
The Company's products are based primarily on microwave technologies, with
the same basic technological concepts being applied across the Company's product
lines. In the last decade, the Company's products have increasingly
incorporated digital microwave technology. The Company believes its expertise
in satellite, troposcatter and wireless telecommunications and solid state high
power amplification provides a solid base for the development of future products
and services, including new instrumentation and communications products and
systems.
Comtech has four operating units, Comtech Antenna Systems, Inc. ("CASI"),
Comtech Communications Corp. ("CCC"), Comtech Microwave Products Corp. ("CMPC")
and Comtech Systems, Inc. ("CSI").
CASI is a supplier of antenna products used in satellite and troposcatter
communication systems. CCC, which was formed in February 1994, designs and
manufactures satellite communications products including frequency converters,
solid state power amplifiers, low noise amplifiers and satellite subsystems.
CMPC supplies state-of-the-art high power solid state amplifiers to meet the
needs of the electronic defense, wireless communications and high power test
instrument systems and state-of-the-art automated
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electromagnetic compatibility and susceptibility instrumentation systems. CSI
designs, manufactures and installs troposcatter, satellite and terrestrial line-
of-sight communications systems and equipment for defense and commercial
applications for communicating with offshore oil and gas platforms.
TELECOMMUNICATIONS OVERVIEW
Telecommunications Market. The demand for telecommunications is increasing
worldwide as emerging economies seek to modernize and as increasingly
information-intensive countries introduce new telecommunications services. The
telecommunications industry has expanded rapidly during the last decade due to
both technological advances and regulatory changes. Regulatory initiatives have
enhanced competition in telecommunications, thereby opening new markets and
providing incentives for the development of new products. Examples of these
changes include the development of facsimile communications, the assignment of
radio frequencies to cellular telephone services and the development of private
satellite networks. Advances in technology have lowered per-unit communications
costs, increased product reliability, and encouraged a proliferation of new and
enhanced communications products and services.
Transmission Technology Options. Customers for telecommunications
equipment must weigh the relative costs and advantages of the six presently
available transmission technologies: copper cable, fiber optic cable, high
frequency radio systems, wireless
microwave systems, tropospheric scatter systems and satellite systems. Rarely
is a complete communications network or system based solely on one of these
technologies. Transmission is normally routed through a combination of
technologies, each employed where most cost-effective. The Company's products
are used in satellite, tropospheric scatter and wireless microwave
communications.
. Copper cable, the traditional transmission medium most familiar to
consumers, is being replaced and supplemented by the other media,
particularly for high-volume and long distance transmissions where it
has substantial capacity, cost and reliability limitations.
. Fiber optic cable is best suited to high-volume, point-to-point,
short- or long-distance links where its advantages - capacity, quality
and security - justify the long lead time and high cost to equip and
install a network.
. High frequency radio systems ("HF") employ long wavelengths which are
propagated beyond line-of-sight distances either by surface waves
traveling along the earth's perimeter or by skywave reflection of the
transmitted waves off different layers of the ionosphere.
Communications using HF surface wave propagation are reliable to
distances of 300 miles and skywave propagation can support
communication ranges of from 50 to 6000 miles. Skywave propagation
is, however, subject to the variations in height and density of the
ionospheric layers. Such variations are diurnal, seasonal, and
cyclical, with the occasional added impact of solar flare disturbances
and magnetic storms. Improvements in modern technology and the use of
adaptive frequency
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management techniques that enhance propagation prediction have greatly
increased HF communication reliability and data throughput. HF radio
is used as a prime military and defense communications means for short
and medium range applications.
. Microwave communications systems, generally used for point-to-point
communications, employ signals with extremely short wave-lengths which
travel only in line-of-sight paths over relatively short distances,
generally under 30 miles, can be quickly and easily installed, require
relatively low initial capital investment, and can be upgraded and
expanded over time. There are a wide variety of microwave
communication systems offering different frequencies, modulation
techniques (analog or digital), and data transmission capacities.
. Tropospheric scatter microwave communication systems transmit signals
over distances from 30 to 400 miles by reflection of the transmitted
signals off the troposphere, an atmospheric layer located
approximately seven miles above the earth's surface. These systems,
which use microwave technology, are well suited for rapid introduction
of service in remote areas or where other communication alternatives
are unavailable because of terrain problems, such as large bodies of
water, mountains, etc. Such systems offer a high level of reliability
and security and are particularly suited to defense and commercial
voice and data communication applications. In addition, they have
special purpose point-to-point commercial applications, such as
communications to offshore gas and oil platforms and along pipelines
or railroads.
. Satellite communications systems have grown and diversified in
response to demand for efficient and accurate long-distance voice and
video communication and digital information exchange. In a satellite
communication system, information is relayed to and from microwave
transmitting and receiving stations on the ground by means of a low
earth orbit satellite or a geostationary satellite in an equatorial
orbit, generally 22,300 miles, above the earth's equator. Satellite
communication systems are particularly useful where long-range, high
capacity and high quality point-to-point or point-to-multipoint
communication is desirable. As few as three geostationary satellites
can provide global communications coverage. These systems, which use
microwave technology, are well suited for rapid introduction of
service in remote areas or where communication alternatives are
unavailable, such as mobile, shipboard or military applications.
Satellite systems require a sizeable initial capital investment by
service providers to build and launch. Once the satellites are in
orbit, however, there are substantial incentives to use this capacity,
which typically requires continued investment in satellite earth
stations.
AMPLIFIER TECHNOLOGY OVERVIEW
Included in the Company's products are solid state high power amplifiers.
Amplifiers are a class of electronic apparatus that reproduce signals with
greater power, current or voltage amplitude. Indispensable in the world of
signal processing, amplifiers can be as tiny
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as a microchip for a hearing aid or as massive as a multi-story building for
transmitting radio signals to submerged submarines. Although the majority of
amplifier applications are satisfied by solid-state transistor and integrated
circuit technology, vacuum tubes still play an important role in the very high
power microwave applications.
Amplifiers can be separated into three groups: DC Amplifiers, Audio
Frequency Amplifiers, and Radio Frequency Amplifiers. Each group can, in turn
be segregated into the general categories of Small Signal Amplifiers and the
higher power Large Signal Amplifiers. Small Signal Amplifiers in all three
groups employ solid-state technologies to create flexible, easily implemented
microelectronic building blocks, and are produced by established semiconductor
manufacturers as either catalog products or custom devices for special
applications specified by end-item products suppliers.
The Company's solid-state high power amplifiers are in the category of
Large Signal Amplifiers in the Radio Frequency Spectrum. Radio Frequency Large
Signal Amplifiers are used in telecommunications, defense systems and
instrumentation applications, where they are employed to amplify radio frequency
("RF") energy for the emission of signals. Other applications are as power
supply sources of RF energy for lasers and for the cyclotrons used in atomic
physics. Solid-state transistor technology dominates the field at output power
levels up to 3000 watts for radio frequencies up to 2000 Mhz. At higher
frequencies, electron tube technology continues to be the most economical means
of achieving high power at acceptable instantaneous bandwidths. For
applications that require both high power and narrow bandwidths, electron tubes
are still used at frequencies extending down to the commercial broadcast bands.
Because of their greater instantaneous bandwidths, greater reliability and
generally smaller size, however, solid-state amplifiers are constantly being
sought as replacements for vacuum tube amplifiers for all applications
throughout the useable frequency spectrum.
In telecommunications, solid-state high power amplifiers are used to
amplify signals for radiation from transmitting antennas in satellite or
wireless telecommunications systems. They are also used to amplify signals in
defense radar and electronic jamming systems. In the laboratory, solid-state
high power amplifiers are used to test the performance of high power microwave
and cellular electronic system components by simulating operating environment
conditions.
Solid-state high power amplifiers are also used in electromagnetic
compatibility and susceptibility testing. The proliferation of electronic
systems in products such as automobiles, computers, cellular telephones, radios,
televisions, medical equipment, sound amplifiers, aircraft and other products
has led to increasingly serious problems with electromagnetic interference.
Manufacturers, therefore, test these electronic systems for electromagnetic
compatibility and susceptibility. For example, such testing may be used to
determine whether the various electronic systems in a commercial aircraft are
likely to be affected by the use of laptop computers or video games by
passengers in flight.
NARRATIVE DESCRIPTION OF BUSINESS
The Company's product designs are based on both analog and digital
microwave technologies. Digital microwave technology can significantly enhance
performance. The
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Company has invested significant resources in developing its technological
expertise, and works closely with customers and potential customers to develop
product lines in market niches where it believes its technical expertise in
solid-state high power amplification and telecommunication technologies can
enable it to become a leading supplier.
The Company operates through subsidiaries, each of which maintains its own
sales, marketing, product development and manufacturing functions. The Company
believes that this organizational structure allows the key personnel of each
subsidiary, some of which are the founders of their subsidiaries, to be more
responsive to their particular markets and customers. Brief descriptions of the
operations of the Company's subsidiaries follow.
COMTECH ANTENNA SYSTEMS, INC. ("CASI")
CASI, located in St. Cloud, Florida, designs and manufactures a wide
variety of fiberglass and aluminum antennas for tropospheric scatter and
satellite communication applications, including distributed network programming,
cable and broadcast television, radio and other forms of information and
entertainment distribution. CASI designs antennas for specific types of
telecommunications systems and, typically, sells standardized products to
independent distributors, prime contractors and end user customers. CASI's
antenna product line includes fixed and mobile antenna systems and specialized
multi-beam satellite antenna systems that are capable of receiving signals
simultaneously from many independent satellites located up to 60 degrees apart.
COMTECH COMMUNICATIONS CORP. ("CCC")
CCC, located in Tempe, Arizona, designs and manufactures equipment used in
commercial and defense satellite communications applications with satellites
operating in the C, X and Ku-bands. The equipments include frequency up
converters (which convert the intermediate frequency ("IF") carrier to high
frequency transmit carrier, frequency down converters (which convert the higher
frequency transmit carrier to an IF carrier at the receive end), solid state
power amplifiers (which provide the final amplification of the transmit carriers
to a signal sufficient for transmission) in the C, X and Ku-frequency bands, and
low noise amplifiers (which amplify the transmit carrier at the receive end).
These products comprise a broad range of receiving and transmitting equipment
offering a variety of state-of-the-art technical capabilities with respect to
performance, degree of complexity and value.
COMTECH MICROWAVE PRODUCTS CORP. ("CMPC")
GOVERNMENT SYSTEM DIVISION ("GSD")
GSD, located in Melville, New York, designs and manufactures equipment for
satellite earth stations. GSD's products and services are marketed to agencies
of the United States and foreign governments, as well as other prime contractors
serving such end users. These products comprise a range of receiving and
transmitting equipment offering a variety of technical capabilities with respect
to both performance and degree of complexity. GSD's products include frequency
up and down converters, high power klystron tube amplifiers (which provide the
final amplification of the transmit carriers to a signal strength sufficient for
transmission) and control, monitoring and alarm components. GSD also supports
and
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services sophisticated cryogenically cooled low noise parametric amplifiers,
which are used in receiving down links of satellite telecommunication earth
stations and monitoring telemetry data systems from deep space probing vehicles.
POWER SYSTEMS TECHNOLOGY DIVISION ("PST")
PST, headquartered in Melville, New York, designs, develops and
manufactures solid state high power amplifiers for defense, communications, and
for instrumentation systems. It sells its products to domestic and foreign
commercial users, governmental agencies and prime contractors. The Company
believes that PST has emerged as an innovative supplier of solid state high
power amplifiers and related power processing equipment, which products also
replace amplifiers using vacuum tube systems. PST is extending its ability to
serve commercial wireless and electromagnetic compatibility and susceptibility
amplification markets.
SCIENTIFIC POWER SYSTEMS DIVISION ("SPS")
SPS, located in Melville, New York, designs, develops and manufactures
state-of-the-art automated electromagnetic compatibility and susceptibility
instrumentation equipments and systems for commercial and defense applications
incorporating solid state high power amplifiers manufactured by PST and high
power electron tube amplifiers manufactured by SPS, thereby producing an
instrumentation product line over a wide range of radio frequencies and power
levels. SPS's systems are expanding the Company's product line in the growing
electromagnetic compatibility and susceptibility instrumentation market.
COMTECH SYSTEMS, INC. ("CSI")
CSI, headquartered in St. Cloud, Florida, designs, manufactures and
installs telecommunication systems and equipment for domestic and international
applications. CSI supplies telecommunication systems incorporating equipment
manufactured by it, other Comtech subsidiaries and third parties. Currently, a
significant portion of CSI's sales are for tropospheric scatter communication
products and systems sold to oil and gas companies.
CSI's product line consists primarily of equipment for tropospheric scatter
and satellite systems and networks. CSI has a turnkey capability that ranges
from system and network planning through equipment and system training and
operation and maintenance programs. CSI's products and services are marketed to
oil and gas companies and other commercial users, foreign defense commands, and
other system prime contractors. The Company believes that CSI's products, which
employ digital transmission technology, offer high speed data benefits over the
traditional analog tropospheric scatter products offered by most of its
competitors.
SALES, MARKETING AND CUSTOMER SUPPORT
The Company's sales and marketing efforts are handled independently by each
subsidiary. The sales and marketing strategy of the Company's subsidiaries vary
with particular markets served, and include direct sales by the subsidiary's own
sales force (sales, marketing and engineering personnel), sales through
independent representatives, value-
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added resellers or a combination of the foregoing. Subsidiaries have also
entered into sales distribution agreements for certain products with
distributors. Unlike sales representatives, who merely find customers for the
Company on a commission basis, distributors purchase products from the Company
for resale. The Company intends to continue to expand its domestic and
international marketing efforts through both independent sales representatives
and distributors.
Relationships with customers are established and maintained by management,
technical and marketing personnel. The Company's strategy includes a commitment
to provide ongoing customer support for its systems and equipment. This support
involves providing direct access to engineering staff or trained technical
representatives to resolve technical or operational problems.
The Company's sales of tropospheric scatter communications, satellite
communications and solid state high power amplifier products internationally
represented approximately 37%, 39% and 62% of net sales in the fiscal years
ended July 31, 1995, 1994 and 1993, respectively. Although the percentage of
the Company's total net sales to international customers has declined over the
past three years, such sales are expected to increase due to the global
expansion of telecommunications and microwave instrumentation, particularly in
Asia, South America, the Middle East and Europe and the Company expects that
international sales will remain a substantial proportion of its total sales.
In fiscal 1995, there were no total sales to any one customer which
amounted to over 10% of the consolidated net sales. During fiscal 1994, sales
to one foreign customer amounted to $3,410,000, or 23% of consolidated net
sales. During fiscal 1993, sales to two foreign customers amounted to
$4,035,000 and $2,520,000, or 18% and 11% of consolidated net sales,
respectively.
International sales expose the Company to certain risks, including barriers
to trade, fluctuations in foreign currency exchange rates (which may make the
Company's products less price competitive), political and economic instability,
availability of suitable export financing, export license requirements, tariff
regulations, and other United States and foreign regulations that may apply to
the export of the Company's products, as well as the generally greater
difficulties of doing business abroad. The Company attempts to reduce the risk
of doing business in foreign countries by seeking contracts denominated in
United States dollars, advance payments and irrevocable letters of credit in its
favor.
Although the percentage of the Company's total net sales to agencies of the
United States or to contractors or subcontractors under contracts with United
States agencies has declined over the past five years, such sales remain
significant, accounting for approximately 14%, 17% and 18% of total net sales
for the fiscal years ended July 31, 1995, 1994 and 1993, respectively. These
sales are subject to various risks, regulatory provisions applicable to
government contracts, including, among other things, unpredictable reductions in
funds available for the Company's projects and contract termination at the
convenience of the government. Government contracts are generally less
profitable than contracts with private industry but typically provide progress
payment funding.
The Company attributes the decline in Government sales and orders
principally to
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reduced United States defense spending. The Company anticipates that United
States defense spending will remain at reduced levels for the foreseeable
future.
The Company's domestic sales represented approximately 49%, 44% and 20% of
net sales in the fiscal years ended July 31, 1995, 1994 and 1993, respectively.
Domestic sales are expected to increase due to the expansion of wireless and
satellite telecommunications, and microwave electromagnetic compatibility
instrumentation and the Company expects that domestic sales will remain a
substantial proportion of its sales.
There is no material effect on the Company's capital expenditures, earnings
or competitive position resulting from compliance with Federal, state or local
environment protection laws.
BACKLOG
The Company's backlog as of July 31, 1995 and 1994 was approximately
$10,242,000 and $5,003,000, respectively. Substantially all of the backlog as
of July 31, 1995 is expected to be recognized as sales during the fiscal year
ending July 31, 1996. The Company had received progress billings and advance
payments aggregating approximately $414,000 as of July 31, 1995 in connection
with orders included in the backlog at that date. Approximately 16% of that
backlog consisted of United States government contracts, subcontracts and
government funded programs, approximately 51% consisted of orders with foreign
customers and approximately 33% consisted of orders with domestic commercial
customers.
All of the contracts in the Company's backlog are subject to cancellation
at the convenience of the customer or for default in the event that the Company
is unable to complete the contract.
Variations in backlog from time to time are attributable in part to the
timing of the Company's preparation and submission of contract proposals, the
timing of contract awards and the delivery schedules on specific contracts. As a
result, management believes its backlog at any point in the fiscal year is not
necessarily indicative of the total sales anticipated for any particular future
period. New business orders for some of the Company's products may not be
reflected in the revenues of the Company for a year or more. CASI's business, as
well as a major portion of CMPC's and CCC's businesses, operate under a short
lead time and usually generate sales out of inventory.
MANUFACTURING
The Company's manufacturing operations consist principally of the assembly
and testing of electronic products designed by the Company and built by it from
purchased fabricated parts, printed circuits and electronic components and, in
the case of CASI, the casting of fiberglass antennas and the shaping of aluminum
antennas. The Company employs formal quality management programs and other
training programs, and expects to qualify its subsidiaries for the International
Standards Organization's (ISO 9000) quality procedure registration programs,
which is anticipated to be required in the future for product sales into the
European Community.
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The Company's ability to deliver its products to customers on a timely
basis is dependent in part upon the availability and timely delivery by
subcontractors and suppliers of the components and subsystems that are used by
the Company in manufacturing its products. Electronic components and raw
materials used in the Company's products are generally obtained from independent
suppliers. Some components are standard items and are available from a number
of suppliers. Others are manufactured to the Company's specifications by
subcontractors. The Company obtains certain components and subsystems from a
single source or a limited number of sources. The Company believes that most
components and equipment are available from existing or alternative suppliers
and subcontractors. A significant interruption in the delivery of such items
could have a material adverse effect on the Company's business and results of
operations.
RESEARCH AND DEVELOPMENT
The technology used in the Company's products is subject to rapid
development and frequent change, and the Company's business position is in large
part contingent upon the continuous refinement of its scientific and engineering
expertise and the development, either through internal research and development
or acquisitions of new or enhanced products and technologies.
Research and development expenses were $1,036,000, $760,000 and $314,000 in
the fiscal years ended 1995, 1994 and 1993, respectively, representing 6.3%,
5.1% and 1.4% of total net sales, respectively, for such periods.
A portion of the Company's research and development efforts is related to
specific contracts and is recoverable under such contracts, and such
expenditures are not included in research and development expenses for financial
reporting purposes. During the fiscal years ended July 31, 1995, 1994 and 1993,
the Company was reimbursed in the amounts of $382,000, $178,000 and $364,000,
respectively, representing 2.3%, 1.2% and 1.6%, respectively, of total net sales
by customers for such activities.
The Company obtains customer funding for research and development where
possible to adapt the Company's basic technology to specialized customer
requirements.
PATENTS AND LICENSES
Although the Company owns or holds licenses for a number of patents,
patents and licenses have been of substantially less significance in the
Company's business than have been its scientific and engineering know-how,
production techniques, the timely application of its technology and the design
development and marketing capabilities of its personnel. The Company relies on
the laws of unfair competition, restrictions in licensing agreements and
confidentiality agreements to protect such knowledge and techniques.
COMPETITION
The Company's business is highly competitive and characterized by rapid
technological change. In addition, the number of potential customers for the
Company's products is limited. The Company's growth and financial position
depends, among other
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things, on its ability to keep pace with such changes and developments and to
respond to the sophisticated requirements of an increasing variety of electronic
equipment users. Many of the Company's competitors are substantially larger,
have significantly greater financial, marketing and operating resources and
broader product lines than does the Company. A significant technological
breakthrough by others, including smaller competitors or new companies, could
have a material adverse effect on the Company's business. In addition, certain
of the Company's customers have technological capabilities in the Company's
product areas and could choose to replace the Company's products with their own.
The Company believes that competition in its markets is based primarily on
price, product performance, reputation, delivery times and customer support.
The Company believes that, due to its organizational structure and proprietary
know-how, it has the ability to develop, produce and to deliver equipment on a
cost-effective basis faster than many of its competitors.
KEY PERSONNEL/EMPLOYEES
The Company operates through a number of subsidiaries, an organizational
structure which the Company believes fosters responsiveness to specific markets
and customers. This structure, however, leaves the Company with less central
control over the operations of its subsidiaries. The Company's success is
dependent upon the continued contributions of its key management personnel,
including the key management at each of its subsidiaries and depends to a
significant extent upon its President and Chief Executive Officer. Many of the
Company's key personnel, particularly the key engineers of its subsidiaries,
would be difficult to replace, and are not subject to employment or non-
competition agreements. The Company's growth and future success will depend in
large part upon its ability to attract and retain highly qualified engineering,
sales and marketing personnel. Competition for such personnel from other
companies, academic institutions, government entities and other organizations
is intense. Although the Company has been successful to date in recruiting and
retaining key personnel, there can be no assurance that the Company will be
successful in attracting and retaining the personnel it requires in order to
continue to grow and operate profitably. Also, there can be no assurance that
management skills which have been appropriate for the Company in the past will
continue to be appropriate if the Company continues to grow and diversify.
At July 31, 1995, the Company had 188 employees, 106 of whom were engaged
in production and production support, 46 in research and development and other
engineering support and 36 in marketing and administrative functions. None of
the employees is represented by a labor union. The Company believes that its
employee relations are good.
ITEM 2. PROPERTIES
The Company's corporate offices are located in a portion of the 46,000
square foot facility on 2 acres of land in Melville, New York which also houses
CMPC and its divisions.
The Company leases this facility in Melville, New York from a partnership
controlled by the Company's Chairman, Chief Executive Officer and President.
The lease, as amended, provides for the Company's exclusive use of the premises
as they now exist for an initial
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term of ten years through December 27, 2001. The Company has the option to
extend the term of the lease for an additional ten-year period and a right of
first refusal in the event of a sale of the facility. The base annual rental
under the lease is subject to adjustments. The Company believes that the terms
of this lease are not less advantageous to the Company than those that would
have been available to the Company from an unrelated party.
The Company leases the 32,000 square foot facility used by CASI and CSI and
the nine and one-half acres of land on which the facility is situated in St.
Cloud, Florida from a Florida land trust, controlled by the Company's Vice
President and Chief Financial Officer. The lease provides for the Company's
exclusive use of the premises as they now exist for a term of ten years through
September 30, 1998. The base annual rental under the lease is subject to
adjustments. The Company believes that the terms of this lease are not less
advantageous to the Company than those that would have been available to the
Company from an unrelated party.
The Company leases a 10,000 sq. ft. building in Tempe, Arizona for its
Comtech Communications Corp. subsidiary. The lease provides for the exclusive
use of the premises as they now exist for a term of five years through February
1999.
The Company also owns an approximately 4,000 square foot facility in
Hauppauge on a one-acre plot of land. This facility currently is used for
general storage.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to certain legal actions which arise out of the
normal course of business. It is management's belief that the outcome of these
actions will not have a material effect on the Company's consolidated financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of the
fiscal year ended July 31, 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market System
under the symbol "CMTL". The following table sets forth the range of high and
low closing sales prices for the Common Stock, as reported by NASDAQ. Such
prices do not include retail markups, markdowns, or commissions.
<TABLE>
<CAPTION>
Common Stock
------------
High Low
---- ---
<S> <C> <C>
FISCAL YEAR ENDING 7-31-94
First Quarter 13 1/2 7 1/4
Second Quarter 9 5
Third Quarter 6 1/8 3 1/2
Fourth Quarter 4 5/8 3 13/64
FISCAL YEAR ENDED 7-31-95
First Quarter 5 3 1/4
Second Quarter 4 2 1/8
Third Quarter 3 5/8 2 1/4
Fourth Quarter 3 3/8 2
FISCAL YEAR ENDING 7-31-96
First Quarter
(through October 17, 1995) 3 1/2 2 1/4
</TABLE>
DIVIDENDS
The Company has never paid a cash dividend on its Common Stock and the
Company's Board of Directors intends to continue this policy for the foreseeable
future. Earnings, if any, will be used to finance the development and expansion
of the Company's business.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
As of October 17, 1995, there were approximately 1,500 holders of the
Company's Common Stock. Such number of record owners was determined from the
Company shareholders' records and does not include beneficial owners of the
Company's Common Stock, held in the names of various security holders, dealers
and clearing agencies.
13
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Earnings per share data presented herein for 1991 has been adjusted
retroactively for the Company's one for five share reverse stock split effected
on January 8, 1991.
<TABLE>
<CAPTION>
Year Ended July 31,
------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales $16,455 $14,873 $22,265 $19,434 $18,333
Costs of sales 12,096 12,226 15,778 13,177 12,567
------- ------- ------- ------- -------
Gross profit 4,359 2,647 6,487 6,257 5,766
Expenses:
Selling, general and
administrative 4,658 4,706 4,420 4,262 4,365
Research and development 1,036 760 314 423 224
------- ------- ------- ------- -------
5,694 5,466 4,734 4,685 4,589
------- ------- ------- ------- -------
Operating earnings (loss) (1,335) (2,819) 1,753 1,572 1,177
Other expenses (income):
Interest expense 341 279 321 233 137
Interest income (171) (253) (47) (77) (597)(1)
Other income (20) - - - -
------- ------- ------- ------- -------
Earnings (loss) before
extraordinary gain and
provision (benefit) for
income taxes (1,485) (2,845) 1,479 1,416 1,637
Provision (benefit) for
income taxes 17 25 45 123 (241)(1)
------- ------- ------- ------- -------
Earnings (loss) before
extraordinary gain (1,502) (2,870) 1,434 1,293 1,878
------- ------- ------- ------- -------
Extraordinary gain - - - - 640(2)
Net earnings (loss) $(1,502) $(2,870) $1,434 $ 1,293 $ 2,518
------- ------- ------- ------- -------
Earnings (loss) per share:
Earnings (loss) before
extraordinary gain $ (.58) $ (1.14) $ 1.07 $ 1.03 $ 1.54
------- ------- ------- ------- -------
Extraordinary gain - - - - .52
------- ------- ------- ------- -------
Net earnings (loss) $ (.58) $ (1.14) $ 1.07 $ 1.03 $ 2.06
------- ------- ------- ------- -------
CONSOLIDATED BALANCE SHEET DATA:
Total assets $16,783 $18,289 $20,397 $16,761 $8,506
Working capital 7,681 9,447 11,988 4,935 4,091
Long-term debt, less
current installments 2,277 2,535 2,760 2,832 697
Stockholders' equity 10,081 11,446 13,214 5,999 4,705
</TABLE>
(1) Reflects $817,000 relating to an income tax refund that was recorded as a
$351,000 reduction of income tax expense and $466,000 of interest income.
(2) Represents an extraordinary gain for the early retirement of debt, net of
applicable income taxes of $46,000, pursuant to which the Company reissued
to Storage Technology Corporation a warrant to purchase 90,000 shares of
Common Stock at $7.50 per share. The warrants expired unexercised in
September 1995.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain income
and expense items expressed as a percentage of the Company's net sales:
<TABLE>
<CAPTION>
Fiscal Year
Ended
July 31,
-----------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross margin 26.5 17.8 29.1
Selling, general and administrative expenses 28.3 31.6 19.9
Research and development expenses 6.3 5.1 1.4
Operating earnings (loss) (8.1) (19.0) 7.9
Interest expense, net (1.0) (.2) (1.2)
Earnings (loss) before income taxes (9.0) (19.1) 6.6
Net earnings (loss) (9.1) (19.3) 6.4
</TABLE>
COMPARISON OF THE FISCAL YEARS 1995 AND 1994
RESULT OF OPERATIONS
NET SALES. Net sales were $16,455,000 and $14,873,000 for the fiscal years
ended July 31, 1995 and 1994, respectively, representing an increase of
$1,582,000 or 11%. This increase was primarily due to an increase in domestic
commercial sales, principally sales at the Comtech Communications Corp.
subsidiary which was formed in February 1994 and commenced significant levels of
shipments of products in the latter part of fiscal 1995. International sales
represented approximately 37% and 39% of total net sales for fiscal 1995 and
1994, respectively. Although the Company has been experiencing delays and
deferrals of orders in the international marketplace, it expects that
international sales will remain a significant proportion of its total sales.
Sales to agencies of the United States Government or to end users of such
agencies ("Government Sales") represented approximately 14% and 17% of total net
sales for fiscal 1995 and 1994, respectively. The Company anticipates that
Government Sales will remain at reduced levels for the foreseeable future due to
the reduction in United States defense spending. Domestic sales are anticipated
to increase due to the expansion of wireless and satellite telecommunications
and microwave electromagnetic compatibility instrumentation.
GROSS MARGIN. Gross profit was $4,359,000 or 26.5% of net sales in fiscal 1995
as compared to $2,647,000 or 17.8% of net sales in fiscal 1994. The lower gross
margins in the fiscal 1994 period were attributable to technical difficulties
experienced with respect to certain projects. Additionally, improved margins
were experienced in fiscal 1995 in system sales and a product mix of equipment
sales.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were $4,658,000 or 28.3% of net sales and $4,706,000 or 31.6% of net
sales in fiscal 1995 and 1994, respectively, representing a modest decline of
approximately 1%. Increased amounts of expenses in these areas at the Comtech
Communications Corp. subsidiary, due to its growth and development, partially
offset the decrease which was realized at the other subsidiaries as a result of
the cost reduction measures we instituted.
15
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expense were $1,036,000 and
$760,000 in fiscal years ended July 31, 1995 and 1994, respectively,
representing an increase of $276,000 or 36%. Research and development expenses
as a percentage of net sales were 6.3% and 5.1% in fiscal 1995 and 1994,
respectively. The increase was due to increased research and development and
product development costs at Comtech Communications Corp. subsidiary.
Whenever possible, the Company seeks customer-funding for research and
development to adapt the Company's products to specialized customer
requirements. During the fiscal years ended July 31, 1995 and 1994, the Company
was reimbursed $382,000, and $178,000, respectively.
OPERATING EARNINGS. As a result of the foregoing factors, the Company had a
operating loss of $1,335,000 in fiscal 1995 as compared to a loss of $2,819,000
in fiscal 1994.
INTEREST EXPENSE. Interest expense was $341,000 and $279,000 in the fiscal
years ended July 31, 1995 and 1994, respectively. Interest expense in both
years was substantially due to interest associated with the Company's capital
lease obligations. There was no borrowing against the Company's bank line of
credit in either year.
INTEREST INCOME. Interest income for the fiscal years ended July 31, 1995 and
1994 was $171,000 and $253,000, respectively. This decrease was due primarily
to the decrease in the amount of cash available to invest in the fiscal 1995
period.
PROVISION FOR INCOME TAXES. The provision for income taxes was $17,000 and
$25,000 in fiscal 1995 and 1994, respectively, which principally relates to
state income taxes. The Company believes its tax benefits are subject to 100%
valuation allowance due to earnings fluctuations inherent in the Company's
operations and the potential limitations on utilization of loss and credit carry
forwards pursuant to Sections 382 and 383 of the Internal Revenue code of 1986.
COMPARISON OF THE FISCAL YEARS 1994 AND 1993
RESULT OF OPERATIONS
NET SALES. Net sales were $14,873,000 and $22,265,000 for the fiscal years
ended July 31, 1994 and 1993, respectively, representing a decrease of
$7,392,000 or 33.2%. This decrease consisted of a decline in International
sales of approximately $7,899,000 and a decrease in Government sales of
$1,526,000 which were partially offset by an increase in domestic Commercial
sales of $2,033,000. International sales represented approximately 39% and 62%
of total net sales for fiscal 1994 and 1993, respectively. Government sales
represented approximately 17% and 18% of the total net sales during such
periods, respectively. Decreased net sales were primarily the result of
decreases in the amount of equipment and systems sold rather than decreased unit
prices.
The Company experienced delays and deferrals of orders, primarily in the
international marketplace, which contributed to the decrease in sales recognized
for fiscal 1994.
16
<PAGE>
GROSS MARGIN. Gross profit was $2,647,000, or 17.8% of net sales in fiscal 1994
as compared to $6,487,000, or 29.1% of net sales in fiscal 1993. The net
decrease in gross margins was partially attributable to previously reported
technical difficulties experienced with respect to certain projects (which have
been resolved), generally lower gross margins on our solid state amplifier
products and lower gross margins on Government Sales.
During the fourth quarter, charges for potential losses on a major project
reduced gross profit by $650,000 inclusive of a $475,000 reserve and a charge to
income of $175,000 due to revisions of profit estimates. These charges
pertained to the Company's inability to achieve anticipated production
efficiencies due to customer requested delivery deferrals.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses were $4,706,000 and $4,420,000 in fiscal 1994 and 1993, respectively,
representing an increase of $286,000, or 6.5%. This increase was primarily
attributable to the expanded efforts in these areas at the Comtech Microwave
Products Corp. SPS division and the initial expenses of the Comtech
Communications Corp. subsidiary.
In general, equipment sales require relatively higher selling, general and
administrative expenses than system sales.
RESEARCH AND DEVELOPMENT. Research and development expense were $760,000 and
$314,000 in fiscal years ended July 31, 1994 and 1993, respectively,
representing an increase of $446,000 or 142%. Research and development expenses
as a percentage of net sales were 5.1% and 1.4% in fiscal 1994 and 1993,
respectively. The increase was due primarily to increased research and
development efforts at the Comtech Microwave Products Corp. SPS division,
general product improvements at Comtech Systems, Inc. and product development
costs associated with the Comtech Communications Corp. subsidiary.
During the fiscal years ended July 31, 1994 and 1993, the Company was
reimbursed $178,000, and $364,000, respectively, by customers for such
activities, representing 1.2% and 1.6% of total sales, respectively.
OPERATING EARNINGS. As a result of the foregoing factors, the Company had a
loss of $2,819,000 in fiscal 1994 as compared to earnings of $1,753,000 in
fiscal 1993.
INTEREST EXPENSE. Interest expense was $279,000 and $321,000 in the fiscal
years ended July 31, 1994 and 1993, respectively. Interest expense incurred in
fiscal 1994 was attributable solely to the Company's capitalized lease
obligations.
INTEREST INCOME. Interest income for the fiscal years ended July 31, 1994 and
1993 was $253,000 and $47,000, respectively. This increase was due primarily to
the increased cash available to invest as a result of our July 1993 public
offering.
PROVISION FOR INCOME TAXES. The provision for income taxes was $25,000 and
$45,000 in fiscal 1994 and 1993, respectively, which principally relates to
state income taxes and a federal provision for alternative minimum taxes. In
1993, the Company was able to use its net operating loss carryforwards for
United States federal income tax purposes. Effective August 1, 1994, the
Company adopted SFAS 109 "Accounting for Income Taxes." The
17
<PAGE>
Company applied the provisions of the statement without restating prior years
financial statements. No benefit was provided for operating losses in fiscal
1994 because they were 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 carry forwards pursuant to Sections 382 and
383 of the Internal Revenue Code of 1986.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents position increased by $1,514,000
from $505,000 at July 31, 1994 to $2,019,000 at July 31, 1995. This increase
resulted from the reduction in investments in marketable securities by
$5,090,000. The additional cash was necessary to fund the Company's working
capital, capital asset purchase requirements and net loss it sustained for the
year.
Operating activities used $2,476,000 in cash. This was the result of the
net loss, an increase in accounts receivable, inventories, prepaid expenses and
other assets, a decrease in accrued expenses and other current liabilities
partially offset by an increase in accounts payable.
Accounts receivable were $4,490,000 at July 31, 1995 as compared to
$3,778,000 at July 31, 1994, net of an allowance for doubtful accounts of
$137,000 in fiscal 1995 and $136,000 in fiscal 1994. Of these amounts,
$3,570,000 and $2,581,000, respectively, represented amounts due from customers
for products and services rendered as of July 31, 1995 and July 31, 1994, and
the balances of $920,000 and $1,197,000, 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 $5,011,000 and $3,891,000, respectively for
fiscal years ended July 31, 1995 and 1994. This increase was primarily due to
the additional inventory required to address the increased backlog at year end.
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 $531,000, primarily as a result of the
increased purchases needed for the higher inventory level.
Investing activities provided $4,544,000 of cash as a result of the
proceeds from the sale of marketable securities partially offset by purchases of
capital equipment. This
18
<PAGE>
equipment was primarily needed by the Comtech Communications Corp. subsidiary as
they continued to develop to the production stage and at the Comtech Microwave
Products Corp. subsidiary to respond to increased operating levels.
Financing activities used $560,000 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 fiscal 1995.
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.
The Company's cash investments consist of highly liquid interest bearing
commercial grade securities and certificates of deposit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report, Consolidated Financial Statements, Notes to
Consolidated Financial Statements and related financial schedules are listed in
the index to Consolidated Financial Statements and Schedules annexed hereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Certain information concerning the directors of the Company is incorporated
by reference to the Proxy Statement of the Company for the Annual Meeting of
Stockholders to be held December 19, 1995 (the "Proxy Statement") which will be
filed with the Securities and Exchange Commission.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------
<TABLE>
<CAPTION>
Director Served as
For Term Director
Name Age Expiring Since Office
- ---- --- -------- --------- ------
<S> <C> <C> <C> <C>
Fred Kornberg 59 1996 1971 Chairman of the Board
Chief Executive
Officer and President
George Bugliarello 68 1998 1977 Director
Richard L. Goldberg 59 1998 1983 Director
Gerard R. Nocita 59 1997 1993 Director
John B. Payne III 60 1997 1993 Director
Sol S. Weiner 76 1996 1980 Director
Richard L. Burt 54 Vice President;
President of Comtech
Systems, Inc.
Glenn Higgins 61 Vice President;
President of Comtech
Antenna Systems, Inc.
Michael D. Javits 58 Vice President;
President of Comtech
Government Systems,
a Division of Comtech
Microwave Products
Corp.
J. Preston Windus, Jr. 52 Vice President, Chief
Financial Officer and
Secretary; President of
Comtech Microwave
Products Corp.
</TABLE>
20
<PAGE>
Mr. Kornberg has been Chief Executive Officer of the Company since 1976 and
President of the Company during the periods 1974 to May 1982 and April 1984 to
the present.
Dr. Bugliarello is Chancellor of Polytechnic University since 1994 and was
President of the University since 1973. He is also a director of Long Island
Lighting Company and Symbol Technologies, Inc.
Mr. Goldberg has been a partner since 1990 in the law firm Proskauer Rose
Goetz & Mendelsohn, attorneys which render legal services to the Company. Prior
to that, Mr. Goldberg was a partner since 1966 of the firm Botein Hays & Sklar.
He is also a director of Anthony Industries, Inc..
Mr. Nocita is presently Treasurer of the Incorporated Village of Patchogue.
Previously, he was affiliated with the Company since its inception in 1967 until
his retirement in 1993. He had been Treasurer of the Company since 1987 and
Vice President and Secretary since 1990.
Mr. Payne has been a founder, Chairman, President and Chief Executive
Officer of Nucomm, Inc. since 1990. From 1973 to 1990, he was a founder,
Chairman, President and Chief Executive Officer of Communication Techniques,
Inc.
Mr. Weiner is President of Sol S. Weiner Investments, Inc. since 1995.
Previously he was Managing Director of Stenhouse, Weiner, Sherman Ltd.,
commodity pool managers, since March 1982. He is also a director of Anthony
Industries, Inc..
Mr. Burt has been President of Comtech Systems, Inc. since 1989 and Vice
President since its founding in 1984. He first joined the Company in 1979 as
Director of Marketing of the Comtech Government Systems Division. He became
Vice President of the Company in 1992.
Mr. Higgins has been President of Comtech Antenna Systems, Inc. since 1989
and Vice President since its acquisition in 1977. He became Vice President of
the Company in 1992.
Mr. Javits has been Vice President of the Company since 1987. He has been
President of Comtech Government Systems Division of Comtech Microwave Products
Corp. subsidiary since 1984 and has been employed by the Company since 1977.
Mr. Windus was appointed Vice President, Chief Financial Officer and
Secretary in September 1993 and President of Comtech Microwave Products Corp. in
1994. He was President and Chief Operating Officer at Fairchild Data
Corporation from 1991 to 1993 and Executive Vice President from 1989 to 1991.
From 1981 to 1989, he was President of Comtech Systems, Inc..
The terms of office of each of the Executive Officers named above runs until the
next Annual Meeting of the Board of Directors or until his successor is elected
and qualified.
21
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by
reference to the Company's Proxy Statement which will be filed with the
Securities and Exchange Commission no more than 120 days after close of its
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management is incorporated by reference to the Company's Proxy Statement
which will be filed with the Securities and Exchange Commission no later than
120 days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
is incorporated by reference to the Company's Proxy Statement which will be
filed with the Securities and Exchange Commission no more than 120 days after
the close of its fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Documents filed as part of this report:
1. and 2. Financial Statements and Financial Statement Schedules
The Financial Statements filed as part of this report are listed in
the accompanying Index to Consolidated Financial Statements and Schedules.
<TABLE>
<CAPTION>
Exhibit Page Incorporated By
Number Description of Exhibit No. Reference to Exhibit
- ------- ---------------------- ---- --------------------
<S> <C> <C> <C>
3(a) Certificate of Incorporation Exhibit 3(a) of the
of the Registrant Registrant's 1987 Form 10-K
3(b) Amendment to the Certificate Exhibit 3(b) to the
of Incorporation affecting Registrant's 1991 Form 10-K
the 5 to 1 reverse stock split
3(c) By-Laws of the Registrant Exhibit 3(c) of the
Registrant's 1987 Form 10-K
3(d) Amendment to the Certificate Exhibit 3(d) to the
of Incorporation increasing Registrant's 1994 Form 10-K
authorized shares to 12 Million
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page Incorporated By
Number Description of Exhibit No. Reference to Exhibit
- ------- ---------------------- ---- --------------------
<S> <C> <C> <C>
10(a) Employment Agreement dated Exhibit 10(b) of the
August 20, 1992 between the Registrant's 1992 Form 10-K
Registrant and Fred Kornberg
10(b) Non-employee Directors' Stock Exhibit 10(t) to the
Option Plan Registrant's 1987 Form 10-K
10(c) 1982 Incentive Stock Option Exhibit A to the Registrant's
and Appreciation Plan Proxy Statement dated
October 29, 1982
10(d) Reissuance of Storage Exhibit 10(i) to the
Technology Corporation's warrant Registrant's 1991 Form
to purchase the Company's common 10-K
stock
10(e) Lease and amendment thereto Exhibit 10(k) to the
on the Melville Facility Registrant's 1992 Form 10-K
10(f) 1993 Incentive Stock Option Plan Appendix A to the
Registrant's Proxy Statement
dated December 3, 1992
10(g) Warrant Agreement dated July 21, Exhibit 4 to Registration
1993 between the Registrant and Statement No. 33-63784
Barington Capital Group, L.P.
10(h) Warrant Agreement dated July 9, Exhibit 4(b) to the
1993 between Registrant and PMCC Registrant's Form 8-K
Acquisition Corp. dated July 9, 1993
10(i) Amendment to the Registrant's Form S-8 filed August 31, 1994
1993 Incentive Stock Option Plan Registration No. 33-83584
10(j) Time Accelerated Restricted Exhibit 10(j) to the
Stock Purchase Agreements Registrant's 1994 Form
between Registrant and 10-K
Principals of Comtech
Communications Corp. subsidiary
21 Subsidiaries of the Company 47
23 Consent of KPMG Peat Marwick LLP 48
</TABLE>
Exhibits to this Annual Report on Form 10-K are available upon request for a fee
to the Company of $25.
23
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of Section 13 or 15 (d) 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.
October 27, 1995 By: s/Fred Kornberg
---------------------------- --------------------------------------
(Date) Fred Kornberg, Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title
--------- -----
10/27/95 s/Fred Kornberg Chairman of the Board
-------- -------------------------- Chief Executive Officer
(Date) Fred Kornberg and Director
(Principal Executive Officer)
10/27/95 s/J. Preston Windus, Jr. Vice President,
-------- --------------------------
(Date) J. Preston Windus, Jr. Chief Financial Officer
and Secretary
10/27/95 s/George Bugliarello Director
-------- --------------------------
(Date) George Bugliarello
10/27/95 s/Richard L. Goldberg Director
-------- --------------------------
(Date) Richard L. Goldberg
10/27/95 s/Gerard R. Nocita Director
-------- --------------------------
(Date) Gerard R. Nocita
10/27/95 s/John B. Payne III Director
-------- --------------------------
(Date) John B. Payne III
10/27/95 s/Sol S. Weiner Director
-------- --------------------------
(Date) Sol S. Weiner
24
<PAGE>
COMTECH TELECOMMUNICATIONS CORP. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Independent Auditors' Reports
Consolidated Financial Statements:
Balance Sheets at July 31, 1995 and 1994
Statements of Operations for each of the years in the three year
period ended July 31, 1995
Statements of Stockholders' Equity for each of the years in the
three year period ended July 31, 1995
Statements of Cash Flows for each of the years in the three year
period ended July 31, 1995
Notes to Consolidated Financial Statements
Additional Financial Information Pursuant to the Requirements of
Form 10-K:
Schedule II - Valuation and Qualifying Accounts and Reserves
Exhibit 11 - Computation of Earnings (Loss) Per Share
Schedules not listed above have been omitted because they are either
not applicable or the required information has been given
elsewhere in the consolidated financial statements or notes
thereto.
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Comtech Telecommunications Corp.:
We have audited the consolidated balance sheets of Comtech
Telecommunications Corp. and subsidiaries as of July 31, 1995 and 1994
and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period
ended July 31, 1995. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement
schedule II as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Comtech Telecommunications Corp. and subsidiaries as of July 31, 1995 and
1994, and the results of their operations and their cash flows for each
of the years in the three-year period ended July 31, 1995 in conformity
with generally accepted accounting principles. Also in our opinion, the
related financial statement schedule II, when considered in relation to
the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in notes to the consolidated financial statements, the
Company adopted the provisions of Statement of Financial Accounting
Standards No.115, "Accounting for Certain Investments in Debt and Equity
Securities" in fiscal 1995 and No.109, "Accounting for Income Taxes" in
fiscal 1994.
KPMG PEAT MARWICK LLP
Jericho, New York
October 18, 1995
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Consolidated Balance Sheets
July 31, 1995 and 1994
<TABLE>
<CAPTION>
Assets 1995 1994
------ ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,019,000 505,000
Restricted cash 25,000 -
Marketable investment securities 275,000 5,365,000
Accounts receivable, less allowance for doubtful
accounts of $137,000 in 1995 and $136,000 in 1994 4,490,000 3,778,000
Inventories, net 5,011,000 3,891,000
Prepaid expenses and other current assets 286,000 216,000
----------- -----------
Total current assets 12,106,000 13,755,000
Property, plant and equipment, net 4,212,000 3,992,000
Other assets 465,000 542,000
------------ -----------
$ 16,783,000 18,289,000
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current installments of long-term debt (including payable to
related party of $319,000 in 1995 and $289,000 in 1994) 591,000 510,000
Notes payable 250,000 250,000
Accounts payable 1,894,000 1,363,000
Accrued expenses and other current liabilities 1,690,000 2,185,000
------------ -----------
Total current liabilities 4,425,000 4,308,000
Long-term debt, less current installments (including payable to
related party of $1,862,000 in 1995 and $2,181,000 in 1994) 2,277,000 2,535,000
------------ -----------
Total liabilities 6,702,000 6,843,000
------------ -----------
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
in 1995 and 1994 261,000 261,000
Additional paid-in capital 22,230,000 22,230,000
Accumulated deficit (11,671,000) (10,169,000)
------------ -----------
10,820,000 12,322,000
Less:
-----
Treasury stock (15,000 shares in 1995 and 1994) (180,000) (180,000)
Deferred compensation (553,000) (696,000)
Unrealized loss on securities (6,000) -
------------ -----------
10,081,000 11,446,000
------------ -----------
Commitments and contingencies
$ 16,783,000 18,289,000
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended July 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $16,455,000 14,873,000 22,265,000
----------- ---------- ----------
Costs and expenses:
Cost of sales 12,096,000 12,226,000 15,778,000
Selling, general and administrative 4,658,000 4,706,000 4,420,000
Research and development 1,036,000 760,000 314,000
----------- ---------- ----------
17,790,000 17,692,000 20,512,000
----------- ---------- ----------
Operating (loss) income (1,335,000) (2,819,000) 1,753,000
Other expenses (income):
Interest expense 341,000 279,000 321,000
Interest income (171,000) (253,000) (47,000)
Other (20,000) - -
----------- ---------- ----------
(Loss) income before provision for income taxes (1,485,000) (2,845,000) 1,479,000
Provision for income taxes 17,000 25,000 45,000
----------- ---------- ----------
Net (loss) income $(1,502,000) (2,870,000) 1,434,000
=========== ========== ==========
Net (loss) income per share $ (.58) (1.14) 1.07
=========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding 2,590,000 2,519,000 1,346,000
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended July 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Common stock Additional Treasury stock Deferred Stock-
------------------- paid-in Accumulated ----------------- compen- holders'
Shares Amount capital deficit Shares Amount sation Other equity
--------- -------- ----------- ------------ ------ --------- --------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance July 31, 1992 1,235,844 $124,000 $14,788,000 $ (8,733,000) 15,000 $(180,000) $ - $ - $ 5,999,000
Shares issued in
connection with public
offering of common
stock 1,000,000 100,000 5,557,000 - - - - - 5,657,000
Warrants issued in
connection with
settlement of Premier
litigation - - 50,000 - - - - - 50,000
Restricted shares issued
pursuant to employment
agreement 50,000 5,000 207,000 - - - (187,000) - 25,000
Amortization of deferred
compensation - - - - - - 34,000 - 34,000
Shares issued in
connection with
stock option
agreements 6,300 - 15,000 - - - - - 15,000
Net income - - - 1,434,000 - - - - 1,434,000
--------- -------- ----------- ------------ ------ --------- --------- ------- -----------
Balance July 31, 1993 2,292,144 229,000 20,617,000 (7,299,000) 15,000 (180,000) (153,000) - 13,214,000
Shares issued in
connection with
stock option
agreements 43,200 5,000 112,000 - - - - - 117,000
Shares issued in
connection with
public offering of
common stock 150,000 15,000 868,000 - - - - - 883,000
Restricted shares issued
pursuant to
employee stock award
agreements 120,000 12,000 633,000 - - - (633,000) - 12,000
Amortization of deferred
compensation - - - - - - 90,000 - 90,000
Net loss - - - (2,870,000) - - - - (2,870,000)
--------- -------- ----------- ------------ ------ --------- --------- ------- -----------
Balance July 31, 1994 2,605,344 261,000 22,230,000 (10,169,000) 15,000 (180,000) (696,000) - 11,446,000
Amortization of deferred
compensation - - - - - - 143,000 - 143,000
Unrealized loss on
securities - - - - - - - (6,000) (6,000)
Net loss - - - (1,502,000) - - - - (1,502,000)
--------- -------- ----------- ------------ ------ --------- --------- ------- -----------
Balance July 31, 1995 2,605,344 $261,000 $22,230,000 $(11,671,000) 15,000 $(180,000) $(553,000) $(6,000) $10,081,000
========= ======== =========== ============ ====== ========= ========= ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended July 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(1,502,000) (2,870,000) 1,434,000
Adjustments to reconcile net (loss) income to net cash (used
in) provided by in operating activities:
Depreciation and amortization 798,000 686,000 591,000
Provision for (recovery of) bad debts, net 25,000 - (16,000)
Provision for (reduction of) inventory reserves and
anticipated losses on contracts (6,000) 468,000 (510,000)
Amortization of deferred compensation 143,000 90,000 34,000
Issuance of warrants in connection with settlement of
Premier litigation - - 50,000
Changes in assets and liabilities:
Restricted cash securing letter of credit obligations (25,000) - 1,036,000
Accounts receivable (737,000) 916,000 3,128,000
Inventories (1,126,000) (1,148,000) 301,000
Prepaid expenses and other current assets (70,000) (51,000) (62,000)
Other assets - (489,000) 14,000
Accounts payable 531,000 (974,000) (912,000)
Accrued expenses and other current liabilities (495,000) 564,000 (2,200,000)
----------- ---------- ----------
Net cash (used in) provided by
operating activities (2,464,000) (2,808,000) 2,888,000
----------- ---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (546,000) (291,000) (346,000)
Net (purchases) proceeds of sale of marketable investment
securities 5,084,000 (5,365,000) -
----------- ---------- ----------
Net cash provided by (used in)
investing activities 4,538,000 (5,656,000) (346,000)
----------- ---------- ----------
Cash flows from financing activities:
Borrowings under line of credit facility - - 1,700,000
Repayments of borrowings under line of credit facility - - (1,700,000)
Principal payments on long-term debt (560,000) (334,000) (346,000)
Proceeds from issuance of common stock:
Public offering - - 5,657,000
Exercise of underwriters allotment - 883,000 -
Stock options - 117,000 15,000
Restricted stock - 12,000 25,000
----------- ---------- ----------
Net cash (used in) provided by
financing activities (560,000) 678,000 5,351,000
----------- ---------- ----------
</TABLE>
(Continued)
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- ---------
<S> <C> <C> <C>
Net increase (decrease) in cash and cash equivalents $1,514,000 (7,786,000) 7,893,000
Cash and cash equivalents at beginning of period 505,000 8,291,000 398,000
---------- ---------- ---------
Cash and cash equivalents at end of period $2,019,000 505,000 8,291,000
========== ========== =========
Supplemental cash flow disclosure
- ---------------------------------
Cash paid during the period for:
Interest $ 341,000 279,000 321,000
========== ========== =========
Income taxes $ 17,000 13,000 125,000
========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 31, 1995 and 1994
(1) Summary of Significant Accounting and Reporting Policies
--------------------------------------------------------
(a) Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
Comtech Telecommunications Corp. and its subsidiaries (the Company), all of
which are wholly-owned. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Nature of Business
------------------
The Company is engaged in the design, development, manufacture and
installation, for commercial and government applications, of high
technology communications and radio frequency amplifier equipment.
(c) Revenue Recognition
-------------------
Sales on long-term, fixed price contracts, including pro-rata profits, are
generally recorded based on the relationship of total costs incurred to
date to total projected final costs or, alternatively, as progress billings
or deliveries are made. Sales under cost reimbursement contracts are
recorded as costs are incurred.
Sales on other contract orders are recognized under the units of delivery
method. Under this method, sales are recorded as units are delivered with
the related cost of sales recognized on each shipment based upon a
percentage of estimated final contract costs. Contract costs include
material, direct labor, manufacturing overhead and other direct costs.
Retainages and estimated earnings in excess of amounts billed on certain
multi-year programs are reported as unbilled receivables.
Sales not associated with long-term contracts are generally recognized when
the earnings process is complete, generally upon shipment or customer
acceptance.
Provision for anticipated losses on uncompleted contracts are made in the
period in which such losses are determined.
(d) Cash and Cash Equivalents
-------------------------
Cash equivalents consist of highly liquid direct obligations of the United
States government with a maturity at acquisition of three months or less.
These investments are carried at cost plus accrued interest, which
approximates market. At July 31, 1995, the Company had $25,000 of
restricted cash securing letter of credit obligations with a financial
institution.
(e) Statement of Cash Flows
-----------------------
The Company acquired equipment financed by capital leases in the amounts of
$383,000, $204,000 and $349,000 in 1995, 1994 and 1993, respectively. In
January 1994, the Company issued a $250,000 note payable in connection with
the purchase of equipment and an intellectual property rights agreement.
In July 1993, the Company issued a warrant to purchase up to 100,000 shares
of common stock in connection with the settlement of the Premier Microwave
litigation (note 13(c)).
(Continued)
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(f) Marketable Investment Securities
--------------------------------
The Company adopted the provisions of Statement of Financial Accounting
Standards No.115 "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS No.115) effective August 1, 1994 and the cumulative
effect of this change was immaterial. Under SFAS No.115, the Company
classifies its investments in debt and equity securities as available-for-
sale. Accordingly, these investments are reported at fair value with
unrealized holding gains and losses excluded from earnings and reported as
a separate component of stockholders' equity, net of tax. Classification
of investments is determined at acquisition and reassessed at each
reporting date. Realized gains and losses are included in the
determination of net earnings at the time of sale and are derived using the
specific identification method for determining cost of securities sold.
Prior to fiscal year 1995, marketable securities were stated at the lower of
aggregate cost or market.
(g) Inventories
-----------
Work in process inventory reflects all accumulated production costs, which
are comprised of direct production costs and overhead, reduced by amounts
attributable to units delivered. These inventories are reduced to their
estimated net realizable value by a charge to cost of sales in the period
such excess costs are determined.
Raw materials and components and work-in-process inventory associated with
short-term contracts and purchase orders are stated at the lower of cost or
market, computed on the first-in, first-out (FIFO) method.
(h) Depreciation and Amortization
-----------------------------
The Company's plant and equipment, recorded at cost, are depreciated or
amortized over their estimated useful lives (building and improvements - 40
years, equipment - three to eight years) under the straight line method.
Capitalized values of properties under leases are amortized over the life
of the lease or the estimated life of the asset, whichever is less.
(i) Other Assets
------------
Included in other assets at July 31, 1995 and 1994 is approximately $335,000
relating to an intellectual property rights agreement, which is being
amortized over the eight year term of the agreement. At July 31, 1995 and
1994, accumulated amortization related to this purchased technology were
approximately $58,000 and $15,000, respectively. The Company assesses the
recoverability of the intangible asset by determining whether the
amortization of purchased technology over its remaining life can be
recovered through undiscounted future operating cash flows from product
sales utilizing the technology.
(j) Research and Development Costs
-------------------------------
The Company charges research and development costs to operations as incurred,
except in those cases in which such costs are reimbursable under customer-
funded contracts.
(Continued)
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(k) Income Taxes
------------
Effective August 1, 1993, the Company adopted the provisions of Statement of
Financial Accounting Standards No.109 "Accounting for Income Taxes" (SFAS
109) and the cumulative effect of that change in the method of accounting
for income taxes was immaterial. Under the asset and liability method of
SFAS 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be realized or settled.
Under SFAS 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
The Company previously used the asset and liability method under Statement
96. Under the asset and liability method of Statement 96, deferred tax
assets and liabilities were recognized for all events that had been
recognized in the financial statements. Under Statement 96, the future tax
consequences of the recovering assets or settling liabilities at their
financial statement carrying amounts were considered in calculating
deferred taxes. Generally, Statement 96 prohibited consideration of any
other future events in calculating deferred taxes.
(l) Net (loss) Income Per Share
---------------------------
Net (loss) income per share are based on the weighted average number of
common and common equivalent shares (if dilutive) outstanding during each
year. Fully diluted per share information has been omitted because it does
not differ materially from primary (loss) income per share.
(2) Marketable Investment Securities
--------------------------------
As discussed in note 1, the Company adopted the provisions of SFAS No.115
effective August 1, 1994 and the cumulative effect of this change in the
method of accounting for certain investments in debt and equity securities,
net of income taxes was immaterial.
The following table presents the amortized cost, gross unrealized losses and
fair value of the investments available-for-sale as of July 31, 1995:
<TABLE>
<CAPTION>
Gross
Amortized Unrealized Fair
cost losses value
--------- ---------- -------
<S> <C> <C> <C>
Commercial debt obligations $281,000 6,000 275,000
======== ===== =======
</TABLE>
At July 31, 1994, marketable securities were comprised principally of
commercial debt obligations and obligations of the United States Treasury.
Marketable securities were carried at cost.
(Continued)
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Accounts Receivable
-------------------
Accounts receivable consist of the following at July 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Accounts receivable from commercial customers $3,368,000 2,386,000
Unbilled receivables (including retainages) on
contracts-in-progress 920,000 1,197,000
Amounts receivable from the United States
Government and its agencies 339,000 331,000
---------- ---------
4,627,000 3,914,000
Less allowance for doubtful accounts 137,000 136,000
---------- ---------
Accounts receivable, net $4,490,000 3,778,000
========== =========
</TABLE>
Substantially all of the unbilled balances will be billed and collected
during fiscal 1996.
(4) Inventories
-----------
Inventories consist of the following at July 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Raw materials and components $1,437,000 711,000
Work-in-process 4,234,000 4,079,000
---------- ---------
5,671,000 4,790,000
Less:
Progress payments 93,000 321,000
Provision for anticipated losses on
contracts and inventory reserves 567,000 578,000
---------- ---------
Inventories, net $5,011,000 3,891,000
========== =========
</TABLE>
(5) Property, Plant and Equipment
-----------------------------
Property, plant and equipment consists of the following:
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Land $ 40,000 40,000
Buildings and improvements 320,000 320,000
Equipment 7,383,000 6,840,000
Leasehold improvements 285,000 272,000
Facilities financed by capital lease 3,365,000 3,365,000
Equipment financed by capital lease 2,246,000 1,873,000
----------- ----------
13,639,000 12,710,000
Less accumulated depreciation and amortization 9,427,000 8,718,000
----------- ----------
$ 4,212,000 3,992,000
=========== ==========
</TABLE>
Depreciation and amortization expense on property, plant and equipment
amounted to approximately $709,000, $665,000 and $591,000 for the years
ended July 31, 1995, 1994 and 1993, respectively.
(6) Accrued Expenses and Other Current Liabilities
----------------------------------------------
Accrued expenses and other current liabilities consist of the following at
July 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Customer advances and deposits $ 321,000 243,000
Accrued wages and benefits 461,000 489,000
Accrued commissions 401,000 904,000
Other 507,000 549,000
---------- ---------
$1,690,000 2,185,000
========== =========
</TABLE>
(7) Note Payable
------------
The Company has a $250,000 note payable which matured in fiscal year 1995
related to an asset acquisition agreement. The Company and the note holder
are in discussions regarding settlement of the note payable. In the
opinion of management, the final settlement discussions will not result in
a settlement more than the amount provided for in the accompanying
consolidated financial statements.
(8) Short-Term Borrowings
---------------------
The Company has a $4,500,000 secured line of credit facility with a financial
institution which expires on January 31, 1995. Borrowings under the
facility will be secured by collateral satisfactory to the financial
institution and will bear interest at 1% above the prime rate, as defined.
At July 31, 1995, the interest rate for the facility was 9.75% and there
were no direct borrowings outstanding.
(9) Long-Term Debt
--------------
Long-term debt consists of the following at July 31, 1995 and 1994:
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Obligations under capital leases $2,868,000 3,045,000
Less current installments 591,000 510,000
---------- ---------
$2,277,000 2,535,000
========== =========
</TABLE>
The obligations under capital leases relate to the St. Cloud, Florida and
Melville, New York facilities, as well as certain equipment, the net
carrying value of which was $2,759,000 at July 31, 1995.
Future minimum lease payments under capital leases as of July 31, 1995 are:
<TABLE>
<CAPTION>
Years ending July 31,:
<S> <C>
1996 $ 836,000
1997 747,000
1998 629,000
1999 497,000
2000 399,000
Thereafter 538,000
----------
Total minimum lease payments 3,646,000
Less amounts representing interest
(at rates varying from 6.8% to 10.8%) 778,000
----------
2,868,000
Less current installments 591,000
----------
Obligations under capital leases, net
of current installments $2,277,000
==========
</TABLE>
In September 1988, the Company sold and simultaneously leased back its St.
Cloud, Florida facility for $600,000, comprised of $450,000 in cash and a
$150,000 interest-bearing note payable. The buyer/ lessor is a partnership
in which one of the Company's officers is a general partner. The $150,000
note provided for a five-year term with semi-annual installments of
principal and interest, which was satisfied at July 31, 1993. The lease is
for a ten-year period and provides for annual rentals of approximately
$177,000 for fiscal 1995, subject to annual adjustment. For financial
reporting purposes, the Company has capitalized this lease at inception in
the amount of $840,000, net of deferred interest of $492,000. The
outstanding balance at July 31, 1995 and 1994 approximated $360,000 and
$453,000, respectively.
In December 1991, the Company and a partnership controlled by the Company's
Chairman and Chief Executive Officer entered into an agreement in which the
Company leases from the partnership its corporate headquarters and Melville
production facility. The lease is for a ten-year period and provides for
annual rentals of approximately $403,000 for fiscal 1995 subject to annual
adjustments equal to the lesser of 5% or the change in the Consumer Price
Index. For financial reporting
(Continued)
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
purposes, the Company has capitalized this lease at inception in the amount
of $2,450,000, net of deferred interest of $1,345,000. The outstanding
balance at July 31, 1995 and 1994 approximated $1,821,000 and $2,018,000,
respectively.
(10) Income Taxes
------------
As discussed in note 1, the Company adopted SFAS 109 as of August 1, 1993.
The cumulative effect of this change in accounting for income taxes is not
material and is not reported separately in the consolidated statement of
operations for the year ended July 31, 1994. Fiscal 1993 financial
statements have not been restated to apply the provisions of SFAS 109. The
provision for income taxes included in the accompanying consolidated
statements of operations consists of the following:
<TABLE>
<CAPTION>
Year ended July 31,
-----------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Federal $ - - 8,000
State and local 17,000 25,000 37,000
------- ------ ------
$17,000 25,000 45,000
======= ====== ======
</TABLE>
The provision for income taxes was $17,000, $25,000 and $45,000 for fiscal
1995, 1994 and 1993, respectively and differed from the amounts computed by
applying the U.S. Federal income tax rate of 34 percent as a result of the
following:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ----------- ----------
Amount Rate Amount Rate Amount Rate
---------- ----- ----------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax
(recovery) expense $(505,000) 34.0% $ (976,000) (34.0)% $ 503,000 34.0%
Increase (reduction) in income
taxes resulting from:
Change in the beginning
of the year valuation
allowance for deferred
tax assets allocated for
income tax expense 507,000 34.1 1,018,000 35.5 - -
Utilization of tax benefit
carryforward - - - - (482,000) (32.6)
State and local income tax,
net of Federal benefit 17,000 - 25,000 - 24,000 1.6
Other (2,000) - (42,000) - - -
--------- ---- ---------- ------ --------- -----
Effective tax rate $ 17,000 -% $ 25,000 -% $ 45,000 3.0%
========= ==== ========== ====== ========= =====
</TABLE>
(Continued)
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at July 31, 1995 and 1994 are presented
below. There are no temporary differences that give rise to deferred tax
liabilities.
<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts receivable $ 47,000 47,000
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the Tax
Reform Act of 1986 452,000 372,000
Plant and equipment, principally due to capitalized
interest and differences in depreciation 186,000 202,000
Compensated absences, principally due to accrual
for financial reporting purposes 195,000 168,000
Deferred compensation 94,000 44,000
Net operating loss carryforwards 4,294,000 3,928,000
Investment tax credit carryforwards 440,000 440,000
Alternative minimum tax credit carryforwards 87,000 87,000
----------- ----------
Total gross deferred tax assets 5,795,000 5,288,000
Less valuation allowance (5,795,000) (5,288,000)
----------- ----------
Net deferred tax assets $ - -
=========== ==========
</TABLE>
The valuation allowance for deferred tax assets as of August 1, 1994 was
$5,288,000. The change in the total valuation allowance for the year ended
July 31, 1995 was $507,000. 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 be not 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 year ended July 31, 1995 was approximately $1,100,000.
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.
In accordance with Section 382 of the Internal Revenue Code of 1986, as
amended and Section 383 of the Code, a change in more than 50% in the
beneficial ownership of the Company within a three-year period (an
Ownership Change) will place an annual limitation on the Company's ability
to utilize its existing NOL and general business tax credit carryforwards
(together, the Carryforwards) to offset United States Federal taxable
income in the current and future years. The Company does not believe that
an Ownership Change has occurred due to changes in the beneficial ownership
of the Company's common stock in the current three-year testing period
immediately prior to the completion in July 1993 of the Company's common
stock offering (the Offering).
(Continued)
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Stockholders' Equity
--------------------
(a) Option and Warrant Plans and Agreements
---------------------------------------
The Company has several option and warrant plans and agreements.
1982 Incentive Stock Option Plan - The 1982 Incentive Stock Option and
--------------------------------
Appreciation Plan provided for the granting to key employees and officers
of incentive stock options to purchase up to 160,000 shares of the
Company's common stock through September 29, 1992 at prices not less than
the fair market value of such shares on the date the option is granted.
1993 Incentive Stock Option Plan - On January 20, 1993, the stockholders of
--------------------------------
the Company ratified the adoption of the 1993 Incentive Stock Option Plan
("the Plan"). The Plan is intended to replace the 1982 Incentive Stock
Option Plan which expired on September 29, 1992, but options granted under
the 1982 Plan to purchase an aggregate of approximately 95,420 shares of
common stock remain outstanding. 125,000 shares of common stock were
originally reserved for issuance under the 1993 Plan.
Pursuant to a January 1994 Plan amendment, the number of shares that may be
granted was increased to 245,000 shares. In addition, the Plan was amended
to provide formula grants to non-employee members of the Board of
Directors. Both incentive and non-qualified stock options may be granted
under the Plan. The term of the options may be no more than ten years
except for incentive stock options granted to any employee who, prior to
the granting of the option, owns stock representing more than 10% of the
voting power, for whom the option term may be no more than five years. The
exercise price for incentive stock options can generally be no less than
the fair market value at the date of grant, with the exception of any
employee who, prior to the granting of the option, owns stock representing
more than 10% of the voting power, as to whom the exercise price cannot be
less than 110% of the fair market value of the Company's common stock at
the date of grant. The Plan expires in 2002, unless terminated earlier by
the Board of Directors under conditions specified in the Plan.
As of July 31, 1995, the Company had granted incentive stock options
representing the right to purchase an aggregate of 126,660 shares at prices
ranging between $2.25-$9.13 per share, of which 22,900 options were
canceled and 103,760 are outstanding. The options are exercisable ratably
over a five-year period commencing one year from the dates of grant.
Directors' Option Plan - The 1987 Directors' Stock Option Plan provides for
----------------------
the granting of options to purchase up to 2,000 shares to each of the
Company's four outside directors at an option price of not less than the
fair market price per share at the date of grant. Options become
exercisable at the rate of 20 percent per year commencing one year from the
date of grant. At July 31, 1995, options to purchase 6,000 shares of the
Company's common stock are outstanding.
Warrant Held by Storage Technology Corp. (STC) - STC held a warrant, pursuant
----------------------------------------------
to a debt agreement, to purchase 90,000 shares of the Company's common
stock at an exercise price of $10.00 per share through March 8, 1990. No
portion of this warrant was exercised. In September 1990, STC agreed to
accept a cash payment of $708,000, including accrued interest of $22,000,
in full satisfaction of the outstanding principal balance of approximately
$1,372,000. As part of the settlement, the Company agreed to reissue a
warrant which provides for the purchase of up to 90,000 shares of the
Company's common stock for $7.50 per share. The warrant was not exercised
and expired on September 26, 1995.
(Continued)
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Warrant Issued to PMCC Acquisition Corp. - Pursuant to a settlement of the
----------------------------------------
litigation arising from the sale of the Company's former Premier Microwave
Division (see note 13 (c)), the Company issued to PMCC Acquisition
Corporation a warrant to purchase 100,000 shares of the Company's common
stock at an exercise price of $8.40. For financial reporting purposes,
this warrant was valued at $50,000. The warrants are exercisable for a
period of five years, commencing August 1, 1993 and shares purchased
through the exercise of this warrant contain both voting and
transferability restrictions.
Underwriter Warrants - Pursuant to the Company's common stock offering
--------------------
completed in July 1993 (note 11(d)), the Underwriter received warrants to
purchase 100,000 shares of common stock at a price of 140% of the offering
price, or $9.80, for a term of four years beginning on July 14, 1994.
(b) Option and Warrant Activity
---------------------------
The following table sets forth summarized information concerning the
Company's stock options and warrants:
<TABLE>
<CAPTION>
Number Option price
of shares range per share
--------- ---------------
<S> <C> <C>
Outstanding at July 31, 1992 246,220 2.20-7.95
Granted 236,680 4.13-9.80
Expired/canceled (19,060) 3.15-4.25
Exercised (6,300) 2.35-4.70
-------
Outstanding at July 31, 1993 457,540 2.20-9.80
Granted 54,500 4.25-9.13
Expired/canceled (11,080) 2.20-7.95
Exercised (43,200) 2.20-6.13
-------
Outstanding at July 31, 1994 457,760 2.35-9.80
Granted 43,460 2.25-2.63
Expired/canceled (6,040) 4.13-7.95
Exercised - -
-------
Outstanding at July 31, 1995 495,180 2.25-9.80
=======
Options/warrants exercisable at
July 31, 1995 408,272 2.35-7.95
=======
Options/warrants available for
grant at July 31, 1995 148,780
=======
</TABLE>
(c) Restricted Common Stock
-----------------------
As part of an amended and restated employment agreement dated August 20,
1992, the Company sold 50,000 shares of its common stock, par value $.10
per share, to its president and chief executive
(Continued)
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
officer at a purchase price of $.50 per share, which was ratified by the
stockholders. The market value of the Company's common stock at the date
of grant was $4.25 per share. The employment agreement requires the
forfeiture of these shares, if the recipient leaves the employ of the
Company, as defined in the agreement, prior to August 31, 1997.
In February 1994, a total of 120,000 restricted shares of the Company's
common stock were granted by the Board of Directors to the principal
officers of the Company's subsidiary, CCC, at a cost of $.10 per share.
The award relates to services to be provided over future years and, as a
result, the stock awards are subject to certain restrictions which may be
removed earlier upon CCC attaining certain business plan milestones, as
provided in the agreement, but no later than ten years from the date of the
award. The excess of market value over cost of the shares awarded of
$633,000 was recorded as deferred compensation and is being amortized to
expense over a ten year period subject to the aforementioned accelerated
provisions, if appropriate, as evaluated on an annual basis. The deferred
compensation is reflected as a reduction of stockholder's equity in the
accompanying balance sheets.
(d) Common Stock Offering
---------------------
In July 1993, the Company completed a public offering of its common stock in
which it sold 1,000,000 shares at an offering price of $7.00 per share.
The net proceeds from the offering, after deducting Underwriter's
commissions and other expenses of approximately $1,343,000, were
$5,657,000.
In August 1993, the Underwriter exercised its overallotment option to
purchase an additional 150,000 shares of common stock at the offering
price, less the underwriting discounts and commissions, which resulted in
additional proceeds to the Company of $883,000.
(12) Segment and Principal Customer Information
------------------------------------------
For the purposes of segment reporting, management considers Comtech to
operate in one industry, the communications equipment industry.
In fiscal 1995, there were no sales to any one foreign or domestic customer
which amounted to over 10% of the consolidated net sales. During fiscal
1994, sales to one foreign customer amounted to $3,410,000 or 23% of
consolidated net sales. During fiscal 1993, sales to two foreign customers
amounted to $4,035,000 and $2,520,000 or 18% and 11% of consolidated net
sales, respectively. During the fiscal years ended July 31, 1995, 1994 and
1993, approximately 14%, 17% and 18%, respectively, of the Company's net
sales resulted from contracts with the United States government and its
agencies. Export sales comprised 37%, 39% and 62% of net sales in fiscal
1995, 1994 and 1993, respectively.
(13) Commitments and Contingencies
-----------------------------
(a) Operating Leases
----------------
The Company is obligated under noncancellable operating lease agreements. At
July 31, 1995, the future minimum lease payments under operating leases are
as follows:
<PAGE>
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
<TABLE>
<S> <C>
1996 $113,000
1997 70,000
1998 13,000
1999 -
2000 -
Thereafter -
--------
$196,000
========
</TABLE>
Lease expense charged to operations was $126,000, $90,000 and $40,000 in
fiscal 1995, 1994 and 1993, respectively.
(b) United States Government Contracts
----------------------------------
Certain of the Company's contracts are subject to audit by applicable
governmental agencies. Until such audits are completed, the ultimate
profit on these contracts cannot be determined; however, it is management's
belief that the final contract settlements will not have a material adverse
effect on the Company's consolidated financial condition.
(c) Litigation
----------
The Company is subject to certain legal actions which arise out of the normal
course of business. It is management's belief that outcome of these
actions will not have a material adverse effect on the Company's
consolidated financial position.
In July 1993, the Company, its Chairman, Chief Executive Officer and
President, and former auditors settled a litigation arising from the sale
of the Company's former Premier Microwave Division (Premier). The
plaintiffs had alleged, among other charges, fraud, misrepresentation and
breach of contract relating to the acquisition of Premier and sought
compensatory and punitive damages in excess of $10,000,000. Pursuant to
the settlement agreement, among other things, the parties exchanged
releases and the Company paid $51,000 to PMCC Acquisition Corporation
(PMCC), canceled PMCC's promissory note to the Company in the principal
amount of $1,000,000, plus accrued interest of $418,000 (which amounts had
been fully reserved by the Company), and issued to PMCC a warrant to
purchase up to 100,000 shares of Common Stock (note 11(a)). For financial
reporting purposes, this warrant was valued at $50,000.
<PAGE>
Schedule II
-----------
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years ended July 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- ----------- --------------------------- ------------ ----------
Additions
---------------------------
(1) (2)
Charged to
Balance at Charged to other Transfers Balance at
beginning cost and accounts - (deductions) end of
Description of period expenses describe describe period
----------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts -
accounts receivable:
Year ended July 31,:
1995 $ 136,000 25,000 (E) - (24,000)(F) 137,000
1994 136,000 - - - 136,000
1993 152,000 (16,000)(D) - - 136,000
Allowance for notes and interest
receivable:
Year ended July 31,:
1995 - - - - -
1994 - - - - -
1993 1,340,000 - - (1,340,000)(A) -
Inventory reserves:
Year ended July 31,:
1995 578,000 (11,000)(C) - - 567,000
1994 110,000 468,000 (B) - - 578,000
1993 620,000 (510,000)(C) - - 110,000
</TABLE>
(A) Settlement of Premier litigation including write-off of note and related
accrued interest.
(B) Increase in reserves for contract and other adjustments.
(C) Reduction of excess reserves for contract and other adjustments.
(D) Reduction of excess allowance for doubtful accounts.
(E) Increase of allowance for doubtful accounts.
(F) Write-off of uncollectible receivables.
<PAGE>
EXHIBIT 11
COMTECH TELECOMMUNICATIONS CORP.
AND SUBSIDIARIES
Computation of Net (loss) Income Per Share
Years ended July 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Year ended July 31,
-------------------------------------
1995 1994 1993
------------ ----------- ----------
<S> <C> <C> <C>
Net (loss) income $(1,502,000) (2,870,000) 1,434,000
=========== ========== =========
Computation of weighted average number of
common and common equivalent shares out-
standing during the period:
Weighted average number of common shares 2,605,000 2,534,000 1,312,000
Weighted average shares assumed to be issued
upon exercise of common stock options - - 49,000
Less treasury stock (15,000) (15,000) (15,000)
----------- ---------- ---------
Weighted average number of common and
common equivalent shares outstanding
during the period 2,590,000 2,519,000 1,346,000
=========== ========== =========
Net (loss) income per share $ (.58) (1.14) 1.07
=========== ========== =========
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES
------------
The following is a list of the active subsidiaries of the Company as of October
27, 1995:
Subsidiary State of Incorporation
---------- ----------------------
Comtech Microwave Products Corp. New York
Comtech Systems, Inc. Delaware
Comtech Antenna Systems, Inc. Delaware
Comtech Communications Corp. Delaware
47
<PAGE>
EXHIBIT 23
[LOGO] KPMG Peat Marwick LLP
Independent Auditors' Consent
-----------------------------
The Board of Directors
Comtech Telecommunications Corp.:
We consent to incorporation by reference in the Registration Statement
(No.2-89857) on Form S-8 of Comtech Telecommunications Corp. of our report dated
October 18, 1995, relating to the consolidated balance sheets of Comtech
Telecommunications Corp. and subsidiaries as of July 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows and related schedule II for each of the years in the three-year period
ended July 31, 1995, which report appears in the July 31, 1995 annual report on
Form 10-K of Comtech Telecommunications Corp. and subsidiaries. Our report
refers to a change in the method of accounting to adopt the provisions of
Statement of Financial Accounting Standards No.115, "Accounting for Certain
Investments in Debt and Equity Securities" in fiscal 1995 and No.109,
"Accounting for Taxes" in fiscal 1994.
KPMG PEAT MARWICK LLP
Jericho, New York
October 27, 1995
48
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS FORM 10-K, JULY 31, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 2,044
<SECURITIES> 275
<RECEIVABLES> 4,627
<ALLOWANCES> 137
<INVENTORY> 5,011
<CURRENT-ASSETS> 12,106
<PP&E> 13,639
<DEPRECIATION> 9,427
<TOTAL-ASSETS> 16,783
<CURRENT-LIABILITIES> 4,425
<BONDS> 0
<COMMON> 261
0
0
<OTHER-SE> 9,820
<TOTAL-LIABILITY-AND-EQUITY> 16,783
<SALES> 16,455
<TOTAL-REVENUES> 16,455
<CGS> 12,096
<TOTAL-COSTS> 17,790
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 341
<INCOME-PRETAX> (1,485)
<INCOME-TAX> 17
<INCOME-CONTINUING> (1,502)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,502)
<EPS-PRIMARY> (.58)
<EPS-DILUTED> (.58)
</TABLE>
